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Possibility of a Middle Income Trap in China: Assessment in Terms of the Literature on Innovation, Big Business and Inequality


  • Keun Lee

    () (Economics Department, Seoul National University, Seoul 151 746, Korea)

  • Shi Li

    () (School of Economics and Business Administration, Beijing Normal University, Beijing 100875, China)


This paper discusses the possibility of China falling into the so-called middle income trap in terms of three checkpoints: innovation capability, world-class big businesses, and inequality. Based on these criteria, our conclusions are as follows: First, China has increasingly become innovative and thus differs from other middle income countries. Second, China has many successful big businesses, a number disproportionate to its size. Thus, China differs from other middle income countries with few world-class big businesses, and the only qualification is that those big businesses are mostly non- manufacturing firms focused on such areas as finance, energy, and trading. Third, China faces great uncertainty in terms of inequality. Although several signs show that the Kuznets curve will come to represent China, as noted by the gradual reduction of surplus labor and rising wage rates starting in the coastal provinces, the Chinese are now facing new sources of inequality in China, such as wealth (including financial and real estate assets) and non-economic factors (including corruption).

Suggested Citation

  • Keun Lee & Shi Li, 2014. "Possibility of a Middle Income Trap in China: Assessment in Terms of the Literature on Innovation, Big Business and Inequality," Frontiers of Economics in China, Higher Education Press, vol. 9(3), pages 370-397, September.
  • Handle: RePEc:fec:journl:v:9:y:2014:i:3:p:370-397

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    References listed on IDEAS

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    Cited by:

    1. Zhou, Haiwen, 2017. "Will China Avoid the Middle-Income Trap?," MPRA Paper 82688, University Library of Munich, Germany.

    More about this item


    middle income trap; China; big business; innovation; Kuznets; Lewis; inequality;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • P5 - Economic Systems - - Comparative Economic Systems


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