Avoiding middle-income trap relies on Chinese reforms

By Ai Jun Source:Global Times Published: 2016/6/13 0:43:01

An op-ed published in the People's Daily Sunday subtitled "It is impossible for China to fall into the Latin-American-style middle-income trap" mapped out an optimistic short-term blueprint for China's economic development. According to the article, there is no room to doubt that China will stride over the middle-income trap and join the club of high-income economies by 2024.

Despite the good faith voiced by the author, the goal of leaping over the trap will however require more efforts than simply raising income. Before the discussion on how soon we can avoid the risk of stagnating in the middle-income range - the situation where a country's growth gets stuck after reaching middle-income levels - how to realize sustainable development as well as several shortcomings in China's current development must not be overlooked.

At a time of economic transformation, the nation is still facing tremendous difficulties. In the property industry, a rapidly emerging real estate bubble has turned into the biggest threat to China's economy. Large-scale investment in this field has led to overcapacity of factories and housing, which will in turn impose negative influences on the building materials and banking industries.

Not a single country has ever advanced from middle-income status to the ranks of the truly developed through the development of real estate. However, real estate is still attracting increasing funds in China. This money should be invested in industrial enterprises, which are generally short of capital for the moment. Otherwise, it will be hard for the country to bail the economy out of its slump any time soon.

Along with China's rapid economic boom over the past decades, a growing number of puzzles also emerged, including unequal distribution of wealth, a phenomenon that is even worsening right now between urban and rural areas, the coast and inland. If these trends cannot be reversed, people's resentment against the rich will spread, social stability will not be secured and students in the country will have to face unequal access to educational opportunities, which means China can hardly cultivate enough talented people to lead the nation to the next level.

Many nations, such as Chile and Uruguay, have greatly raised their per capita income, yet are now up against the risk of falling back into the trap due to an abortive transformation. It means that China, in the midst of its own structural transformation, cannot rest easily on its laurels. It is thus a bit early to make a final judgment in a cheerful mood. Whether China can escape the trap lies on how the reforms will be carried out and how we deal with all the bumps on the road, rather than the plan itself.


Posted in: Observer

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