The Climate Reform Agenda: How China Enables and Undermines U.S. Leadership at the World Bank

A regular series on the choices faced by international economic policymakers

A close look at major U.S. foreign policy objectives shows how critical multilateral institutions are to their execution, thanks to their financial heft, delivery systems, expertise, reach, convening power, and ability to drive collective action. Put simply, they are a force multiplier.

For example, billions of dollars are being channeled through the International Monetary Fund (IMF), World Bank, and the European Bank for Reconstruction and Development to support Ukraine. For its global COVID-19 response strategy, which included standing up a new pandemic preparedness facility, the United States leaned heavily on the World Bank. And today, the Joe Biden administration is counting on major international financial institutions (IFIs)—especially the World Bank and the regional development banks, as well as the IMF—to advance climate objectives. For those reasons, Treasury Secretary Janet Yellen recently reaffirmed that “U.S. leadership at [the international financial institutions] is essential to our national and economic security”.

The United States exerts strong leadership through IFIs thanks to its large voting shares. Unlike the United Nations, IFIs do not operate on a one-country, one-vote principle. Instead, voting power reflects factors such as a country’s economic weight and, in the case of the World Bank, financial contributions. As the largest shareholder at the IMF and World Bank (with 16.5 and 15.5 percent of voting shares, respectively), the United States enjoys outsize influence over their programming and strategic decisions.

But relying on IFIs to deliver on unilateral U.S. goals involves trade-offs. First, the United States must negotiate with other key shareholders, which entails compromise. Second, the United States routinely needs to back multilateral initiatives with new funding commitments that require congressional approval—often a heavy lift. And third, preserving the integrity and strength of those institutions means giving emerging markets like China a larger role, which can run counter to U.S. interests.

Those trade-offs are playing out in real time through the Biden administration’s efforts to put the multilateral development bank (MDBs)—especially the World Bank—at the forefront of global climate change efforts.

U.S. Leadership, Climate Change, and the MDBs

During the twenty-seventh Conference of the Parties (COP27) to the UN Framework Convention on Climate Change in 2022, then Presidential Climate Envoy John Kerry made clear that MDBs would be critical to supporting the Biden administration’s goals, asserting that “to deliver finance for climate action at scale, we must press forward to evolve the multilateral development banks for the 21st century . . . to make sure their operational models are fit for purpose to tackle this crisis.”

Working closely with like-minded countries (e.g., other Group of Seven nations and the Nordics), the U.S. Treasury helped drive reform agendas to support global challenges, including a full-throated embrace of climate-change mandates at the MDBs, focusing in particular on major emitting countries (e.g., middle-income borrowers such as India and Brazil.). This negotiation entailed compromises. At the World Bank, climate change is just one of eight new focus areas, which also include fragility, food security, and digitalization, under what World Bank President Ajay Banga has termed the Livable Planet Agenda.

In addition, building a consensus around this mandate required identifying resources to finance it. Cash-strapped donors urged the MDBs to stretch their balance sheets to free up internal sources of lending, an effort that has seen some success: in fall 2023, President Banga announced that those measures would generate $40 billion over ten years in new lending for middle-income countries.

Bilateral donors have been less generous. At the 2023 Group of Twenty (G20) Leaders’ Summit in New Delhi, President Biden announced a $1.25 billion pledge to the World Bank, which he included in his supplemental budget request for Ukraine. Ahead of the G20 Summit, administration officials including National Security Advisor Jake Sullivan and Treasury Secretary Yellen went public with expectations that a U.S. pledge would motivate other countries to come forward. But no additional pledges materialized, at least in part due to skepticism about whether the Biden administration could deliver on its pledge. Table 1 shows why such skepticism is warranted.

Recognizing that a request to finance climate-related programs would be unpopular with Congress, the administration couched it as funding for “innovative global solutions,” instead. Nevertheless, the request languished.

In early 2024, the Biden administration doubled down, pledging $750 million in World Bank loan guarantees, which it has included in its FY2025 budget request. This commitment helped secure a deal for a new framework to resource global challenges for middle-income countries, including climate change, which many borrowers had resisted in part due to questions about funding.

The China Factor

To bolster prospects for congressional approval of its World Bank funding requests, the administration championed the World Bank as a critical and credible alternative to China, which became the world’s largest official lender in 2017 as a result of its Belt and Road Initiative. Unlike the MDBs and traditional bilateral creditors, including the United States, China’s lending has been opaque and disseminated through multiple state-owned agencies lacking any central reporting authority, precipitating the complex and protracted debt crises that many low-income countries are facing today.

Unable to muster a muscular bilateral response to counter China’s funding ambitions, the United States has chosen to focus on multilateral channels instead. In her July 9, 2024, testimony before Congress requesting approval for MDB-financing requests, Secretary Yellen touted that

these institutions are the only realistic option for the United States to offer high-quality and transparent development financing at the scale needed to be a U.S.-led value proposition that competes with China’s. . . . We must show leadership and contribute strong financial support as it has only become more important to provide credible alternatives to lending options that can be opaque and coercive, potentially undermining borrower countries’ sovereignty and long-term economic sustainability.

Another recent statement from the administration urging Congress to approve the World Bank request emphasized that “These high-leverage programs are the only realistic way to reach the scale of assistance needed to provide a U.S.-led value proposition for developing country partners, which is a core national security priority.”

Unfortunately, the Biden administration’s latest World Bank–ask has been omitted from both the House and Senate versions of the FY25 foreign operations bill, dimming prospects for its approval. This omission is unsurprising, not only because of continued animosity to climate-related funding in the House of Representatives, but also because the arguments that those investments would counter China do not hold up under scrutiny.

First and foremost, only middle-income countries such as Colombia, India, Indonesia, and Peru would be eligible for the new World Bank funding (the poorest borrowers tend to receive grants or loans on highly concessional terms), and unlike many low-income countries, they do not depend on China to meet financing needs; most middle-income countries have ample access to markets and other revenue sources. Nor is there any evidence to suggest that those countries borrow from China because they cannot access MDB funding. Finally, after peaking in 2017, lending from China has been falling rapidly (see Figure 1).

Another complicating factor is that China benefits directly and indirectly from World Bank financing. It remains a World Bank borrower and is the largest winner of World Bank procurement bids: a U.S. Government Accountability Office report found that China won nearly 30 percent of World Bank contract dollars between FY2013 and FY2022. Indeed, members of Congress have been complaining about China’s high lending levels and procurement wins for years.

Not only is betting on anti-China rhetoric to secure U.S. financing for the World Bank in Congress a losing proposition, it is also shortsighted because there are circumstances under which a future administration could want to justify a larger role for China, as it did a decade ago.

In 2025, the World Bank (and the IMF) will be reviewing member countries’ shareholdings to assess how well they align with the underlying formulas. At the World Bank, the formula is based on a country’s economic weight and financial support for the International Development Association (i.e., the facility that supports its poorest members). Those assessments are conducted every five years, and the 2020 analysis showed that China was underweight by more than 100 percent, meriting a doubling of its share from 6 to 12 percent. (Forty-two other countries were also found to be underweight, including the United States, but for all but a few the amounts were only fractions of a percent.) A share doubling for China would have made it the second-largest member after the United States and larger than Japan, which is currently second, a politically untenable position for both countries. Ultimately, most shareholders voted against a realignment because the political obstacles were too great.

Following the 2015–16 review, countries were able to agree to a modest realignment, which increased China’s shareholding from 4.7 to 6 percent. The United States needed congressional approval to facilitate that realignment, which was accomplished through a selective capital increase.

As a proponent of a rational, rules-based international system, the United States has an interest in supporting a rebalancing based on an agreed-upon formula. Moreover, as the first- and second-largest global greenhouse gas–emitters respectively, it is crucial for China and the United States to work together on the climate agenda, and the MDBs are good vehicles to advance that cooperation. Finally, the greater the misalignment of voting shares, the more likely the legitimacy of the World Bank will be challenged. At the same time, U.S. and Chinese interests often diverge, which serves as a significant disincentive to a realignment. In the current political environment, it is hard to envision a scenario that includes the United States endorsing a larger China shareholding.   

Conclusion

While the United States has seen success in advancing foreign policy goals through the MDBs, relying on them involves real trade-offs that can undermine impact. Notably, while the United States accomplished its goal of elevating climate as a priority at the World Bank and other IFIs, it remains unable to provide the funding boost needed to resource a new agenda. Moreover, relying on anti-China rhetoric to secure that funding is ineffective and potentially counterproductive.

The practical impact of this situation is unclear—most MDBs appear able to meet climate-related demands from middle-income countries, and President Banga has committed 45 percent of all World Bank lending to support climate-related projects. The bigger question is whether failure to fulfill recent World Bank pledges has dented the capacity of this and future administrations to lead.

Karen Virginia Mathiasen is project director at the Center for Global Development and former acting U.S. executive director at the World Bank.