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China to be high-income country in 10 years

By Ye Xiaonan (People's Daily Overseas Edition)

17:12, September 23, 2011

Edited and Translated by People's Daily Online

World Bank President Robert Zoellick recently said that the bank will draw on its own experience to help China adjust its economic growth model, stave off a "middle income trap" and evolve into a high-income country.

The term "middle income trap" refers to a situation in which per capita income in one country ranges from 3,000 U.S. dollars to 6,000 U.S dollars during a period. Many previously hidden problems have then erupted, and countries have reached a bottleneck in improving their development mechanisms, thereby entering a period of stagnant productivity and income growth. Many countries have experienced such a stage of slow or even stagnant economic growth.

The World Bank reclassified China as an upper middle-income economy in July. Studies show that after reaching the upper middle-income level, a country needs to change its development strategy and move on from the old growth model it relied on while it was poor. Otherwise, it will be unable to compete with both low-income economies and innovation-driven advanced economies.

“There is no doubt that as an upper middle-income country, China still faces many strategic opportunities and an increasing number of social contradictions. All in all, the country is facing an unprecedented tough challenge of avoiding the ‘middle income trap,'" said Zheng Bingwen, director of the International Social Security Research Center under the Chinese Academy of Social Sciences.

Imbalance risks still under control

Insiders said that it is noteworthy that China's has considerably built up its comprehensive national strength and continuously increased its capabilities to avoid risks over the past three decades of reform and opening-up, making the imbalance risks still preventable and controllable.

Different from the countries that fell into the "trap," China has enormous capacities to cope with external impacts thanks to its political and financial stability and its higher international status. With a huge population and adequate capital, China still has a great potential for development. China still enjoys an enormous "institutional dividend," and its urbanization will generate a new "demographic dividend."

China has yet to give the full play to its late-development advantage in industrialization. As a developing country with a vast territory, uneven development and great market potential, China still has the fundamentals and conditions for sustainable growth.

Zheng said that if middle income and upper-middle income are considered two different stages of the "middle income trap," China has succeeded in passing the initial stage of the "trap." Now that China has entered into the stage of upper-middle income, it is moving ahead toward the third historical goal: becoming one of the high-income countries.

"According to the current economic growth pace, it will take about 11 to 15 years for China to make its third breakthrough and become a high-income country during its 14th Five-Year Plan period, provided that other conditions remain unchanged," Zheng said.

From being driven by production factors to being driven by efficiency

According to Zoellick, China is able to enter the club of high-income countries, but to realize it, China needs to reform. China should take measures to change its economic growth mode from relying on export and investment to depending on domestic demand more.

Hu Angang, a professor from Tsinghua University, believes whether China will sidestep this trap depends on whether China could actively and thoroughly change its economic development mode from a low-level, low-quality and unsustainable one to a high-level, high-quality and sustainable mode.

Financial commentator Yu Fenghui said China could leap over the middle income trap only if the monopolies are broken.

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