Vice-Premier Li Keqiang of the Chinese Communist Party (CCP) recently met with World Bank President Jim Yong Kim in Beijing. Li said China has become a middle-income country and in the near future will need to avoid the “Middle-income Trap.”
The “Middle-income Trap” occurs when developing countries achieve the level of $US3000 per capita income, then reach a plateau and eventually stagnate at that level.
According to data collected by the World Bank, China has a current per capita annual income of $US5400. This suggests China has already achieved the rank of an upper-middle-income country (GNI per person of $US3800 to $US11,900).
China’s entry into the group of middle-income countries was judged on the basis of Gross Domestic Product (GDP) and national income. But some experts question the validity of the data used.
Xie Tian is a professor at the University of South Carolina’s Business School. He said China’s Vice-Premier Li Keqiang, while serving as Party chief in Liaoning, China, told an American ambassador that he did not believe China’s “officially reported” GDP.
Mr Li admitted using statistics from electricity production, bank loans and freight transportation volume to estimate local GDP figures, Xie continued:
“Li knows that the official GDP figures are unreliable. If such basic data, in terms of China’s national economy, is inaccurate, the data on national income is thus certainly unreliable. So it is ludicrous to use these false figures to make a conclusion.”
US-based economist Dr Cheng Xiaonong believes China has not fallen into the “Middle-income Trap”, but has instead has fallen into another “trap” known as “Economic Growth Plight” – a result of the unfair distribution of income and wealth, Dr Cheng said:
“In terms of per capita income, China may barely claim to be a middle-income country. Yet there is this weird phenomenon in China that doesn’t exist in other parts of the world. In a middle-income country, its national consumption always keeps pace with its economic growth.
“However, it’s just the opposite in China, whereby consumption is shrinking. The beneficiary of its economic growth is not the populace, but the government.
“The outward economic growth didn’t improve most of the civilians’ income. Their consumption thus decreased. The vast majority of economic growth is controlled by only 5 per cent to 10 per cent of the Chinese population.
“This has created a large ‘trap’ in reality. In a country with the largest population of nearly 1.4 billion people, consumption capability can’t support economic growth.”
In the 1990s, China’s national consumption accounted for 46 per cent of GDP. However, since 2000, the percentage has plunged and in 2010, it was down to 35 per cent.
In recent years, Premier Wen Jiabao has repeatedly stated China’s economy cannot realise “sustainable growth”. Dr Cheng therefore believes either Vice-Premier Li Keqiang has not yet fully discerned Premier Wen’s plight or that Vice-Premier Li has not yet found a solution to ameliorate the existing “structure of income distribution”, which is closely linked to the CCP’s “political structure”.
Dr Cheng added:
“That is to say, when this ruling elite group unconditionally hold all the fruits of the economic growth, there will thus be no benefits for civilians, regardless of how the economy grows.
“This actually pulls China further away from the ‘middle-income’ level. The basic premise of the so-called ‘Middle-income Trap’ is that the citizens have all reached the middle-income level. Currently, China is simply too far from that!”