The US Senate Foreign Relations Committee has approved the change, nearly three months after the US House of Representatives unanimously agreed that the US should stop granting China the 'developing country' status in future treaties and on international forums.

The next step is for the US Secretary of State Antony Blinken to persuade multilateral organisations like the World Trade Organisation to classify the nearly $20 trillion Asian economy — the second largest in the world since 2021 — as a 'developed' economy.

This would make it easier for developed countries like the US, and its allies in Europe, to take away the trade privileges and reduce room for subsidies that Beijing can provide, as well as cut down fresh international aid from the likes of the World Bank.

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The current list of 152 developing countries, according to the International Monetary Fund, includes the whole of South America, Africa and many Asian countries.

These are some of the other countries that are also classified as developing economies:

Source: International Monetary Fund and The World Bank

So, what are the benefits of having the ‘developing economy’ status?

Developing economies get cheaper loans and more time to adhere to international obligations, for instance, under the World Trade Organisation. This is, essentially, intended to give nations a chance to catch up with their bigger, more developed parts of the world.

As Brett D. Schaefer from the Heritage Foundation argued in March this year, while richer countries have to show a 85% cut in the production (and consumption) of hydrofluorocarbon by 2036, developing countries including China get another 10 years to hit the target. This is an important target aimed at slowing down the depletion of the ozone layer in the earth’s atmosphere, which in turn will help in slowing down global warming.

The World Bank lends billions of dollars to developing countries every year. The International Bank of Reconstruction and Development (part of the World Bank Group) has committed over $677 billion to 442 projects in China.

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There are benefits in international trade as well, although the WTO itself doesn’t categorise countries as ‘developing’ or ‘developed’. The member country can claim any status it likes, and others can challenge it. A developing economy can decide to give its populace subsidised food and it won’t be a violation of the WTO rules.

There are reliefs provided by the WTO and these range from extra room for agricultural subsidies to export incentives and import tariffs, a provision to delay the applicability of patents, and much more.

If the US is able to convince the international community that China is no longer a developing economy, Xi Jinping will have another set of challenges in his hand. The factory of the world, which is already growing a lot slower than it used to, will be a lot less competitive than it has been.

First Published:Jun 15, 2023 8:33 AM IST