Opinion | How politics will decide whether China becomes a high-income economy
Cary Huang says its Communist leaders must embrace the free market and democratic institutions if the country is to escape the middle-income trap
One striking feature of China’s economic success is the consistency of its double-digit average annual growth rate from the late 1970s up to recently. Now, however, decades of phenomenal expansion have come to an end, with growth faltering much faster than expected in the past few years. Last year’s 6.9 per cent annual growth, the lowest since 1990, has raised fears of a protracted period of subdued growth, known as the “middle-income trap” among academics.
With the world watching to see how China will tackle the challenges, Premier Li Keqiang (李克強) has, in his recent state-of-the-union policy statement, reinforced fears by declaring that the economy is facing a “difficult battle” to avoid falling into such a trap over next five years.
READ MORE: China’s looming battle with the middle-income trap as growth falters at faster-than-expected rate
The World Bank defines middle-income nations as those with a per capita income of between US$1,006 and US$12,275. China’s figure stood at about US$7,500 last year, based on the current exchange rate.
Countries across Latin America and the Middle East hit an invisible ceiling after witnessing catch-up growth in the 1960s and 1970s and have mostly languished there ever since. According to the World Bank, just 13 of 101 countries and economies have escaped the middle-income trap.
Some argue that China can avoid the fall based on its economic success and experience gained in the recent past. But academic studies have found that going from a middle-income country to a high-income country is far more complicated than the move up from a low-income nation. China’s development strategies that have proved very successful in the past may not necessarily be as effective today.