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KEYWORDS
Middle-income trap,
China,
Republic of Korea
ABSTRACT
By comparing the practice of how Korea solve the middle-income trap, this paper analyses the Chinese economic condition and development trends; discusses how should China face the pending problems; and finally provides suggestions on avoiding the middle-income trap and successfully confronting this challenge.
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1 Foreword
International experiences indicate that when a country's GDP per capita reaches the level of US $3,000-10,000, this country has met its period of important opportunity to become a high income country as well as a time of contradictions. Once the country's economy stagnates, it may fall into the so called "middle-income trap". China has been the fastest economy since the reform and open policy and is now the second largest economic entity. With a current US $4,400 GDP per capita, China has just joined the middle income country club. But in recent years, problems that accumulated during the fast growth start to be prominent. Also in 2012, China's economic growth showed an apparent decelerating trend which has led to the discussion of whether China will fall to the middle- income trap. To analyze the middle-income trap problem, the Republic of Korea's experience is most representative. By cultivate the middle class and switch to the knowledge-based economy, Korea successfully crossed the trap; Whereas China possesses some basic characteristics of typical trapped country. By comparing the practice of how Korea coping the problem, this paper analyses the condition of Chinese economy; Discusses how should China face the pending problems; And hopefully provides suggestions on avoiding the middle-income trap.
2 Definition of "Middle-income Trap" and Its Features
Many East Asian countries have experienced fast development for decades, and stepped into middle income countries. But the following might be a trap. The World Bank East Asia Economic Development Report 2006 brought up the concept of "middle- income trap". The basic concepts includes: few countries successfully manage the transition from low to middle to high income; The middle-income trap refers to a situation whereby a middle-income country is failing to transition to a high-income economy. It can neither compete with a low-income country due to rising labor costs nor with a high-income country on cutting edge technology. One economy could...