Economy

World Bank VP: China can avoid middle-income trap

(Xinhua)
Updated: 2011-06-10 16:21

WASHINGTON - China, the second largest economy in the world, can avoid the so-called middle-income trap if it implements appropriate policies, a World Bank economist said.

"The middle-income trap is not inevitable," Justin Yifu Lin, chief economist and senior vice president of the World Bank, told Xinhua in an interview. "To a large extent, it is subject to policy and development pattern."

The term "middle-income trap" refers to countries stagnating and not growing to advanced country level. Their per capita income ranges from $2,000 to $6,000, unable to make breakthroughs.

Lin said that the Chinese government has accumulated much experience in macro management since the reform and opening up over thirty years ago, and per capita GDP reached about $4,400 in 2010.

"In dealing with the challenges, China needs to focus on three aspects of policy response," Lin said.

Firstly, it needs to continue to promote technology innovation, industry upgrading and competitiveness. "The purpose of updating technology is to increase competitiveness," he said.

Secondly, it needs to solve the problem of income distribution. Acknowledging the significant improvement in living standards of the Chinese people, Lin quoted the old Chinese saying "Inequality rather than want is the cause of trouble." He said that this means that the income distribution challenge should not be ignored; otherwise, it will cause social tensions.

"Without a stable social and political environment, proper economic development will not be achieved," Lin said.

Thirdly, how to properly handle the relationship between economic growth and the environment is another major challenge.

"The increasing pressure on resources and the environment in the process of fast growth should also be addressed properly," Lin noted.

He cited some successful development experiences in Asia, where some low-income countries became middle-income countries and were then able to become high-income nations.

Lin said that as long as China continues on the path it has followed over the past three decades, and properly addresses the three major challenges, China "can avoid the middle-income trap."

He also said that China should keep a close eye on spiking inflationary pressure, an overheating economy and possible asset bubbles in the real estate sector. "Be prepared for danger in times of safety" should be the policy motto, he said.

"The Chinese economy will continue to keep fast and stable growth in the next two decades or so," Lin predicted.