China ‘developing nation’ status exploits benefits on trade, carbon emissions

China’s status as a “developing” nation in the eyes of multinational institutions and agreements gives Beijing a range of benefits, including less strict carbon emission standards and softer foreign trade rules, despite its emergence as an economic and military superpower challenging U.S. dominance in Asia and beyond.

It’s a situation that drew outrage from President Trump over the past four years and spurred debate among foreign policy experts well before that. Many argue that it’s long past time for China to graduate to the geopolitical grown-ups table and play by the same rules as developed countries such as the U.S., Japan, Germany and Singapore.

Although it remains to be seen how presumed President-elect Joseph R. Biden views China’s status, some are calling on the incoming administration to pick up where Mr. Trump left off by demanding that China’s status and obligations better reflect reality at the World Trade Organization and other international forums and with commitments such as the Paris climate accord.

“It is absurd and ridiculous for China to be designated as a developing country,” said Dan Blumenthal, director of Asian Studies at the American Enterprise Institute. “China is one of the prime movers of global markets at this point. It distorts global trade through mass subsidization of its state-owned enterprises and through massive thefts of intellectual property. It’s a major economy, not a developing economy.”

While China’s gross domestic product, at an estimated $13.4 trillion, is just two-thirds that of the U.S., its position as a global powerhouse has been increasingly harder to deny since 2013, when President Xi Jinping announced the Belt and Road Initiative. The ambitious foreign policy program has since grown into a vast web of deals, contracts, grants and loans. China has doled out well over $100 billion in infrastructure project loans to more than 100 countries that are also considered developing nations.

As a new go-to source of loans for cash-strapped countries in Southeast Asia, the Middle East, Africa, Latin America and even parts of Europe, China’s communist government has emerged as the main rival to the World Bank and the International Monetary Fund, the Washington-based pillars of the liberal economic international system that the U.S. fostered after World War II.

China also claimed developing country status in 2001 upon joining the World Trade Organization and has resisted efforts by the Trump administration to persuade other WTO members to clarify what countries deserve the designation.

Cheating the WTO?

Mr. Trump’s frustration with China’s “developing” status boiled over on Twitter last year, with the president tweeting: “The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!!”

Administration officials have since criticized the fact that China, as a developing country, can take advantage of longer timelines for moves such as implementing tariff reductions and can claim certain special protections for its domestic trading interests.

But determining who should or should not receive such benefits is complicated.

The Geneva-based organization’s website maintains that there actually “are no WTO definitions of ’developed’ and ’developing’ countries.” It’s up to members to “announce for themselves whether they are ’developed’ or ’developing,’” the site says, although it adds that “other members can challenge the decision of a member to make use of provisions available to developing countries.”

The Trump administration has spent recent years trying to block China from using the developing nation perks at the WTO on grounds that Beijing is a member of the Group of 20, which includes most of the world’s largest economies.

“Virtually every current economic indicator belies China’s claim” to developing nation status, Mr. Trump wrote in a memorandum to the Office of the U.S. Trade Representative in July 2019.

The push has drawn fierce resistance from China.

Zhang Xiangchen, Beijing’s ambassador to the WTO, accused Washington of attacking China “without providing any cause-and-effect analysis.”

“It is hard to see how China’s development has benefited from its developing country status,” Mr. Zhang wrote in July 2018 in response to U.S. complaints to the WTO. “All countries and regions join the WTO with a view to developing their economies. … The reason why China has been able to make contribution to the global development is precisely because that we have achieved growth through developing our own economy, and more importantly, sharing the opportunities and benefits with the rest of the world.”

Chinese officials in particular point not to the size of their economy but to the hundreds of millions of Chinese who live in rural areas that are largely unconnected to the global economy. Although China now has the second-highest number of billionaires after the U.S., nominal per capital GDP is China, according to the IMF, was $10,582, putting China 59th in the world, right between Costa Rica and Malaysia.

“Like developed countries have done in the past,” he said, “today’s developing countries also need time to enhance their protection of intellectual property right, or develop their industries through strategic planning and policies.”

Communist Party stalwarts in Beijing have embraced the “developing” moniker. The party’s Global Times newspaper appeared to brag in May that “China remains the largest developing country in the world, as shown by the latest World Bank report” on such matters.

Debate at the World Bank

The World Bank is widely regarded as setting the standard when it comes to determining whether a particular nation should or should not be characterized as developing.

But China’s relationship with the bank, which was formed by the U.S. and its allies after World War II to rebuild Europe, has grown increasingly complicated in recent years.

China has had robust economic growth over the past several decades and now ranks as the World Bank’s third-largest shareholder after the United States and Japan. However, the bank, which has some $470 billion in assets, also counts China among its largest borrowers, with $14.8 billion in loans committed to Beijing since 2011, according to Reuters.

The bank’s official website paints a nuanced picture of China’s status. It explains that “today, China is an upper-middle-income country and the world’s second largest economy. But its per capita income is still only about a quarter of that of high-income countries, and about 373 million Chinese are living below the upper-middle-income poverty line of [$5.50] a day.”

“China also lags in labor productivity and human capital. Income inequality has improved over the last decade but remains relatively high,” the website says. “China’s high growth, based on resource-intensive manufacturing, exports and low-paid labor, has largely reached its limits and has led to economic, social and environmental imbalances. Reducing these imbalances requires shifts in the structure of the economy from low-end manufacturing to higher-end manufacturing and services, and from investment to consumption.”

Scott Kennedy, an authority on Chinese economic policy with the Center for Strategic and International Studies, suggested the situation could be explained in more basic terms. “China has a lot of poor people and regions,” he said, “but from the perspective of the global economy, it’s not a developing economy.”

David Malpass, appointed by President Trump last year to lead the World Bank for a term that will carry until 2024, has pushed the bank to stop its lending to China and seek increased capital contributions from Beijing. He has also pushed China to join Western nations in forgiving or rescheduling debts this year because of the global economic shutdown resulting from the COVID-19 pandemic.

Mr. Malpass, who has also criticized the lack of transparency in China’s Belt and Road Initiative loans to poorer countries, told reporters in April 2019 that he seeks a “constructive relationship with China” and that Beijing’s role should be “evolving from one where it was a major borrower from the World Bank — and I hope benefited from the loans from the World Bank — to one where now it will be a much smaller borrower.”

There are indications that China’s status is a subject of intense debate inside the World Bank and other global institutions.

“This claim that the Chinese are somehow benefiting by being characterized as a ’developing’ country is not really substantiated by data,” said one bank official, who spoke on the condition of anonymity. “Also, there is a strong sense that China doesn’t actually want to be labeled this way. Beijing would rather rid itself of the designation, as it wants to be viewed as a global economic powerhouse, not a developing country.”

’Outrageous’

Others say the Chinese are bluntly gaming the system to expedite its rise as an economic challenger to the U.S.

“It’s outrageous that Beijing, with its ’developing’ country status, has been allowed to borrow money from the bank at very low interest and then turn around and, through its own expanding Belt and Road Initiative, offer up its high interest Chinese loans to poorer countries in places like Africa,” said a former bank official who also spoke on the condition of anonymity.

“How is that in any way fair?” asked the former official, who envisioned a situation in which strapped countries unable to repay China would turn to the World Bank for help. Although that situation is only hypothetical, the former official said, the Chinese government would have no qualms about quietly profiting from such circumstances.

Analysts generally agree, meanwhile, that China is exploiting its “developing” country status.

“China, like any other country, wants to use the tools it has available to it to get the best deals possible in international treaties, negotiations and commitments,” said Devin T. Stewart, a senior fellow at the New York-based Carnegie Council for Ethics in International Affairs.

“China can also benefit by using the ’developing’ country classification rhetorically,” Mr. Stewart said. Beijing can “use it as an excuse to deflect international criticism, whether it’s on health issues or intellectual property protections or other things that are consistent with the responsibilities of rich countries.”

Some argue that the incoming Biden administration would be wise to pounce on the issue.

Although the Biden transition team did not respond to a request for an on-record comment, a member of the team told The Washington Times that Mr. Biden’s national security advisers are “well aware of the debate” on China’s status at the WTO and the World Bank.

Mr. Blumenthal, meanwhile, argued that the Biden administration should use the COVID-19 crisis to make sure Beijing does not hide behind its “developing country” status to avoid helping other nations recover from the crisis.

“This is not hypothetical, but forget the official rules for a second,” Mr. Blumenthal said. “The U.S. during the coming months is going to undertake a global COVID recovery leadership program that will involve organizing countries around the world to provide debt forgiveness and debt relief stimulus to truly developing nations in need.”

“China should not be allowed to just wiggle out of that by saying, ’Well, wait a second. We’re designated as a developing country too,’” he said. “If China starts to balk at getting together with the advanced industrial economies to provide debt relief in Africa or Southeast Asia or Latin America, the Biden administration should say, ’Absolutely not. You, China, provided a lot of loans and a lot of credit for your own purposes, and this is something we’re going to do together — and that designation isn’t going to get you out of it.’”