China’s looming battle with the middle-income trap as growth falters at faster-than-expected rate

Premier Li Keqiang declared in his state-of-the-union address the nation faced “a difficult battle” to keep annual GDP growth at a minimum of 6.5 per cent in the next five years.

The remark on Saturday highlights the struggle China faces to avoid being caught in the “middle-income trap”.

After decades of breakneck expansion, China’s growth is faltering at a rate much faster than expected. Last year’s economic growth of 6.9 per cent was the lowest rate of increase since 1990. The world is now watching just how rapidly China can continue to expand – and just what the government needs to do to keep the nation’s economy ticking over.

The ambitious target of 6.5 per cent GDP growth set in the 13th five-year plan shows that the nation’s leaders are prioritising expansion, even as they look to strike a balance between short-term stimulus and structural reform for sustainable growth.

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By 2020, the country’s plan is to have doubled gross domestic product and per capita income from levels a decade earlier in a push to transform China into a “moderately prosperous society”.