Analysts argued that China will steadily advance into the ranks of high-income nations because economic restructuring, industrial upgrading, rising product quality, increased efficiency and poverty reduction have laid a solid foundation for the country to foster momentum and comparative edge at a higher level.

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Ever since the 19th CPC National Congress announced it aims to basically achieve modernization by 2035, some around the world have been wondering whether China can avoid the “middle-income trap” during the process. Analysts argued that China will steadily advance into the ranks of high-income nations because economic restructuring, industrial upgrading, rising product quality, increased efficiency and poverty reduction have laid a solid foundation for the country to foster momentum and comparative edge at a higher level.

Wang Yiming, vice-president of the Development Research Center at the State Council, noted that China’s economy has been transitioning from a phase of rapid growth to a stage of high-quality development after years of adjustments.

However, some prominent problems and risks persist. The quality of products and services remains unsatisfactory, and new sources of growth are not strong enough. Moreover, the development model is still driven by investment while the economic structure is based on heavy industry. At the same time, growth momentum is reliant on a massive, intensive input of resources and production factors. These characteristics of the present economy are hardly compatible with the new requirements of the high-quality growth stage, Wang said.

Therefore, China must transform the development model, optimize the economic structure and foster new drivers of growth, Wang added.

The Chinese economy grew at an annual rate of 7.2 percent on average in the past four years, continuing to lead the major world economies. In terms of poverty reduction, the country lifted 6.73 million people out of poverty annually on average from 2001 to 2010, and since 2012, more than 13 million people have shaken off poverty each year.

When it comes to growth drivers, the high-tech sector, strategic emerging industries and equipment manufacturing all averaged a growth rate of 10 percent or higher in the last five years.
“In fact, China has taken care to avoid latent risks associated with the ‘middle-income trap’ since the 18th CPC National Congress and taken a series of effective measures to advance economic restructuring and upgrading,” said Quan Heng, a research fellow from the Institute of World Economy at the Shanghai Academy of Social Sciences.

The development experiences of other economies in the world have shown that the ability of a country to effectively transition from a factor-driven economy to one driven by innovation is the key to a smooth transformation into a high-income country, Quan said, adding that the report to the 19th Party congress thus proposed and elaborated on the concept of “making China a country of innovators.”

Now, in a dense innovation atmosphere, such new business models as mobile payment, e-commerce, platform economy, self-service retail, bike sharing, and new energy automobile are thriving in China.

 In 2017, China accounted for 36 percent of the world’s new “unicorn companies,” which is a financial term for a startup valued at more than $1 billion. The country now has the second-most unicorns in the world. 

Meanwhile, China is getting closer to the international frontier of industrial technology. Some fields are leading the way and new technologies are proliferating, setting the stage for improved products, engineering and service quality and the transition to a high-quality development stage.

 
Notably, quite a few objective factors are preparing China for becoming a high-income country. A recent report released by GF Securities spells out four structural dividends that are taking shape in China: the “newborn dividend” brought by the easing of the family planning policy; the “consumption upgrade dividend” due to rising demands in such areas as tourism, environmental protection, health and elderly care; the “infrastructure network and new city cluster dividend” from the growth of some second- and third-tier cities into new manufacturing bases; and the “labor quality dividend” brought by the improvement of education. 

Quan said that risks related to the “middle-income trap” are inseparable from the evolution of the principal contradiction facing Chinese society in the new era, adding that efforts should be made to not only make the “pie” of social wealth bigger, but also to distribute it well.

In this regard, the report to the 19th CPC National Congress pointed out a clear direction: “We will encourage people to make their money through hard work and legal means. We will expand the size of the middle-income group, increase the earnings of lowincome growing, adjust excessive incomes, and prohibit illicit income. We will work to see that individual incomes grow in step with economic development and pay rises in tandem with increases in labor productivity.”

The measures specified in the report organically combine primary and secondary distribution while properly coordinating the roles of the market and the government to achieve common prosperity, creating a favorable social atmosphere for the subsequent steady and healthy economic development, Quan said. 

As the spirit of the 19th Party congress gradually becomes implemented, China will see more balanced and fuller economic development, Quan said, adding that the “middle-income trap” will not stop the nation from growing.

 

This article was translated from People’s Daily Overseas Edition.