{"id":1321,"date":"2014-03-05T09:03:10","date_gmt":"2014-03-05T08:03:10","guid":{"rendered":"http:\/\/blogg.lnu.se\/china-research\/?p=1321"},"modified":"2014-03-05T10:17:42","modified_gmt":"2014-03-05T09:17:42","slug":"re-visited-is-china-facing-the-middle-income-trap","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=1321","title":{"rendered":"Re-visited \u2013 Is China Facing the Middle-Income Trap ?"},"content":{"rendered":"

Aiyar <\/em>et al (2013) define the \u201cmiddle income trap\u201d as \u201ca phenomenon with hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries\u201d. Eichengreen <\/em>et al (2013) use in a relatively recent analysis the critical \u201cmodes\u201d for possibly commencing middle-income trap problems at the GDP per capita range of USD 10 000-12\u00a0000 and at the USD 15 000-16 000 level .<\/p>\n

Thus, Eichengreen and al rather regard the middle-income trap as a process which can contain several steps. Following Eichengreen et al, China could currently indeed be relatively close to the lower mode \u2013 but this still uncertain. Interestingly, Eichengreen et al also conclude that the verification of a middle-income trap situation has shown a sustained reduction in the GDP-growth rate for as much as seven years; so far China has \u2013 the strong stimulus year of 2010 subtracted\u00a0 – noted\u00a0 five out of these seven years with the declining growth phenomenon (if we define two years with equal official growth rates as shrinking on trend; the average Chinese GDP growth declined during 2009-2013 to roughly 9 percent compared to 11 \u00bd percent during 2004-2008, with no major changes in average credit growth during these two periods ).<\/p>\n

But Eichengreen et al have also found that some other characteristics which until now fit quite well to China and the description of a potential trapped middle-income country. They mention mainly quite high GDP-growth rates before the visible weakening of growth rates, a worsening demographic outlook, very high investment ratios and an undervalued currency. These criteria are very much in line with China\u2019s development in recent years \u2013 but still too short-lived for making sufficiently sure about China\u2019s real position in a \u201cmiddle-income trap\u201d application.<\/p>\n

Since we do not know enough about the answer to the question whether China is about to enter the stage of a \u201cmiddle income trap\u201d or not, it would be very prudent if China could adapt the reasonable economic strategy plans of CPC\u2019s\u00a0 Third Forum congregation in November 2013 as much as possible. The degree of urgency may be somewhat uncertain \u2013 but certainly not the need of putting China fundamentally and structurally forward by new strategies and reforms in a lot of political, social and economic areas.<\/p>\n

One should acknowledge that a lot of strategies that are needed for avoiding the trap of a middle-income country according to modern literature (also Ag\u00e9nor et al 2012), actually can be found in the Communist Party\u2019s\u00a0 60 different reform chapters of the Third Plenum from November 2013.<\/em><\/p>\n

Interestingly, Ag\u00e9nor and his co-writers add in their article in general terms: \u201cThe middle-income trap is avoidable if governments act early \u2013 rather than late, when the benefits of cheap labor and the gains from imitating foreign technology are all exhausted\u00a0 \u2013\u00a0 and decisively to promote innovation.\u201d<\/p>\n

To sum up<\/em>: China faces the concrete risk to be caught in the middle-income trap \u2013 but it is probably not (quite?) there yet.\u00a0 Many of the most needed urgent policy changes, however, are part of the Third Plenum\u2019s envisaged strategy changes and improvements. Following Ag\u00e9nor\u2019s advice, there is no time to lose for China\u2019s political leaders to meet their own \u2013 reasonable – strategies and plans from the Third Plenum with courage and decisiveness.<\/p>\n

References<\/em><\/strong><\/p>\n

Ag\u00e9nor<\/strong>, P-R et al (2012), \u201cAvoiding Middle-Income Growth Traps\u201d, Voxeu, December 21.<\/p>\n

Aiyar, <\/strong>S et al (2013), \u201cGrowth Slowdowns and the Middle-Income Trap\u201d, IMF Working Paper 13\/71.<\/p>\n

Eichengreen<\/strong>, B <\/strong>et al (2013), \u201cGrowth Slowdowns Redux: New Evidence on the Middle Income Trap\u201d, NBER Working Paper No 18673.<\/p>\n

Langhammer<\/strong>, Rolf (2012), \u201cChina Ahead of a Middle-Income Trap?\u201d LNU blog:\u00a0 www.chinareserach.se, from February 6.<\/p>\n

Third Plenum <\/strong>(2013), \u201cThe Decision On Major Issues Concerning Comprehensively Deepening\u00a0 in Brief\u201d, Communiqu\u00e9: http:\/www.china.org.cn.\/china\/third_plenary_session\/2014-01\/16\/content_31212602_15htm<\/p>\n

 <\/p>\n

 <\/p>\n

\"\"<\/p>\n

Hubert Fromlet<\/em><\/strong>
\n<\/em>Visiting Professor of International Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n

 <\/p>\n

Back to Start Page<\/a>
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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