Economist: China should be vigilant of ‘middle income trap’

14:01, April 29, 2011      

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As the Chinese people’s incomes continue to grow, China should keep vigilant and not fall into the “middle income trap” which has affected some Latin American countries for 37 years, renowned economist Cheng Siwei said on April 28.

Cheng said only by avoiding the “middle income trap” can China march towards the rank of high-income countries smoothly.

The “middle income trap” means when a country enters the middle-income stage, and its social and economic development stops leaving the country unable to become a high-income country due to problems such as unfair distribution of income and excessive disparity in income.

According to statistics by the World Bank, of the 33 Latin American and Caribbean countries, 85 percent are middle-income economic entities and they have stagnated in the middle-income stage for 37 years on average. Some economists also call the “middle income trap” the “Latin America Trap.”

China’s per capita GDP reached 4,200 U.S. dollars in 2010, meaning that China has joined the ranks of middle-income countries as defined by the World Bank.

Cheng Siwei, the president of the China-Latin America Friendship Association, expressed that China and Latin American countries are all developing countries, and the problems that the Chinese economy face are also the problems Latin American countries faced in the past. Although the national conditions of China and Latin American countries are different, China should learn lessons from the problems and experience of those countries.

Cheng said that referring to the development history of Latin American countries, if China wants to avoid falling into the “middle income trap,” the primary task is to accelerate the transformation of the economic development mode.

Of the three wagons that drive China’s economy, domestic consumption must be regarded as top priority. The consumer price index (CPI) must be taken into consideration to increase the people’s wages and improve the social security system so that the people will be more willing to consume.

Cheng said that China must learn from the experiences and lessons in the urbanization of Latin American countries, and try to avoid the same problems in its urbanization.

While carrying out urbanization, China should not only emphasize the speed, but also the quality.

Cheng believes that China should regard the people as the foundation and improve their living environment, take the land as the carrier, properly control the scale of land development and improve the land use rate, as well as take information technology as the guidance to construct intelligent cities, and to take capital as a backup to give enterprises more support.

Cheng also said China should become more innovative according to its own national conditions, create an independent development road, try its best not to fall into the “middle income trap,” and actively march towards the rank of becoming a high-income country.

By People's Daily Online
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