China has come a long way in its remarkable economic transformation from 40 years ago. It is much richer and stronger than it was, but it still considers itself to be a developing country that has a way to go to reach its potential.
How does this view affect what rules and laws China follows in trying to close the gap between itself and developed countries?
If China is dominating the international economy, as you might conclude from headlines, why is it classified as “developing” and why does it get special treatment?
The answer is fairly simple: When China began the process of joining the WTO in 1986, it was, in fact, quite poor. Its GDP per capita, taking into account purchasing power parity (PPP), was around $677, compared to $19,078 for the United States. However, the critics are right that China’s economy has grown substantially in recent years, and it is now time for China to become a more equal partner in international economic affairs.
There is no official WTO classification as to which countries are “developing.” This status is self-selected, based on politics more than law or economics, and can be contested. It is a controversial point that usually stays buried beneath the surface, but occasionally flares up into minor controversy.
By declaring itself a developing country as part of the negotiations, China was able to take on fewer commitments at the WTO. However, 17 years into its WTO membership, China has surged to become the second largest economy in the world. Parts of China are now as advanced as parts of the industrialized world.
At the same time, before you assume that China has now “graduated” to rich country status, keep in mind that not all Chinese are doing so well. National Economic Council Director Larry Kudlow recently said, “China is a first-world economy, behaving like a third-world economy,” but that is an exaggeration.
China’s GDP per capita, measured with PPP, was $16,660 in 2017. That is a vast improvement over where it was in 1986, or in 2001 when it joined the WTO, but it is still much lower than the United States ($59,501).
This low figure for average wealth, despite high incomes in some big cities, is the result of substantial income inequality in China. And as a result, China can still call itself “developing” in the context of the WTO.
Nevertheless, it is undeniable that China is much richer as a whole than it used to be, and this is largely thanks to the economic reform, including lowering its tariffs and liberalizing some sectors of the economy, that accompanied China’s accession to the WTO. In this sense, its economic status has changed. While it is still developing, it is much closer to the developed countries than before.
China’s changed economic circumstances mean that its role in the world trading system merits reconsideration. A key objective of the WTO is to raise living standards, and although China’s WTO membership has helped in this regard it still has a long way to go.
While China should maintain its developing country status, if it wants to avoid the ire of the Trump administration and the world community, China should pay back some of the “raise” it got by playing a more active role in supporting the world trading system.
China uses “developing country status” to justify higher levels of protectionism for it’s domestic economy, so as to foster domestic companies which are not able to compete against international players; as well as justification of “catch-up” policies such as IP “transfers”, which allow it to clime the value chain for higher level manufacturing, eventually to be on par with or surpass global leaders.