World Bank’s cut to China lending could lead to a smaller balance sheet, signaling that the institution may end up financing fewer projects overall, according to green financial expert Christoph Nedopil Wang.
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The World Bank will reportedly phase out lending to China by 2031 after years of declining loans, reflecting the country’s rise to become the world’s second‑largest economy. The total commitment of the lender to China as of June stood at roughly US$69.7 billion across 452 projects, reflecting the large historical scale of engagement even as new flows decline.
“The overall balance sheet of the World Bank might be shrinking, rather than funding earmarked for China being re‑allocated to lower income countries,” Christoph Nedopil Wang, professor at the University of Queensland and founding director of the Griffith Asia Institute at Griffith University, told Eco‑Business.
To avoid that outcome, he said lower income countries need to strengthen their ability to absorb capital and reliably service loans, including delivering stronger economic growth that can credibly support higher debt‑to‑gross demonstic product (GDP) ratios, which determines how big a country’s debt is compared to the size of its economy.
Nedopil Wang, whose research centers on green finance across the Asia Pacific region, including China’s role in global development, added that the World Bank should also update its lending policies by revising its debt sustainability framework so that countries with robust growth and trade can safely shoulder greater borrowing.
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This [shift] has probably more important implications for the World Bank than for China, which has a vibrant domestic financial market … China was able to absorb significant capital while reliably paying interest on these loans, which is revenue for the World Bank.
Christoph Nedopil Wang, professor, University of Queensland
However, he said reducing lending to China has already been the strategy of most development finance institutions, given the Asia super power’s development trajectory, so it should not be a surprise that Beijing is dropping off the World Bank’s list of eligible borrowers.
“This [shift] has probably more important implications for the World Bank than for China, which has a vibrant domestic financial market with significant capital resources. At the same time, for the World Bank, China was able to absorb significant capital while reliably paying interest on these loans, which is revenue for the World Bank,” he said
Peter Chang, research associate of nonprofit Malaysia-China Friendship Association, where he conducts studies on China-Southeast Asia relations, said he sees the move “less an economic shock” and more of a “formal acknowledgment of a new world order.”
“China’s graduation as a borrower frees up the World Bank’s bandwidth for low‑income countries, but it does not create new money,” said Chang, also a former deputy director of research body Institute of China Studies at University Malaya.
For middle‑income Southeast Asian nations like Malaysia, this creates a “missing middle” dilemma where such countries “risk falling between the cracks” as the bank pivots to the poorest and China shifts to being a creditor, he told Eco-Business.
Recent upgrades, such as the World Bank’s decision to classify the Philippines as an upper‑middle‑income economy, underscore how more countries in the region could find themselves in this grey zone of no longer being poor enough for concessional funds, but not yet wealthy enough to rely solely on markets.
“Going forward, we will be navigating a multipolar finance landscape where the World Bank, China’s AIIB [Asian Infrastructure Investment Bank], and bilateral Belt and Road initiatives all compete for influence, giving us more options but also more geopolitical complexity,” he said.
Retreat from climate target
In the same week it announced its plan to cease China lending, the World Bank’s announced its move away from explicit climate targets, raising concerns over how strongly climate will feature in future lending decisions.
The development lender, which had faced pressure from the Trump administration to drop the climate lending goal introduced under the previous administration in 2023, said in a statement that it is completing a shift toward prioritising lending results rather than meeting preset input targets.
Nedopil Wang said the announcement “carries some risk for climate‑aligned capital allocation as it reduces the explicit focus of investment officers to include climate considerations as a key component of the investment decision.”
At the same time, he stressed that “for countries interested in mobilising World Bank funds for specific climate projects, investment should still be available,” suggesting that proactive governments can still secure support for well‑designed programmes.
For his part, Chang described it as “a red flag for vulnerable Asian nations, but not a death knell.”
He argued that it “signals a shift from counting ‘climate dollars’ to demanding ‘climate‑smart development’,” and warned that countries like Malaysia — where climate change could cost around 8 per cent of GDP by 2050 — can no longer rely solely on multilateral pledges.
“We must aggressively mobilise our own green finance, leverage instruments like Islamic green sukuk, and turn climate resilience into a domestic economic priority, rather than waiting for a shrinking pool of foreign aid,” Chang said.
