Middle-Income Trap

Since the start of China’s reform and opening-up in 1978, it has experienced nearly 40 years of rapid economic growth, with its gross domestic product (GDP) per capita crossing the $1000 mark in 2001, surpassing $3000 in 2008, exceeding $8000 in 2015 and reaching $8123 in 2016. But in recent years, economic growth has slowed down markedly. This is not only a fact, but also a new normal of social consensus. Has China encountered a middle-income trap? Can the development problems encountered by China be explained by the current concept of middle-income trap and related theoretical framework? And can a reasonable solution to crossing the middle-income stage be found? To answer these questions correctly, we must accurately grasp the essence of the concept of middle-income trap. To understand the essence of middle-income trap, the concept must be reinterpreted in a context that goes beyond the experience of a particular country and a purely economic perspective. This means that the middle-income trap is understood not only as a problem that some developing countries may encounter in their own development, but also as a problem that all countries may encounter in the middle-income stage; the middle-income trap will not only be defined from the perspective of economic growth, but also understood from the perspective of social development.

Crossing the middle-income trap requires not only a successful economic transformation, but also a successful social transformation. In the process of developing from the middle-income stage to the high-income stage, all countries will face enormous challenges of economic and social transformation, and different types of countries will encounter different problems in their respective middle-income stages. The middle-income trap problem is closely related to the economic, social, political, cultural, and other structural and institutional characteristics of various countries. Therefore, comparing and summarizing the successes and failures of different countries in overcoming the middle-income trap is of great significance in terms of providing precedents for China to learn from in completing economic and social transformation and successfully overcoming the middle-income trap.

The report to 18th CPC National Congress made it clear that speeding up the transformation of the mode of economic development was an important measure to implement the inherent requirements of the scientific concept of development and promote scientific development, and that technological advances and innovation should be taken as an important underpinning for speeding up the transformation of the mode of economic development. We should further implement the strategy of rejuvenating the country through science and education and the strategy of strengthening the country through talent, give full play to the role of science and technology as primary productive forces and talents as primary resources, improve the level of education modernization, enhance indigenous innovation capability, expand the ranks of innovative talents, push for a shift toward relying mainly on technological advances, the improvement of the quality of the workforce, and innovation in management for development, and accelerate the building of an innovation-driven country.

General Secretary Xi Jinping pointed out in his report to the 19th CPC National Congress: “As socialism with Chinese characteristics has entered a new era, the principal contradiction facing Chinese society has evolved. What we now face is the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life.” To overcome unbalanced and inadequate development, we need to improve our economic governance capability. The modernization of the economic governance capability is an important part of the modernization of China’s system and capacity for governance. The economic governance system is understood as the institutional system whereby the government and the market regulate economic agents; the economic governance capability is defined as the ability of the government and the market to regulate economic agents.

Overcoming the middle-income trap requires both economic transformation and social transformation. Economic transformation cannot be accomplished without the modernization of economic governance; social transformation cannot be accomplished without the modernization of social governance.

The political and economic situation facing China at home and abroad is undergoing profound changes. Significant changes have taken place in forces that drive globalization. The rise of emerging economies has become the primary force driving change in the global economic and political landscape. New efforts are underway to intensively reconstruct global trade and investment rules, but the pace of reform of the global governance system is slow.