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China has every prerequisite to get over the middle-income trap: leading economist

By Sun Wenyu (People's Daily Online)    17:12, January 15, 2018

China has every prerequisite to smoothly get over the middle-income trap, said former chief economist of the World Bank Justin Yifu Lin in an article published on People’s Daily on Jan. 14.

Lin, who is currently the counselor of the State Council of China and director of Center for New Structural Economics at Peking University, noted that a correct recognition on economic classification of countries by the World Bank is necessary for the understanding of middle-income trap.

Since 1989, economies have been divided into four income groupings: low, lower-middle, upper-middle, and high, solely based on gross national income (GNI) per capita.

Some people hold that the thresholds of classification would always go up with time, and indeed, they are fluctuating in accordance with price levels, Lin said. However, he stressed that the actual levels of the thresholds are relatively stable in real terms.

Because of the development of the world economy, the proportion between the high-income threshold and the average GNI per capita of developed countries are generally on the decrease. For instance, the threshold was 30% of the GNI per capita in the US in the early 1990s, but fell to 22% in 2016.

In addition, Lin pointed out that GNI per capita, which is used to classify the levels of economies, is different from per capita disposable income, adding that the latter is obviously lower than the former statistically.

In 2016, China had a GNI per capita of $8,260, and will maintain a growth of 6% in the near future. If both threshold of high-income economies and the commodity price of China rise 1% each year, and the exchange rate of CNY/USD stays at 6.7, China is likely to enter the ranks of high-income economies in 2023, Lin predicted.

Lin noted that to become a high-income economy is not merely a matter of growth, but one related with structural issues. According to him, to continuously upgrade technologies and industry, narrow the wealth gap, and improve the ecosystem are three prioritized tasks for China to become high-income economy.

However, Lin said that China will still be in a relatively lower position among high-income economies, even when it crosses the threshold. He suggested China learn from other countries and avoid retrogress.

The proportion of the population in high-income economies will increase to 35% from the current 16% once China enters the ranks. It will not only improve the livelihood of the 1.4 billion Chinese, but also offers vast market for the 5 billion people in middle and low income countries, Lin noted.

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Bianji, Hongyu)

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