BRI Notebook: Why does the developing country status matter to China?

Editor’s Note: The BRI Notebook section is created to offer more timely content on developments that may be of interest to our readers. In this issue of the BRI Notebook, we will feature a recently published Chinese article on the timely topic of China’s developing country status.

At the just concluded annual UN climate conference (COP27) in Egypt, the chasm between the rich, developed world and poor, developing countries was once again exposed to the world as countries engaged in sometimes bitter arguments over responsibilities to rein in runaway climate change or pay for the damages already happening.

In such debates, China’s status as a developing country is becoming increasingly awkward. The country sides firmly with the G77 group of developing countries on most issues, but it is the world’s largest emitter on an annual basis, even though in historical terms, the US and Europe are responsible for most of the greenhouse gases currently in the atmosphere. This has created some thorny issues for China. Should it be shielded from more obligations as most developing countries are? And should it contribute to funds that are often vehicles for rich countries to support climate action in the Global South?

China’s developing vs. developed identity crisis is not restricted in the climate realm. In foreign aid, its status also affects how other countries approach China, as a recipient of aid, as a donor country and as a development partner.

Recently, Guo Yu, the chief editor of the Ministry of Commerce (MOFCOM)’s in-house journal International Economic Cooperation, wrote an article titled “China’s developing country status from the perspective of development cooperation”, which presents a critical overview of the source of dispute, its impact and China’s possible response. From her analysis, one can get a sense of the complexity of the exercise to group countries and assign them specific roles on the global stage. 

Is China still a developing country?

Guo’s article highlights the intrinsic blurriness of the concept “developing country”, arguing that it is largely a customary reference rather than a rigorous classification. The term was first used at the first UN Conference for Trade and Development (UNCTAD) in 1964 to refer to a group of 77 countries from Asia, Africa and Latin America that fell outside the Western or Soviet blocs. The grouping does not, however, have measurable indicators for categorization and is highly fluid, having grown to well beyond 77 countries since its founding.

She also argues that the concept of High Income Countries (HIC), used by the World Bank to classify the world’s economies based on their Gross National Income (GNI) per capita, is often mixed up with the concept of developed countries. South Korea reached HIC status in 1993 by World Bank standard, but it only willingly gave up its developing country status under the World Trade Organization in 2019 (developing country status in the WTO brings certain rights, see here). And two years later, UNCTAD formally recognized it as a “developed economy”. There was almost a one and half decade gap between Korea’s graduation from a Middle Income Country to “developed country”. 

There is a further complication in development assistance that some aid recipient countries are also becoming donor countries themselves, blurring the line that usually divides donor (developed) and recipient (developing) countries. This overlapping often happens in upper-middle income countries, such as Turkey and others.

Guo uses 4 sets of data to try to locate today’s China in the development matrix. The country’s 2020 per capita GDP (10434 USD) is only 1/6 of that of the US and 1/2 of the lowest tier advanced economies, and puts it firmly in the group of emerging economies (IMF); China’s 2021 per capita GNI stood at 12440 USD, which ranks it as an upper-middle income country (World Bank); Its 2019 Human Development Index (HDI) was 0.671, a medium human development country (UNDP).

More interestingly, Guo looked at the scale of Chinese foreign aid in comparison with other countries. Between 2015-2020, Chinese foreign aid amounts to USD 2.85 billion, much lower than Turkey’s 7.35 billion but on a par with high-income Saudi Arabia (2.2 billion) and much higher than India (1.42 billion). 

Guo also pointed out that the world’s perception of China’s developmental status changed after two watershed moments in the country’s economic history: in 2010 its GDP surpassed that of Japan to become the world’s second largest, and in 2012 China became a net donor country as its outgoing foreign assistance exceeded incoming aid. And this changing perception, more than China’s actual developmental status, influenced how other countries approach China on the global stage.

Guo Yu, chief editor of International Economic Cooperation

What is the consequence of losing the developing status

This changed perception is apparently putting a lot of pressure on China. “Certain countries feel uneasy with China’s changing standing,” Guo wrote, “and some developed countries are trying to force China to give up its developing country status.”

This of course carries significant implications. One big concern, as expressed by Guo, is that China would be compelled to take on obligations that are beyond its capabilities. Moreover, China’s entire mode of international development assistance will be put under fierce scrutiny as a “rival” rather than a relatively inexperienced newcomer: “The era when China’s foreign aid can be left to grow naturally is about to end,” she lamented, “the field is now a war zone.” This is especially true between China and the US, as the two countries move from a benign relationship of competition-cooperation to a bloc-based rivalry. A series of US initiatives such as B3W, Indo-Pacific Strategy and Indo-Pacific Economic Framework are presented as alternatives and replacement of the BRI.

In the foreign aid area, such pressure means that China’s aid practices may be subject to more requests for alignment and regulation. Guo wrote alarmingly of the OECD Development Assistance Committee (DAC)’s attempt to expand the scope of Official Development Assistance (ODA) by introducing the concept of Total Official Support for Sustainable Development (TOSSD), so that “the aid models of emerging donor countries and South-South cooperation can be put under a framework of scrutiny.” In addition, Western countries are fanning expectations in the Global South for China to increase its foreign aid substantially, she claimed.

What should China do?

In light of this pressure, Guo’s advice is first to weigh the pros and cons of joining OECD DAC to actively shape international rules or keeping a distance from it by running a parallel system for the time being.

Guo’s assessment is that China may still have about a 10-year window to figure this out. She expects China to pass the HIC threshold in around 2024. And it still takes a few more years for China’s per capita GDP to reach that of the bottom tier of the European Union countries, which is around 20,000 USD. This window gives China some flexibility in exploring its position. And Guo argues that it is critical for China to clarify such positions when negotiations for the post-2030 UN SDG framework begin, so that it can actively influence its direction based on its renewed understanding of national interest and responsibilities.

One key argument she made is that the “developing country” identity is as much a political, cultural and historical value proposition as it is a state of economic development. In 2018, Xi Jinping famously stated that “China will always be part of the developing countries group”, signaling a solidarity with what was previously called the Third World. Guo maintains that this does not indicate China would insist on enjoying the favored treatments available for less developed countries, but rather that its assistance to other developing countries should be put under the framework of South-South and peer-to-peer cooperation, not traditional donor-recipient relations. China will uphold its developing country values and standpoints while offering assistance and public goods with the principle of “common but differentiated principle,” she wrote.

Indeed, this balance of developing country camaraderie and non-traditional aid approach was evident in China’s position on a “loss and damage” fund, the key agenda item and outcome at COP27 earlier this month. As a fellow developing country, China vocally supported the establishment of such a fund but insisted that it has no duty to pay into it. At the same time, however, China’s negotiators made clear that China is and will continue to work with developing countries on mitigation and adaptation via its own South-South cooperation programs.

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