PM Morrison argue China is not a “developing country”

Thoughts on China's economic engagement and Australia-China relations

Australian Prime Minister Scott Morrison, in a speech delivered in Chicago (on September 23) during his visit to the US, argued that China should lose its “developing country” status under WTO rules:

China’s economic growth is welcomed by Australia and we recognise the economic maturity that it has now realised as a newly developed economy. This was the point of the world’s economic engagement with China. Having achieved this status, it is important that China’s trade arrangements, participation in addressing important global environmental challenges like the ones I just mentioned, that there is transparency in their partnerships and support for developing nations, all of this needs to reflect this new status and the responsibilities that go with it as a very major world power.

What’s the big fuss?

Under the World Trade Organization rules, “developing countries” are given concessions, such as lower labour and environmental standards, and the ability to protect their own industries. “Developed countries” must conform to higher standards. This gives poorer countries more leeway to catch up with rich ones.

There are no formal definitions for “developing” as opposed to “developed” country status under WTO agreements.

The difficulty with China is that China has both the characteristics of developing as well as developed countries. By some measures such as literacy and life expectancy, China is comparable to many developed countries, but other measures such as GDP per capita, it still far behind rich countries. Its GDP per capita in 2018 was about US$9,600, compared to Australia’s US$56,000.

China is a different country now

China in 2001, when it joined the WTO, had a GDP of around US$1.3 trillion USD, today it is over US$14 trillion. So, China has done tremendously well from the international trading system.

Chinese officials continue to argue that it is still a “developing country”  because of its overall level of development and because China doesn’t want to lose the benefits that it gets from the “developing” status. I don’t see it changing position on that any time soon.

However, US, Australia and other developed economies are increasingly seeing China as having unfair advantages, because of the lower standards, but as well as questionable trade and regulatory practices, and China’s state-led economic structure.

The conundrum of economic reform

Regardless, China needs to reform its economy, including its financial sector, state-owned enterprises, intellectual property rules, the state-involvement in the economy, and barriers to inward foreign investment. 

But the complexity is that the current structure of China’s economy is the root of the Chinese Communist Party’s power. Economic growth has enabled the Party to keep its grips on power as other authoritarian regimes collapsed around the world.

The key tension is the party’s imperative to keep control of the economic levers, on the one hand, and on the other, the need for China to reform its economic structure, both to maintain its economic growth but also to address international concerns.

We are likely to see some cautious and incremental measures, but I doubt we would see any major economic reform in China’s current political climate with tighter party control and risk-aversion.

Triangular relation: Canberra, Beijing, Washington

Morrison’s latest words will fit into existing narratives in Beijing of an ungrateful Canberra that is solidly in the US camp despite having been a great beneficiary of China’s economic growth. 

Although, the Prime Minister in his QnA following the speech did highlight where American and Australian views may differ on China. He pointed out, rightly, that Australia’s economic engagement with China has been enormously beneficial to Australia and this has shaped how Australians view China. He said:

From Australia’s point of view, the engagement with China has been enormously beneficial to our country and that’s what led us to develop the Comprehensive Strategic Partnership we have with China, the China-Australia Free Trade Agreement which was quite revolutionary [indistinct] and we want to see that continue.

Of course, the US has also greatly benefited from trade with China, but there the political narrative has turned more sharply against China than in Australia.

On Australia-China relations, countries trade not because they are nice, but because it is in their interests to do so. Australia and China have both benefited from their trade with each other, it is far from one-sided despite the narratives spined out by Chinese state media.

Also, we have to remember that there has been a continued heated China debate in Australia; on foreign interference, on 5G and on a variety of other issues. While Beijing may not like the content and tenor of this debate, it is a much-needed discussion as part of a recalibration to put bilateral relations between Australia and China on a more solid long term footing.

And over the long term, navigating the triangular relationship between Australia-US-China is and will continue to be the top challenge for Australia’s foreign policy, a challenge made more pronounced by intensifying strategic competition between US and China.