ANALYSIS: World Bank’s New Ranking of Business Environments Puts China’s Reputation at Risk

The closed office of the Mintz Group, seen in an office building in Beijing on March 24, 2023. Five Chinese employees at the Beijing office of the US due diligence firm were detained by authorities. (Greg Baker/AFP via Getty Images)

Two years ago, the World Bank scrapped the publication of its annual Doing Business report after World Bank executives were caught pressuring top bank officials to manipulate the data in favor of China. In May, the international financial institution announced that it had created a new ranking system, to be launched next year, that improves upon the scandal-ridden Doing Business report.

Over the past two months, local government officials in China have been zealously studying how their jurisdictions can achieve a good score on the new Business Ready—or B-READY—index. It comes at a time when the Chinese Communist Party (CCP) is greatly concerned about a drop in its rankings, experts say. As the country’s business environment deteriorates, any harm to the country’s reputation will potentially lead to an accelerated exodus of foreign firms.

Scandal Leads to Ranking Index Overhaul

The World Bank, founded in 1944, offers grants, loans, and economic advice to its 189 member countries. The Washington-based bank has pledged to reduce poverty around the world.

For 17 years, the Doing Business report outlined the levels of business regulation in 190 economies.

In September 2021, the World Bank announced that it would abandon the report after an investigation by the law firm WilmerHale found that the offices of then-World Bank CEO Kristalina Georgieva and then-president Jim Yong Kim had pressured staff to change data on China to improve China’s ranking.

The new B-READY ranking system (pdf) is designed to assess the business and investment environment of countries around the world annually.

According to the B-READY Methodology Handbook, the ranking’s data and reports aim to improve the business environment for private sector development in economies around the world. “Through its focus on private sector development, B-READY contributes to meeting the World Bank Group’s twin goals of eliminating poverty and boosting shared prosperity,” the handbook says.

Related Stories

China’s New Anti-Espionage Law Poses Risks for Foreign Businesses

7/6/2023

Country Garden Stock Plunge Shocks China’s Property Markets

8/11/2023

The World Bank’s new rankings add an important dimension to the scoring process by surveying private companies. Data will be collected directly by sending detailed questionnaires on the subject to private sector experts in all the economies surveyed.

The B-READY ranking will be piloted next year. The report will begin with 54 countries and will grow to include 180 countries, including China.

China Crams for B-READY

The CCP views the new ranking by the World Bank as a major risk to its global reputation. Since June, local government officials around China have been pondering how their jurisdictions could do better in the rankings. The capital city of Beijing has submitted 71 proposed policy changes for the occasion.

Anders Corr, the founder of Corr Analytics Inc and Epoch Times contributor, told The Epoch Times on Aug. 6: “Beijing is worried because business confidence is down in China, which could lead to a low World Bank score. The CCP is apparently trying to pressure businesses into answering the survey with positive views, which they could be intimidated into saying. This would invalidate the survey by introducing bias, as China would have an artificially higher score relative to other countries.”

China’s vice finance minister Wang Dongwei’s comments at an internal meeting were even more direct, saying that China’s ranking is set to plummet given the CCP’s complete control of the country’s economy. Mr. Wang urged officials in China’s major cities and provinces to prepare for the World Bank’s survey, according to an Aug. 3 article in the Financial Times. “This is an opportunity for us to showcase . . . Chinese-style modernisation,” he said.

Foreign Companies in China Under Scrutiny

Mr. Wang’s warning was justified. In June 2023, a report by the European Union Chamber of Commerce in China reported that foreign companies were moving their headquarters and capital out of China.

Two-thirds of the 570 companies surveyed by the organization said it had become more difficult to do business in China. Three out of five said the business environment had become more politicized. Some have already relocated their assets out of the country or are planning to do so.

In addition, according to information from global financial market data provider Refinitiv, foreigners sold $ 1.71 billion worth of mainland stocks through the Stock Connect in May, up sharply from $659 million in April.

Apart from the slow economic recovery after China’s draconian COVID-19 lockdowns, another direct reason for the flight of foreign capital from China is that the CCP is cracking down on foreign companies using its anti-espionage laws.

In May, Chinese police raided the offices of U.S.-based Capvision Partners in China. A senior researcher at the company was jailed for six years on charges of “stealing, espionage and providing state secret intelligence abroad.” In March, five Chinese employees at the Beijing office of U.S. law firm Mintz were detained. Chinese police also visited U.S. management consultancy Bain & Co’s Shanghai office in April.

China’s Private Sector Dwindles

Foreign companies are just some of the ones disillusioned with the business environment in China. In recent years, the domestic private sector in China has also been subjected to the CCP’s endless bullying tactics.

According to the European Union Chamber of Commerce in China, two-fifths of Chinese customers or suppliers are shifting their investments out of China.

In April 2021, Chinese e-commerce giant Alibaba was fined a record $2.8 billion, making it the first and largest target of the CCP’s so-called antitrust investigation. Chinese regulators subsequently investigated 34 tech companies and fined nearly all of them for various kinds of contract violations and undisclosed mergers, many of which occurred before 2018 and even before the regulator existed, according to a report by The China Project.

China’s private sector is also shrinking under the CCP crackdown. Figures from the Peterson Institute for International Economics (PIIE) show that the share of Chinese state-owned companies in China’s 100 largest listed companies, measured by aggregate market capitalization, rose from 57.2 percent at the end of 2022 to 61.0 percent in the first half of 2023, while the share of the private sector, defined as those with less than 10 percent state ownership, fell to less than 40 percent in the first half of 2023.

As part of its efforts to maintain control, the CCP has also demanded that private companies set up communist party branches. Since 2018, it has been mandatory for domestically listed enterprises to set up a party entity. Over 90 percent of China’s top 500 private enterprises now host party units, according to an Asia Times report.

In a low-key tactic, the regime also increasingly takes control of private companies by acquiring “golden shares” in these companies, which often give the Chinese regime board seats, voting rights, and influence on business decisions.

Because the CCP also can potentially shut down dissent among private sector executives and employees, Mr. Corr warns that the CCP is likely to pressure private companies to give a positive view during the World Bank’s survey.