China's economy has grown at a fast, unprecedented rate since the launch of reform and opening-up in the late 1970s, although the rate has slowed a bit over the past few years since the country adopted a science-based, innovation-driven economic development model. Even with the world economy experiencing a sharp economic contraction due to the COVID-19 pandemic and despite the trade conflict with the United States, China is set to achieve the goals of eradicating extreme poverty and building a moderately prosperous society in all aspects by the end of the year.

But the tasks ahead for China seem more challenging: avoiding the middle-income trap while maintaining inclusive growth, and building a modern socialist society by the middle of this century. Besides, China's economy is getting bigger, and although its per capita GDP is increasing, it has to narrow the wealth gap, for example, between the rural and urban areas, and between people with higher education and without it.

What can China do to overcome these challenges?

First, to improve the well-being of rural residents, it should increase agricultural productivity to raise the incomes of farmers. Yet that would not be enough, because as productivity increases in the agricultural sector, fewer workers would be required for farm jobs. Hence, it should allow rural residents free mobility, of course, with certain restrictions－including using hukou (household registration) norms－so they can move to urban areas to get higher-paying jobs and avail of better amenities.

Second, the Chinese government needs to take measures to enhance the education level of rural residents, and provide them with training to make them eligible for higher-paying jobs. As China's economic structure shifts from the primary sector (for instance, agriculture and mining) to the manufacturing, especially high-end manufacturing, and service sectors, people need to acquire new, advanced skills to qualify for jobs in the key industries, including advanced technologies.

In fact, the service sector already accounts for more than 50 percent of China's GDP. But the service sector has both lower-paying and higher-paying jobs. Banking, communications, education, for example, are higher-paying professions.

Third, in the manufacturing and the service sectors, China needs to shift from producing low value-added to higher value-added goods and services, which will allow workers to earn higher salaries. Ironically, in this regard, the Sino-US trade conflict could be a blessing in disguise, because it will compel China to develop advance technologies at a faster pace by, among other things, investing more in research and development. China has made a lot of progress in this area and already become a leader in such sectors as 5G technology, high-speed railways and electric cars. And its Made in China 2025 plan has been playing a big role in this context.

Fourth, China needs to further open up its economy so its manufacturing and service sectors become more competitive in high value-added industries. As the middle-income population increases and acquires more purchasing power, it will be able to afford more higher value-added foreign goods and services. As a matter of fact, China has become the biggest consumer market in the world and is thus contributing more to the global economy.

And fifth, in summary, the question is how China can sustain its economic growth, and produce higher value-added goods and services. The answer is by increasing investments in R&D.

But how can China narrow the wealth gap. To do so, China needs to implement policies to develop safety social nets, give access to good education and health services to all, make available affordable housing, and establish a retirement system which guarantees retirees decent pension.

China has achieved extraordinary success over the past more than four decades of reform and opening-up. Its per capita GDP has increased from $310 in 1980 to $10,276 in 2019, up by more than 30 times, and its average life expectancy from 66.52 years to 77 years.

The road ahead is more difficult, especially given that the global economy is expected to contract this year, and protectionism and unilateralism are rising in some countries. But the experience accumulated by the Chinese government, companies and the Chinese people give reasons to be optimistic－that China will achieve the goal of modernization by the middle of this century, and avoid the middle-income trap while maintaining inclusive growth.

The author is a professor of economics at the National University of San Marcos in Lima, Peru.

The views don't necessarily reflect those of China Daily.

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