Speculation and theorizing have recently abounded both domestically and overseas concerning China's chances of falling into the middle-income trap.
Let us first take a look at what the phrase "middle-income trap" actually means. The concept was first put forth in an East Asian Economic Development Report by the World Bank in 2006. It refers to a country that has reached the middle-income level on a per-capita basis fails to transform its development strategies and models. Its developmental momentum subsequently falters, whereupon it finds itself in a purgatory of economic stagnation. According to the standards set by the World Bank, a per-capita GDP above $3,856 is considered to be at middle-income level while one above $11,905 would be counted as a high-income level.
Statistics show that once a country's per-capita GDP reaches $7,000, the growth of this indicator tends to decelerate conspicuously and the country in question runs the risk of falling into the middle-income trap. However, neither economic stagnation nor slowdown necessarily equate to such an outcome. Several other conditions need to be met, namely a sizeable gap between the wealthy and the poor, a shortage of public services, difficulties with respect to job creation and unemployment, social instability and a fragile financial system.
China's per-capita GDP registered over $7,000 last year, a sum that falls within the middle-income range according to the World Bank's standard. Since the fourth quarter of 2012, China's economic growth rate has fallen from around 8 percent to closer to the 7-percent mark.
However, China's social stability and growing employment market, as well as the country's improved public services, per-capita income and living standards all indicate that the country is at present standing well clear of the economic crevice.
But taking the long view, is China destined to ultimately slip into the trap? In my view, this is not likely--at least not within the next five to 10 years--and this owes to the sustainability engendered by the country's comprehensive reforms.
China's economic slowdown was eminently foreseeable as no single country could have been expected to maintain such runaway growth perennially. Countries such as the United States, Japan and Germany have all had experiences of a similar nature. What's more, China's economic slowdown is partly attributable to the country's efforts to put its economic growth on a more sustainable path. With comprehensive reforms having been implemented nationwide since last year, China's growth is expected to remain within a reasonable range.
As the Chinese Government has always focused on increasing employment, China's employment situation is unlikely to worsen. In recent years, the number of newly employed people in China has been consistently on the up and the national registered unemployment rate has been maintained below 4 percent. Given its present situation, China's employment situation and the quality of employees it produces will both improve within the next five to 10 years.
A common reason for countries finding themselves trapped is failure to transform or transcend their low-end manufacturing industries. As a world's factory, China used to mainly produce consumer goods that require low production technology and possessed low added value. At present, however, the country is upgrading its manufacturing industries. From these efforts, hopefully, a new economic growth model will gradually take shape.
Every country that reaches the middle-income plateau faces huge challenges to maintain an upward trend. The Chinese Government's ongoing reforms of its income distribution, finance, and tax systems as well as the aforementioned overhaul of the country's industrial structure are bound, however, to steer the country well clear of the middle-income danger zone.
