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Will China fall into the "middle income trap"?

2011-4-9

BEIJING, April 9 (Xinhua) -- The middle income trap encountered by some South American and Southeast Asian nations has become a great concern for China, as its gross domestic product (GDP) per capita last year topped 4,000 dollars after decades of dynamic growth.

 

However, experts maintain that the country will manage to avoid the trap if the government directs the transformation of its economy toward a more sustainable path.

 

History shows that while many countries have been able to transition from low to middle income, relatively few have carried on to high income.

 

Countries, including Argentina, the Philippines and Malaysia, have been stuck in this type of dilemma when heading toward becoming high income nations, a situation the World Bank refers to as "middle income trap."

 

China's economy has maintained a strong momentum since the beginning of its reform and opening up policy in 1978. Data shows that its GDP per capita has grown from a merely 155 U.S. dollars in 1978 to more than 4,000 U.S. dollars in 2010.

 

However, the galloping economy has been accompanied by side effects like wide income inequality, relatively weak domestic demand and high environmental costs.

 

Wang Jun, a researcher with the China Center for International Economic Exchanges, a governmental think tank, said the key to avoiding the middle income trap is to accelerate the transformation of China's economy into a more sustainable pattern.

 

China's economic growth has been largely dependent on exports and investments, especially government investments, as the driving forces, whereas domestic consumption is seriously weak, said Wang.
 
"Due to inadequate domestic spending, our service sector is much weaker than developed economies'," Wang said.
 
Source:Xinhua
 
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