An independent investigation released by the law firm WilmerHale on September 16 found that high ranking staff members at the World Bank rigged data in the 2018 and 2020 editions of its flagship “Doing Business” report in order to boost China’s ranking. The findings highlight China’s willingness to interfere in multilateral institutions to advance its economic interests, and the challenge of maintaining the integrity of the current international system.
The investigation uncovered “direct and indirect pressure” on staff members by the former World Bank C.E.O. Kristalina Georgieva—now director of the International Monetary Fund—and former World Bank President Jim Yong Kim. Operating in a “toxic culture,” staff members acknowledged that the changes “were inappropriate” but “expressed a fear of retaliation” by Georgieva’s top aide. While Georgieva disagreed with the findings, the World Bank decided to discontinue the upcoming “Doing Business” report over “ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff.” Jonathan Wheatley at the Financial Times described how the bank manipulated China’s score in the overall ranking:
WilmerHale said attempts were made in the days before publication of Doing Business 2018 to raise China’s ranking from 85, such as incorporating data for Hong Kong into its scores. When these efforts failed to deliver the desired results, the report alleged, Georgieva “became directly involved”.
The law firm’s report, Investigation of Data Irregularities, alleged that Georgieva directed Simeon Djankov, one of the founders of Doing Business, to guide the report to publication and that Djankov subsequently “worked with Doing Business management to identify changes to China’s data that would raise the country’s score and increase its ranking”.
It said three indicators of business conditions — starting a business, legal rights-getting credit and paying taxes — were modified, raising China’s score by almost a point and increasing its ranking by seven places to 78. [Source]
Jaw drop: World Bank leadership pressured staff to manipulate data to please the Chinese govt, going as far as changing the report's methodology, as it seeks more funding from China https://t.co/FYXtzUEZTu How's this even ethical as a research institution?
— Maya Wang 王松莲 (@wang_maya) September 16, 2021
Jim Yong Kim, after having modified @WorldBank data to please China, immediately gets a job as Vice Chairman/Partner with Global Infrastructure Partners (GIP), a private equity fund that regularly invests with the Chinese state-backed CIC Capital Corporation. #KickBack https://t.co/2LnCECv0lE
— Fabrice C Houdart (@houdart) September 19, 2021
The effort to please China appears to have been driven by China’s important role in the World Bank as its third-largest shareholder. Andrea Shalal and David Lawder at Reuters described how the bank’s 2018 capital increase provided China with leverage to boost its ranking:
The report said the push to boost China’s ranking came at a time when the bank’s management was “consumed with sensitive negotiations” over a major capital increase, and China’s disappointment over a lower-than-expected score.
Georgieva told WilmerHale investigators that “multilateralism was at stake, and the Bank was in ‘very deep trouble’ if the campaign missed its goals,” the report said.
The World Bank in 2018 announced a $13 billion-paid in capital increase that boosted China’s shareholding stake to 6.01% from 4.68%. [Source]
Paul Wiseman at the Associated Press explained the background and role of the World Bank’s “Doing Business” report:
In 2002, the bank introduced the report, whose annual rankings highlight which countries have adopted policies favorable to businesses and which haven’t — and how much they’re improving or regressing. The bank, which collects information from tens of thousands of accountants, lawyers and other professionals in 190 countries, assesses how easy it is to do such things as start a business, obtain a construction permit or connect to the electrical grid.
[…] Though meant to measure how governments treat domestic businesses, the rankings have often been interpreted by the media and by investors as a proxy for how much countries welcome foreign investment. [Source]
Opinions are mixed regarding the importance of the report. The Associated Press quotes one analyst who argues the report is an integral part of global business evaluations:
Timothy Ash, a strategist at the fixed income manager BlueBay Asset Management, said he “cannot overestimate” the importance of the Doing Business report for banks and businesses trying to assess risk in a particular country.
“Any quantitative model of country risk has built this in to ratings,” Ash said. “Money and investments are allocated on the back of this series.”
He added that if an analyst at a bank or rating agency had done what is alleged, “I wager they would be fired and would be subject to regulatory investigation.” [Source]
Others argue that the report’s importance has always been overinflated. As one Bloomberg opinion contributor pointed out, the report has continually suffered from a gap between economic pronouncements on paper and the realities on the ground, which naturally left room for bureaucratic exploitation:
On the one hand, this is a harbinger of what’s likely to occur as Beijing’s bureaucrats begin to occupy positions of greater influence in multilateral institutions. Increasingly, China’s officially mandated sense of grievance will drive these institutions’ operations and choices.
On the other hand, the tussle between Beijing’s public-relations army and the World Bank’s economists only underscores why the index was always problematic. If China is really only the 85th best place in the world to do business, why did it grab the lion’s share of foreign direct investment into the emerging world for the two decades the index was in operation?
The fact is that the index itself was incredibly limited in scope. It didn’t actually measure improvements in business-friendliness on the ground. Instead, it relied on analysis of reforms on paper, as well as a few interviews with pillars of various national establishments.
[…] My point is not that the World Bank is open to influence by well-connected insiders; I’m not sure why that should surprise anyone. The real problem is that its flagship index was so easily manipulated in response to that influence. If purely cosmetic changes could produce such big shifts in position, then the index itself should never have been invested with so much meaning. [Source]
Regardless of the report’s own significance, its manipulation is ominous for the future of international institutions and multilateralism. As Tim Fernholz at Quartz reports, China’s pressure on the World Bank and other international institutions risks undermining the very order that they are designed to uphold:
International institutions are needed to provide clear rules for economic activity more than ever, but their legitimacy is under threat. The World Bank, the International Monetary Fund, and the World Trade Organization face stress from nationalistic policies. The rise of China, which has benefited disproportionately from these institutions even as it has undermined them, makes coherent global policy even more difficult.
The World Bank in particular has seen the private sector replace it as the main lender to the developing world. But as global powers seek to restructure the global economy to account for the failures of the Washington consensus and challenges like climate change, venues like the World Bank are vital. Manipulating statistics for ideological purposes doesn’t just undermine trust, it undermines the Bank’s own arguments about what kind of economic factors make businesses more successful.
As it stands, Georgieva is now the top official at the IMF, and though she says she “disagree[s] fundamentally with the findings and interpretations of the Investigation,” her credibility has suffered a massive blow. Every piece of data produced by the World Bank will now be suspected of playing to one or more favored stakeholders. And it will be harder to convince emerging markets that they should adopt beneficial reforms if the ostensible recognition for doing so can be bought off by countries that don’t do the work. [Source]
“The politicization of the survey is an indication of how China’s econ.might is influencing multilat. institutions and the lengths that they will go to curry favor w the🇨🇳gov.If🇨🇳disengages in protest,institutions such as the World Bank lose credibility”1/https://t.co/rFDWu0hesJ
— Sari Arho Havrén (@SariArhoHavren) September 18, 2021
Governments, financial and other institutions trust and cite World Bank’s data. Big blow to trustworthiness especially over the years under her watch. 3/3
— Sari Arho Havrén (@SariArhoHavren) September 18, 2021
This is not the first instance of accusations of Chinese pressure on World Bank reports. In 2015, the World Bank removed a section of its China Economic Update report that was critical of China, after what many observers interpreted as undue pressure from Beijing. In 2018, the same year that the first tampered “Doing Business” report was published, the World Bank released a report titled “How Much Will the Belt and Road Initiative Reduce Trade Costs?” Its release was met with criticism by some analysts who argued that the report’s strong endorsement of the BRI was based on dubious assumptions and released at a sensitive time in the BRI’s rollout, amounting to a form of “relationship management” with Beijing.
Just kidding, reupping it b/c an investigation commissioned by the WB just found that Bank leadership pushed through changes to the methodology of one of its most important research products to please the PRC at precisely the time the BRI report came out https://t.co/8FuxnEjOSY
— Matt Schrader (@MattSchrader_DC) September 17, 2021