(March 27, 2007) China, the World Bank’s second-biggest customer, warned that it might halt future borrowings if Paul Wolfowitz did not rein in the Bank’s anti-corruption investigative practices.

China, the World Bank’s second-biggest customer, warned it might halt future borrowings if Wolfowitz didn’t rein in his anti-corruption drive.

World Bank President Paul Wolfowitz’ war to reform the world’s most important anti-poverty institution faces a new and potential crippling challenge – even while the former No. 2 man at the Pentagon is declaring victory.

The claim of triumph came last week when the bank’s 24-member board of directors embraced a watered-down version of Wolfowitz’s strategy to link lending by the world’s foremost development institution to a country’s governance and corruption record.

But even before that vote was taken, the bank had received a warning from China, the agency’s second-biggest customer, that it might halt future borrowings if Wolfowitz doesn’t rein in its anticorruption investigative practices.

Making loans to developing countries is central to the bank’s very reason for existence – so the threat to quit borrowing is a blow at its mission, and to the job security of some 26,000 World Bank bureaucrats, staffers and consultants around the world.

A spokesman for the bank vehemently denied that China, which has more than $21 billion in outstanding World Bank loans and development credits, has made such a threat. But a copy of an internal bank e-mail referring to the possibility was obtained by Fox News.

Fox News has also learned that a team of World Bank officials has been secretly dispatched to Beijing to begin negotiations Monday with Chinese officials to head off the crisis. The e-mail floats the idea of creating a “mutually acceptable framework” with China that could amount to a separate side deal as part of that effort.

“MOF [China’s Ministry of Finance] is very concerned,” warns the March 12 e-mail – written by the bank’s China manager, Hsiao-Yun Elaine Sun, and dispatched to 24 staffers in Washington and Asia.

“They foresee potential disagreements as to the scope, level and approach of the bank’s involvement on specific [corruption] cases,” she writes. “. . . Our MOF counterpart is so worried and is considering to [sic] suspend the lending program discussions next year. . . . MOF is talking about not adding new projects to the pipeline in order to avoid getting into a confrontational situation with the bank.”

In the internal e-mail, Chinese officials complain that the bank “may have gone beyond its mandate” in the “sanctions” component of Wolfowitz’s anticorruption strategy – essentially, in how it goes about probing development projects and blacklisting companies or individuals that have been found by the bank to be corrupt.

Read the full story [PDFver here] .

Richard Behar, Fox News, March 27, 2007