‘Middle-Income Trap’ and ‘High Income Wall’: Challenges and Opportunities to China1

Liu Shijin , Zhang Junkuo , Hou Yongzhi , and Liu Peilin
Development Research Center of the State Council, Beijing

 
Abstract: The history of international industrialization shows that Latin American countries and former Soviet Union and Eastern European countries experienced a siginificant drop in economic growth and fell into the middle-income trap when their per capita GDP reached 4,000-7,000 international dollar (based on the 1990 prices) as a result of long-term implemented import-oriented strategy and planned economic system. Fortunately, China adopted reform and opening-up policy beginning at a lower development phase and achieved sustained high-speed growth for more than thirty years. Currently, China has surpassed the phase which the above-mentioned countries fell into the middle-income trap. On the other side, experiences of successful runner-ups show that when per capita GDP reached 11,000 international dollar (based on the 1990 prices), economic growth speed will present regularly “ natural drop”. Without internal and external shocks, China’s economy is expected to reach this level by 2015 and the potential growth rate will possibly drop significantly. In this regard, China’s toughest challenges will be whether it can effectively prevent and solve the financial risks accumulated during high-speed growth and make a shift to innovation-driven growth model. Time is pressing for addressing the above challenges. A fundamental change in the growth model depends on the intensification of reform, in particular, the promotion of an “ participatory and facilitative reform” approach.
Key words: middle income trap, high income wall, China’s economic growth

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