The entry of China into the middle income group and the recent downward trend of growth rate are arousing widespread concern about the possibility of China’s falling into the middle income trap. Middle income trap is a phenomenon that is prevalent a...
The entry of China into the middle income group and the recent downward trend of growth rate are arousing widespread concern about the possibility of China’s falling into the middle income trap. Middle income trap is a phenomenon that is prevalent across Latin America, Middle East, Southeast Asia, Northern Africa etc., and overcoming it requires a totally different strategy or development pattern than when a country moves from an under-developed country to a middle income country. What is found from the comparison between China and the Latin American countries is that China shares only limited characteristics with the Latin American countries. Through the examination on the sustainability of high grow of China, the demand side rather than the supply side has higher possibility of becoming a bottleneck to economic growth. The biggest bottlenecks to sustained growth are suggested to be the widening income discrepancy, monopoly by the state enterprises, excessively high saving rate and excessively low consumption rate, over-investment. Those policy measures to address these problems are suggested, including the overthrow of state enterprise monopoly, additional marketization reform, the change in the role of the government, accumulation of human capital through expansion of investment in education.