Structural change, rebalancing, and the danger of a middle-income trap in China

China is currently experiencing a structural change toward tertiarization and an implied growth slowdown associated with it. The paper investigates whether this growth slowdown is merely cyclical or a negative trend, and further what China is doing or should do to avoid falling into a “middle-income trap,” a problem many emerging economies have experienced in recent decades. The pitfalls of the current “soft” rebalancing policy in China are analyzed in the context of this development.

Sisällysluettelo

Abstract....3
1. Introduction....3
2. China’s recent growth slowdown and the fear of an MIT....3
2.1. Growth slowdown: The sum of multiple determinants and structural change....4
2.2. MIT concept....6
3. MIT as a result of ineffective rebalancing in China....8
3.1. The first wave of imbalances....8
3.2. The second wave of imbalances....9
3.3. Need for simultaneously reducing the old and new imbalances....10
3.4. MIT-concept vs. low-convergence concept....13
4. Growth slowdown (2010–2017) cyclical or trend? – revisited....15
5. How to avoid an MIT / slow convergence in China?....16
6. Concluding remarks and further research....18
7. References....20