The Conversation
China’s slower growth figures have caused jitters in world financial markets. Nevertheless its growth remains at miracle levels. At this pace, China would appear to remain on track to become the richest and most powerful country in the world, bar none.
In a scenario where Chinese “miracle” growth continues around 5-6% for three decades and gradually slows to the average world growth rate, the average Chinese citizen would be as wealthy as the average American.
But ongoing Chinese growth miracle seems an unlikely outcome, when compared to the history of emerging economies. Instead, it is likely China will have to grapple with what is called the “middle income trap”. This is because China’s income level is currently at a level where many countries seem to stagnate.
The middle income trap
An example of this can be seen in the figure which charts per capita income for China, Turkey and Brazil as a percentage of the United States. It shows that, despite its remarkable growth, China’s income gap with the US has only reached the level that Brazil and Turkey had already achieved by the 1970s.
Moreover it can be seen that, since the 1970s, Brazil and Turkey made practically no further ground in closing the gap with the US.
According to a 2012 World Bank report, this slow growth pattern is typical of middle income countries. Specifically, of 101 countries that were “middle income” in 1960, only 13 broke through the middle income band to become rich countries.
Thus, based on history there is a reasonable concern that China’s growth will slow to an extent that it stops catching up with the West. China would then begin to look like like Brazil or Turkey in the sense that per capita income remains well below Western levels and there is a constant threat of political and economic instability.
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