Can China avoid middle-income trap?

Greatopportunitiesstillexistforfurthereconomicexpansionifthegovernmentpushesaheadwiththerightreformagenda

Editor'sNote:EconomistsattendingarecentforumorganizedbytheInstituteofWorldEconomicsandPoliticsoftheChineseAcademyofSocialSciencesinBeijingarguedthatifthegovernmentcansuccessfullymanagereforms,itishighlylikelythatChinacanfurtherreleaseitsgrowthpotentialtobecomeahigh-incomeeconomy.

China'seconomicgrowthgraduallydroppedto6.9percentyear-on-yearin2015from10.6percentin2010,sparkingconcernsthatitshigh-rategrowthmayhavecometoanend.PessimistsevenstartedtodoubtwhetherChinacouldavoidtheso-calledmiddle-incometrap.

EconomistsattendingarecenteconomicsforuminBeijingargued,however,thatifitcansuccessfullymanageitsreformagenda,itishighlylikelythatChinacanovercomethetrap.

Themiddleincometrapreferstoasituationinwhichaneconomyishamperedbyhighwagesandthelossofitscompetitiveedgeand,therefore,isunabletocontinuetoexpandbeyondwhattheWorldBankdefinesasthe"middle-incomerange".

In1960, 101countriesweredefinedasmiddle-incomeeconomiesbytheWorldBank,andonly13ofthosehadbecomehigh-incomecountriesby2008.

China'spercapitaGDPhasreached$8,000andwhetheritcanfurtherreleaseitsgrowthpotentialtobecomeahigh-incomeeconomyhasbeenahottopicamongacademics.

EconomistsparticipatinginaforumorganizedbytheInstituteofWorldEconomicsandPoliticsoftheChineseAcademyofSocialSciencesfromApril13to14saidChinamustnarrowincomeinequalityandcarryoutitsreformagendaifitwantstoavoidfallingintothetrap.

Acountrythathasfallenintosuchatrapislikelytosufferfromtwomajorproblems:significantincomeinequalityandbadmacroeconomicmanagement,saidWangXiaolu,aneconomistwiththeNationalEconomicResearchInstitute.

MostLatinAmericancountries,forexample,experiencedhyperinflationfromthe1970sto1990s,whichdidnotoccurinEastAsianeconomies,leadingtodiversifiedperformancesofthetwogroupsofeconomies,hesaid.

"Highincomeinequalitycausessocialconflictandpoliticalinstability,whilehyperinflationandmacroeconomicinstabilitydamagethebusinessenvironment,"hesaid. "Bothresultineconomicstagnation."

NaoyukiYoshino,deanoftheAsianDevelopmentBankInstitute,saidChinashouldcloselymonitortheissueofincomeinequalityanduseitstaxsystemtonarrowthegap.

HealsourgedthegovernmenttopayattentiontoState-ownedenterprisesthatarelosingmoneybecausetheirdeficitswillstrainlocalgovernmentsandthebankingsector,ultimatelyaffectingtheoverallhealthoftheeconomy.HealsosaidChinashouldhaveitscurrencypeggedtoabasketofcurrenciestomaintainastableexchangerate.

"Ifitcanwellmanagetheabove-mentionedtasks,Chinawillmanagetogointoasteadygrowthtrack,"hesaid.

Chinastillhasalotofgrowthtorealize,saidJustinYifuLin,aneconomistatPekingUniversityandaformerWorldBankeconomist.Chinahastheabilitytoexpanditseconomythroughurbanization,increasinginfrastructureinvestment,industrialupgrades,improvingenvironmentalprotectionsandpressingaheadwitheconomicreforms,suchasreformofthehukou,orhouseholdregistrationsystem,andexpandingcoverageofsocialservices,Linsaid.

"Chinaislikelytoachievethegrowthtargetof6.5percentandaboveinthe13thFive-YearPlanperiod(2016-20)andbeyond,"hesaid.

MingwangCheng,aneconomistattheSchoolofEconomicsandManagementatShanghai-basedTongjiUniversity,saidthatalthoughChinamayhavelostitscompetitiveedgeincheaplabor, "thereformofthesystem,theperfectionofthemarketandthebonusofthehumancapitalpromotionstillexist",leadingtogreatopportunitiesforeconomicexpansion.

Chinahasbecomemoreinnovativeandithasmorethan100GlobalFortune500enterprises,layingasolidfoundationforitseconomytocontinuetoexpand,saidKeunLee,aneconomistatSeoulNationalUniversity.

ItisreassuringthattheGinicoefficient,whichgaugeswealthinequality,hasstartedtodecline,hesaid,predictingthatChinawillsuccessfullyovercomethemiddle-incometrap.

(CHINA DAILY)