China Takes Over IFC: A Silent Coup? – Analysis


By Kandaswami Subramanian

What has happened at the International Finance Corporation (IFC) is a silent coup which has not been much publicized in the media of emerging economies like India. On 10th August, President Jim Yong Kim of the World Bank announced that Cai Jinyong, a Chinese national, has been appointed as the new executive Vice President and CEO of the IFC. The announcement sounded so routine resembling one of those corporate announcements in New York.

IFC is one of the funding triumvirates of the World Bank Group. The other two, more known, are the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) aka the World Bank (WB). The President of the WB is the President of the IFC. Its management and operational duties devolve on the executive Vice President and CEO.

People's Republic of China
People’s Republic of China

The IFC has 182 members on date with a capital base of $2.4 billion. Only members of the WB may be members of the IFC. Seven of the major economies of the OECD hold 51 percent of the equity. The IFC established in 1956 is the private sector arm of the WB Group and has been promoting unabashedly the growth of the private sector in developing countries. Rather, it is done to fulfill the laudable mandate of the World Bank Group, viz. alleviating poverty in developing countries!

The IFC has been an influential agency in recent years and extended its reach globally ranging from Latin America, Asia to Africa. Reports show that it invested about $18.7 billion worldwide in 513 projects in the fiscal year 2011, a modest increase from $18 billion in 2010. In 2012 it is expected to hit $20 billion. Its global investments have doubled in the past five years. Though it has a low capital base, it raises capital through bond issuance in global markets. In the past, it used to raise most of it in dollars from the U.S. market. However, in recent years, it is raising capital in several other currencies such as Yen, Renminbhi (Yuan), the relevant market even as the U.S. market has dried up after the financial crisis.

On all accounts, Mr. Cai has an impressive record both academic and professional as also the requisite expertise. As President Jim Yong Kim said, “I am pleased that a world class financial and development professional like Jinyong had decided to bring his considerable talent to the work of the International Finance Corporation.” He went on to add, “With his extensive knowledge of global financial markets and investment climates, he’ill help IFC identify sound, strategic private sector investments and public-private partnerships that will help reduce poverty and create greater prosperity to people in the developing world.”

Cai is the first Chinese national to hold the senior position and his appointment was greeted with pride by the Chinese media. As Bloomberg suggested [1], it confirmed China’s growing influence in the World Bank coming, as it did, two months after Justin Yifu Lin left the World Bank as its Chief Economist after a four year stint. Dr. Lin had left its imprint on the research work in the Bank on Development Economics. Along with President Robert Zoëllick, he made the Bank more open and transparent. His views on restructuring developing economies drawn on his experience in China breathed a fresh air in the WB and made its policies less rigid and more pragmatic.

Cai has more than 20 years of experience in the financial services industry. He started his career as a Young Professional at the WB and worked as an Economist in Central Europe and Asia. He moved to Morgan Stanley and was later seconded to China International Capital Corporation (CICC) when it was established in 1995. CICC is one of the largest investment banking and research services agencies floated in association with foreign banks like Morgan Stanley. In later years he moved over to Goldman Sachs and became one of its managing partners. He graduated from Peking University and secured a doctorate in Economics from Boston University.

Cai will take over the post on 1st October, 2012. As earlier explained, he has spent more than two decades in the financial sector and has full faith in the role of the private sector. After knowing his appointment to the post he said, “The private sector has a vital role to play in building prosperity in developing countries.” He went on to add, “As the world’s leading private sector development institution, IFC has done much to create opportunity for people to escape poverty and improve their lives. Much more can be done, and I look forward to working with all IFC’s stakeholders and clients to build on its impressive record.” It does seem that it is a proper fit and the IFC and Cai are made for each other!

What is surprising is that the appointment of Cai seems to have come about as a silent coup worked backstage in the board rooms of the WB. More surprising is that when the posts of the President of the World Bank and the Managing Director of the IMF fell vacant last year, there was so much debate, commotion and jockeying even as the developing countries attempted to wrest the posts from the developed and failed. There were many factors leading to that fiasco. I have detailed these issues in separate papers. [2]

The most important factor was that the vote shares are loaded against developing countries and the reform of the IMF/Bank promised in successive G-20 meetings had not come about. Also there was no unity among developing countries in the G-20, especially the BRICS, and the G-7 was able to run away with the trophies. Though China appeared to be cooperating with the developing countries in G-20 and agreed with all the statements issued by them, it had its own private agenda of gaining access to posts in the organisations and arranged a grand bargain with the G-7. [3]

When it came to the top post of the IFC, it seems, there were no claimants from the BRICS Group. It was only China which had greater interest than any other member. For G-7, the IFC is a second tier agency and its role is to promote private sector in developing countries which is in their favour. In any case, they hold 51 per cent shares in the IFC and can control its policies and programs. However, China’s involvement with the IFC has been longer and deeper.

The primary aim of China’s policymakers when they embarked on the strategy of opening up their economy was to modernize its industry and to integrate it with the global economy. Premier Deng had a vision and did it in stages, gradually and on a trial and error basis. One of the pillars of this policy was to promote the private sector. Private industry remained repressed during the years of communist regime and bank credit was denied to it. The whole emphasis was on state-owned enterprises. With the advent of the new policy, the private sector needed to be lifted and modernized. Equally important was the financial sector. In modernizing its financial sector, as also the private sector SMEs, China did not hesitate to avail of the technical services of the World Bank Group. Rather, China was looking more to their technical services than to their aid or financial assistance. Over the years, the IFC has played a significant role in these endeavours.

The IFC is proud over its pioneering role in China. In one of its reports it claimed. “The IFC was at the vanguard of foreign investors’ first forays into the Chinese banking market, starting with technical advice in the 1990s and later expanding to investments. We took equity stakes at a time when most other commercial banks were still reluctant to put money into the Chinese banking sector.” It went on to say, “IFC is among the first foreign investors supporting China’s city commercial banks, and rural finance institutions. We partner with them and industry associations to improve corporate governance, risk management, and commitment to expanding financing for small and medium enterprises, farmers, manufacturers, and shop owners.”

One of the important projects secured by the IFC in China was from the People’s Bank of China (PBOC) in 2004. The PBOC recognized the financing difficulties among SMEs and sought IFC’s technical support in the modernization of “Secured Transactions System.” The main objective was to increase access to credit to firms, especially SMEs, by developing an appropriate legal and institutional framework to allow and facilitate the use of movable assets such as receivables as collateral for loans. China’s enterprises had more assets in the form of equipment, inventory and receivables than capital. This was pre-reform legacy created by the lack of bank credit to the private enterprises. The IFC successfully implemented the project. It is estimated that up to end June 2011, they have been able to facilitate $3.58 trillion accounts receivable financing including $1.09 trillion of SME lending. The impact of this project would be visible all across China.

The IFC has been cooperating with the Chinese government in the development of western China. The strategy is to shift the economic balance from the east (coastal) to the less developed west. The IFC indicated that its funds will be used to support private enterprise in western China in the fields of renewable energy, rural finance and agribusiness. “IFC will focus on investments in infrastructure, improved access to finance for small and medium sized enterprises, and combating climate change through the use of clean energy and improved energy efficiency.” [4] The same report quoted the finding of the Chinese Academy of Social Sciences that the GDP growth rate for western China which includes the provinces of Sichuan, Yunnan and Gansu, was 14.2 percent, faster than the average 103 percent recorded nationwide. The IFC was also investing in wind power projects in the private sector.

There are global dimensions to China’s collaboration with the IFC. China has been able to spread its wings across several countries in Africa to the dismay of western powers. After initial skepticism and reservation, the World Bank took the view that it would be pragmatic to cooperate with China in its African program. The policy frame was suggested by Zoëllick while addressing a meeting in Beijing on 14 September 2010. [5] He referred to the role played by China in building infrastructure in Africa and also emphasized that “growing role of China in Africa is part of a broader shift to a new multipolar economy, in which the developing world represents and increasingly important source of global demand.” He suggested that IFC and MIGA can offer financing and insurance to companies in special zones in Africa.

The IFC made on of its earliest investments in project in Tanzania promoted by China Railway Jianchang and a local company for a commercial complex. The IFC will provide $10 million. As a report in Financial Times [6] suggested, “.. with other deals with Chinese investors in Africa under negotiation, including the possibility of financing special industrial zones, the IFC hopes that a growing proportion of Chinese investment can be covered by internationally recognized standards.”

The appointment of Cai to the top post creates a more favourable atmosphere to promote CHINA-IFC projects in Africa and indeed in other countries. China has been worrying about the diversification of its reserves estimated at $3.6 trillion and is seeking various routes for dispersal. It has nagging worry about the fall in reserve values with dollar depreciation. It attempted to move a substantial part to euro. Now the euro is in doldrums and the euro assets are more vulnerable. Thus China has been trying to make investments in industries in the US and Europe. Even here it meets with road blocks and it meets with resistance in the garb of security considerations when high technology companies are involved. It seems that China is looking more towards investments in Latin America, Africa and other areas. This will help shore up and possibly improve the value of assets. More importantly it helps China to access raw material, minerals, etc. needed for its economic growth. In the past there was resistance to investments by Sovereign Wealth Funds and in recent years, especially after the eruption of the financial crisis, there is a more benign approach to investment by SWFs. China’s role in the IFC will facilitate this objective.

One way China has been attempting to internationalise its currency is to facilitate the use of RMB (Yuan) by its trading partners. It has greatly encouraged the floatation of Dim Sum bonds in Hong Kong and other financial centres. There is a proposal to float it in London too which has been welcomed by British Prime Minister Cameron. China has extended swaps to many countries. The longer term strategy is to displace the dominance of U.S. dollar. It will take a very, very long time and much depends on the future course of the global economy. In the meantime China is attempting incremental steps to make Yuan a global currency. It can encourage the IFC to draw on the Chinese reserves and step up its investments. China cannot be too ambitious as the G-7 countries hold controlling interest. But China may be happy with modest achievements.

As we had narrated in the earlier articles on the Fund/Bank posts, China has an independent strategy of its own. It is conscious of the limits to the powers of developing countries in the current context, especially with the current articles of the Fund and the Bank and the inability of developing countries to bring about radical changes in the management structure. It has used its current strength to get senior posts in the Fund and the Bank. A senior post in the IFC will enhance its influence and, in particular, promote its capability to deploy its foreign exchange reserves. The U.S. and western economies also perceive a common cause with cause especially in promoting private investments globally. It is not surprising that there was no scramble for the post and what happened was a palace coup, a silent one at that.

(The writer is a Former Joint Secretary, Ministry of Finance, Government of India)

[1] Sandrine Rastello, Goldman Sachs Partner Cai Jinyong to Head World Bank Unit, Businessweek, August 10, 2012 available at

[2] Please see the following articles by me:

The race for the World Bank post, South Asia Analysis Group, Paper No.4095 dated 10th February 2012.

More on the race for the World Bank post, South Asia Analysis Group, Paper No.4937 dated 28 February, 2012.

Assault on the IMF, South Asia Analysis Group, 28 May, 2011

How the BRICS Lost the Crown-Analysis, South Asia Analysis Group, Paper No.4585 dated 6 July, 2011.

[3] Subramanian, K, More on How the BRICS Lost the Crown: The China Angle, Chennai Centre for China Studies, C3S Paper No.833 dated July 11, 2011.

[4] IFC to continue investments in China, People’s Daily online, July 28, 2011 available at,html

[5] The World Bank, Remarks for the High-Level China-Africa Experience-Sharing Program on Special Economic Zones and Infrastructure, September 14, 2010 available at

[6] Alan Beattie, World Bank Unit to finance Chinae3se African venture, Financial Times, April 22, 2010.


SAAG is the South Asia Analysis Group, a non-profit, non-commercial think tank. The objective of SAAG is to advance strategic analysis and contribute to the expansion of knowledge of Indian and International security and promote public understanding.

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