Middle-income trap happens when a country or region’s per capita income reaches the world’s middle level, it will fall into slow economic growth, lack of motivation and economic stagnation because it can not achieve the economic development pattern and growth mode.
In year of 2012, China’s per capita GDP was more than 6,000 U.S. dollars bringing the country into the ranks of middle-income countries. However, since the beginning of 2012, China’s GDP growth has seen a more pronounced slowdown in term of investment, consumption, exports and industrial production and other major indicators. Such slowdown in growth has been contributed by both short-term fluctuations in the international environment as well as a number of internal structural factors. On the one hand, labor supply growth has slowed down which had been effectively support the rapid growth of economy in the past 30 years and this leads to economic slowdown; On the other hand, the relatively high savings rate in the past few decades tends to fall in recent years. With the savings rate begins to decline, inflation-adjusted growth rate of capital investment will also witness a gradual downward trend, thereby leading to economic growth slowing down. While technological progress on economic growth can play a positive role, the current technological progress is still insufficient to fully offset the slowdown caused by labor and capital inputs changes. These three factors lead to China’s slowing down of economic growth which causes the middle-income trap concern.
Source: People’s Daily