IS CHINA A DEVELOPED COUNTRY? USA changing the rules again in the 'rules-based international order'.
The US Congress passed a law on 29 March 2023 entitled the ‘China is Not a Developing Country Act'. The law sets targets for US representatives to pressure international organizations to change their rules to take away China's developing country status. The author explains the current rules for categorizing countries as 'developed' or 'developing' and then uses photographs rather than words to let viewers judge for themselves if China still looks like a developing country.
by William Paton, Beijing
3 April 2023
The United States Congress voted unanimously on 29 March to pass the ‘PRC is Not a Developing Country Act' (https://www.congress.gov/bill/118th-congress/house-bill/1107/text). This US law calls for international organizations and treaties to change China's status from a 'developing country' to a 'developed country'. It puts pressure on US representatives in such organizations to lobby hard for a rule change specifically to alter China's status.
This breaks decades-old multilateral rules. The World Bank classifies countries with a per capita gross national income of $12,695 or above in 2021 at market rates as high-income or 'developed', in accordance with its statutes. China's GNI per capita in 2021 was $11,880 according to the Bank, thus it remained a 'developing country' (GNI is Gross National Income, or GDP plus foreign income). The USA's GNI per capita in 2021 was $70,480 and Switzerland's $90,600. As you can see, China's GNI per capita is now quite close to the upper limit and they will become a 'developed country' within a few years.
The World Bank and its rules are largely an American creation. The Bank is located in Washington and has always been headed by an American. The Bank's staff spend far more time dealing with American demands than they spend on any other country's business. The US has always nominated a single candidate to become the Bank's head. The subsequent President of the United States has repeatedly forced out the incumbent early in order to replace him with his own appointee. When a country reaches a level equal to about 1/6th of the USA's GNI per capita, it is promoted to 'developed' and must thereafter compete with the USA and other 'developed countries' equally.
Incredibly, no change to the statutes of the World Bank can be made without the American government's approval. The USA is the only country with this power. When an increase in Japan's voting power would have undermined the US veto ten years ago, Washington simply changed the formula. There have been no changes in voting rights since and, indeed, the USA would have to approve any such changes. China has about 5% of voting rights at the Bank's main lending arm while its GDP accounts for 19% of the world economy. The United States today has 16% of the votes at the Bank's lending arm, thus of course the Bank's new rule now requires at least 85% of the vote to make a change. Eighty-five percent is a unique new 'democratic' principle specifically designed to maintain USA control. The other six G7 nations, Canada, France, Germany, Italy, Japan and the UK, have a combined 25% of Bank voting rights despite their combined GDP being smaller than China's. China has long wanted to contribute more capital to the World Bank, but the Western countries, led by the United States refuse, not wishing it to thereby increase its voting rights.
In the World Trade Organization (WTO), USA influence has also been by far the greatest of any nation. In the WTO system, the advantage of being a developing country is mainly in longer 'transition periods.' This gives companies in developing countries more time to prepare to face global competition. Developing countries have reduced voting rights in the WTO and little real power. Indeed, in contrast to the US narrative, developing countries face considerable, asymmetrical barriers to many of their exports, dating back to the founding years of the Organization.
The agenda of the WTO, the implementation of its agreements, and the much-praised dispute settlement system all serve to advance the interests of developed countries, sidelining those of the developing countries.(1)
In addition, the degree of preferential or differential treatment for developing countries has gone into a steep decline for over a decade now, further tilting the trading field in favour of the USA and its allies.(2)
China has lowered its tariffs more than required by the WTO and continues to do so. This policy is motivated by the desire to lower the cost of imports for its consumers, as well as to expose its firms to foreign competition. Historically, the USA maintained high tariffs until its GNI per capita reached more than 300% of China's GNI per capita today, in real terms. Only in the Clinton era did this finally change, because a bi-partisan consensus emerged that freer trade helped American corporations access foreign factories and markets.
Like most American politics these days, the Act defies all reason. Does the USA really wish to force its embarrassed representatives to bang on the table and insist that the US government can change the rules of the 'rules-based international order', once again, in what it believes is its own favour? Is it good strategy to challenge one’s own system? Does it even make sense when China will soon graduate to developed country status anyway? Is this leadership?
The Act, however, makes perfect sense because it plays mainly to domestic political opinion. The US electorate has long since bought the narrative that China is taking advantage of the poor, suffering United States. Such false narratives about China (see Stephen Roach's latest book, Accidental Conflict: American, China and the Clash of False Narratives), have become a huge industry. Detached from reality, the stories relentlessly feed the polls and coffers of the loudest, most sinophobic politicians and attract huge advertising revenues to most media outlets.
Over the last two months, February and March 2023, I have been cycling several times per week in the hills of southern Yunnan province where my spouse and I spend winter. I sometimes stop to take photographs and a few of these photos are shown below. I believe that these pictures show a China that is still a developing country, 3,000 kilometers away from the glitter of Shanghai. I leave it to readers to judge for themselves. ____
(1) ‘WTO and Developing Countries’ (1998), Institute for Policy Studies, Washington -- https://ips-dc.org/wto_and_developing_countries/).
(2) Clara Weinhardt & Till Schöfer (2022), 'Differential treatment for developing countries in the WTO: the unmaking of the North–South distinction in a multipolar world,' Third World Quarterly,43:1,74-93, https://www.tandfonline.com/doi/full/10.1080/01436597.2021.1992271.
