China can avoid middle income trap due to productivity improvement (2)

The growth of an economy depends on the growth of the labor force and their productivity. In China's case the productivity can still grow much faster than the U.S. productivity growth given China's still early stage of economic development, as indicated by its relatively low per capita GDP, though the labor force growth could slow in the future, Gong said.

"People have not noticed how fast China's productivity growth was, though China's technological innovation is far behind the United States," he said, adding that the financial services sector and the healthcare industry are only in their infancy stage in China.

Gong said he expected the yuan to continue to appreciate against the U.S. dollar in the long run "if China could maintain around 8 percent of nominal growth."

Tan Kong Yam, director of Asian Research Center, Nanyang Technological University, highlighted the challenges for China to continue achieving fast growth in the coming ten years. The demographic dividend is decreasing, and so is the benefit from the migration of the rural labor into the cities and from joining the world economic system.

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