China is weighing the risk of losing trade benefits and carbon emission exemptions after the United States House of Representatives passed a bill that calls for revoking “developing country” status of what is now the world’s second-largest economy.
The bipartisan bill, titled “The People’s Republic of China Is Not a Developing Country Act,” was passed by a unanimous vote of 415-0 under a fast-track process on Monday (March 27). It will need approval from the Senate and the US president before it becomes law.
Chinese commentators warned that if the act is passed, as seems likely, China will face higher tariffs, rising production costs, more obligations to cut greenhouse gas emissions and a significant reduction in international preferential loans – all of which would ultimately lead to job losses in China.
The impetus behind the bill goes back to February 2020, when then-US president Donald Trump said the US would treat 25 countries, including China, India and South Africa, as developed nations to eliminate the preferential trade treatment they receive in countervailing duty investigations.
Earlier this week, while US lawmakers advanced the current bipartisan legislation, bill co-sponsor Representative Young Kim pointed out that China – which overtook Japan as the world’s second-largest economy in 2010 – now accounts for 18.7% of the global economy.
She said China had been taking out low-interest loans from international organizations while at the same time spending trillions on infrastructure projects in other countries as part of its Belt and Road Initiative. She described the BRI as a “debt-trap diplomacy scam.”
The Chinese foreign ministry has not yet commented on the latest punitive bill but responded to the accusations of causing “debt traps” in other countries.
Mao Ning, a foreign ministry spokesperson, said on March 30 that China has been helping other developing nations reduce their debts. She said these countries’ debt problems were fueled more by the US Federal Reserve’s interest rate hikes last year.
Currently, China is considered to be a “developing country” by organizations including the United Nations, although there are no clear definitions of the terms “developing” and “developed.”
One Chinese writer on Weibo said in a recent article that China will take a serious blow if the “PRC Is Not a Developing Country Act” takes effect.
China now enjoys trade-remedy and anti-dumping exemptions from the World Trade Organization (WTO), financial aid from the World Bank, technical and financial support from international organizations, lower tariffs for many of its exports, agricultural support from the UN’s Food and Agriculture Organization (FAO), scientific research funding from developed countries and additional time before it is required to reach the world’s intellectual property protection standards due to its developing nation status, he notes.
“As a developing country, China can get international support to tackle environmental and climate change challenges and receive technologies and funding that promote sustainable development,” he writes, noting that the UN Development Program (UNDP) and the World Health Organization (WHO) have both initiated a series of social and economic development projects in the country that could be in jeopardy with a switch in designation from developing to developed.
He blames some “patriotic” internet influencers for having overblown China’s economic and technological achievements, which have now become ammunition for US politicians to target China’s privileges in the international order.
“If China is classified as a developed country, it will no longer be able to enjoy low tariffs, and its exports will decline,” a Guangdong-based columnist who writes under a “Blockbuster” pseudonym said.
“As foreign countries will impose stricter technology export rules on China, Chinese technology will not be able to obtain the technologies and parts they need.”
The writer also notes China won’t be able to apply for low-cost loans from multilateral development banks, including even the Beijing-based Asian Infrastructure Investment Bank (AIIB), if it is designated a developed nation.
A Chongqing-based writer says it is possible that China will also lose its most favored nation (MFN) status, which grants Chinese exporters preferential tariff treatment. He says a shift from developing to developed status will specifically erode China’s exports of machines and electronic goods and cause higher fuel and mineral import costs.
Other commentators note China would face more international pressure to cut its carbon emissions if it is categorized as a developed nation. Due to its developing status, China now enjoys more flexibility in deciding the pace of its carbon emission reduction.
China surpassed the US to become the world’s largest CO2 emitter in 2005. In 2021, China’s carbon emissions hit a record high of 13,078 million tons, which far outpaced the US’s 5,289 million tons and the European Union’s 3,438 million tons, according to the EU’s Joint Research Center.
The US has vowed to halve its 2005 greenhouse gas emission level by 2030. China is currently targeting for its CO2 emissions to peak by 2030 and achieve net zero by 2060.
Chinese state media, for its part, say China should not be over-worried as the US’s call to designate China as a developed nation will not likely be accepted by most international organizations.
The Beijing Daily said in an article on March 30 that China is definitely not a developed country as its GDP per capita was only US$14,000 last year, compared with Luxembourg’s $127,000, the United States’ $75,000 and Japan’s $34,000.
GDP at purchasing power parity is considered by some a better tool than nominal GDP to compare different economies as it takes into account the relative cost of local goods, services and inflation rates of a given country, rather than using international market exchange rates.
China’s GDP (PPP) per capita was significantly higher at about US$21,000 last year, according to the International Monetary Fund.
The Beijing Daily notes China ranks No 85 in the world in terms of the UN Development Program’s Human Development Index, an indicator of a country’s education level, longevity and living standards.
“When has China become a wealthy nation? The US has no say in it,” the state-owned newspaper says. “When our social and economic development reaches that level, we will generously bear the responsibilities and obligations that we should bear.”
The state mouthpiece added that if the US achieves its goal to slow the Chinese economy by labeling it a developed country, Americans will also suffer from higher inflation caused by more expensive Chinese goods.
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