China developing and developed at the same time Analysis by Foreign Policy

The Foreign Policy magazine has published an article arguing that the world’s second-largest economy has a historically unique economic status. Caliber.Az reprints the article.

The US House of Representatives recently voted unanimously that China should no longer be considered a “developing country.” A major motivation is to deny China the preferential treatment it receives as a developing country under the World Trade Organization, the UN climate framework, and other international arrangements.

Indeed, from Africa to Latin America and even Europe, China is very much adopting the role of a rich global power.

And yet, China continues to exhibit many traits of a developing country, including in energy and other areas, and particularly outside the major urban centres most visible to foreigners. The truth about China’s status as a developing country is far more complex.

China has transformed itself from a low-income country in the 1990s into the world’s second-largest economy, with many attributes of a rich global power projecting its economic and diplomatic influence abroad. Earlier this year, French President Emmanuel Macron became another in a line of European leaders to visit China, soliciting closer business ties, while also hoping to encourage Beijing to exercise its influence on Moscow regarding the invasion of Ukraine. China is projecting itself increasingly in international affairs, with the largest number of foreign postings (surpassing the United States) and repeatedly mobilizations of its military (third behind the US and Russia) to the disquiet of its neighbours and others. Indeed, China is acting very much like a wealthy global power.

But China also still exhibits various characteristics of a developing country, including a population of more than 200 million people without access to clean cooking technologies; widespread pollution; and a ranking under the Human Development Index—which focuses on health and education outcomes—of 79th out of 191 countries (scoring below, for example, Sri Lanka and Iran). Even its continuing heavy reliance on coal, a cheap but dirty fuel, is arguably a developing country trait that contrasts with the substantially lower shares achieved by advanced economies such as those of the European Union and the United States.

China is expected soon to graduate from “middle income” into “high income” under the World Bank country classification system—which arguably is part of the reasoning underlying the US House vote—but this change won’t immediately erase its developing country aspects. For example, the International Energy Agency (IEA) has estimated that it will take China until 2030 to provide basic clean cooking access to all. Moreover, China is still, in US dollar terms, far from the income levels enjoyed in developed Organization for Economic Cooperation and Development economies; notably, its GDP per capita is currently half that of Portugal and equates to the average income of the world population across all developed and developing countries.

Similarly, while only 2 per cent of Portugal’s population lived below the poverty threshold of $6.85 a day in 2019, the corresponding figure for China was more than 10 times bigger, at 25 per cent. Achieving the levels of Portugal and other advanced economies will require not only time but continued success in maintaining robust growth.

In assessing China, it is important to recognize that it presents a unique situation: a country combining developed and developing country traits with global clout. It is the world’s lone “hybrid superpower.”

Energy is an area that illustrates this dynamic. Consistent with its income level, China is still at a development stage where it relies on increasing energy use to power further economic growth. The IEA projects that China, already the world’s largest energy user, will need to procure nearly 20 per cent more by 2040. This contrasts with advanced economies, such as the United States., Japan, and the European Union, where energy consumption is projected to fall.

Securing these larger amounts of energy is and will remain a major concern for Beijing’s decision-makers. Notwithstanding its extensive domestic resources (such as coal, oil, and renewables), much of China’s energy will need to be imported, which in turn will affect its approach to the Middle East and other energy exporters, including Russia. Beijing’s recent diplomatic efforts toward Saudi Arabia and brokering a rapprochement between Saudi Arabia and Iran arguably reflect its interest in enhancing the stability of its oil imports from the region.

Domestic poverty will also affect China’s strategies. While it showcases the skyline of Shanghai and other advancements (such as its high-speed rail system), poverty remains a reality for millions of Chinese households. In addition to the 200 million without access to clean cooking, many others rely on coal to heat their homes. Similarly, while Beijing enjoys GDP per capita levels resembling Europe, households in China’s poorest region face levels similar to Peru. China has succeeded in eliminating the extreme poverty burdening most developing countries, and it is now home to a burgeoning middle class, but many families still lack quality standards of living, particularly in rural areas. Addressing these issues will require Beijing’s attention and resources.

This duality of China’s hybrid development status can arguably be seen in the “near-peer” descriptor used by the US national intelligence community in its 2021 annual threat assessment report. As Director of National Intelligence Avril Haines explained to Congress at the time: “While China poses an increasingly formidable challenge to the US role in global affairs, it is worth noting that its economic, environmental and demographic vulnerabilities all threaten to complicate its ability to manage the transition to the dominant role it aspires to in the decades ahead.” Some of those constraints flow from its developing country traits.

China’s efforts to sustain robust economic growth rates will face significant hurdles and uncertainties. Even as it breaks through the middle-income trap into the high-income country classification, Beijing will face what can be termed the “post-middle income quagmire,” namely overcoming the hurdles former middle-income countries have confronted in trying to achieve the $20,000 per capita income level enjoyed by even less affluent advanced economies. Few countries have been able to do so—South Korea and various petrostates being the notable exceptions.

Beijing has launched a “dual circulation” economic strategy that relies significantly on maturing domestic markets to power growth, but constructive relations with the world’s advanced economies will continue to be vital to maintaining the country’s robust economic growth. In this regard, China isn’t rich enough to “go it alone” or just with Russia, etc. 

Notably, export revenues remain central to China’s economic growth, more than doubling over the last decade to over $3.5 trillion, with the advanced economies of the United States, Japan, Germany, and South Korea leading the way as the biggest importers of Chinese goods. As I recently wrote in a Washington Post opinion letter, Beijing’s growth objectives continue to be best advanced by supportive “conditions internationally [that enable it] to profit from the global economy.”

Domestically, sustaining further growth may necessitate heavy reliance on the private sector, as has typified advanced economies but contrasts with the statist approach employed by Beijing to date. Although China has relied on the state sector to break through the “middle-income trap,” it is uncertain that this approach can enable it to escape the “post-middle income quagmire.”

China will also inevitably face uncertain domestic political dynamics as higher incomes affect political and social aspirations, particularly of younger urban populations raised surrounded by a degree of affluence that is markedly different from the low-income developing country context in which Beijing’s political leadership came of age. Another issue is the extent to which noneconomic goals distract or even detract from growth objectives.

China will also face the challenge of climate change, a new and emerging jeopardy that the current cohort of advanced economies had not confronted on their own successful development paths. Sea level rise for a country with hundreds of millions living in its coastal provinces, as well as the destruction from more intense droughts heat waves and flooding pose a threat to China’s growth, one that arguably has already started to show its disruptive potential.

China’s still modest per capita income levels make needed adaptation and resilience efforts more difficult than for wealthier advanced economies, particularly at the household level. While China has recently returned to coal to power short-term economic benefits notwithstanding the attendant greenhouse gas emissions, this may ultimately undermine the country’s ability to retain the gains of growth over the longer term.

Indeed, there are real questions whether China will become wealthy enough quickly enough to withstand the negative economic impacts of climate change when they occur—and whether such an approach is a viable option for any country, developing or advanced. Significantly, climate change poses a new development threat for any nation that still has far to grow to achieve the income levels of advanced economies, and it will make the journey through the “post-middle income quagmire” more daunting.

How to deal with China? That is a critical question facing the US and other governments around the world. Understanding that China is a developed/developing hybrid seeking to expand its global influence—i.e., a hybrid superpower—can help the United States to better evaluate, prepare for, and address a rising China.