The Chinese model of development: A special East-Asian path of development for avoiding the middle-income trap?

Abstract

Over the past couple of years, China has made formidable efforts to shift to new sources of economic growth, modernise the structure of its economy, accumulate human capital, and boost local innovation in order to graduate to a high-income economy. However, the pace of growth has slowed down in the past few years, entailing the risk of the country being stuck in a so-called middle-income trap (MIT). This paper reviews China's chance of avoiding the MIT by analysing four groups of factors – three quantitative and one qualitative – and using Japanese and South Korean development as reference points. The paper concludes that China is likely to be able to avoid the MIT and is expected to move into the high-income (HI) band within 7–8 years thanks to its achievements and structural reforms that have already begun. However, the paper also raises the question whether China will be able to avoid the ‘post-trap’ situation – the high-income trap – that has already trapped Japan and South Korea in the HI band.