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China meets the middle-income trap: the large potholes in the road to catching-up

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  • Wing Thye Woo

Abstract

We follow Woo (2011) in using the Catch-Up Index (CUI) to define the middle-income trap and identify the countries caught in it. The CUI shows that China became a middle-income country in 2007--2008. We see five major types of middle-income trap to which China is vulnerable: (a) fiscal stress from the nonperforming loans generated by the interaction between the lending practices of the state banks and the innate desire by state enterprise managers to over-invest and embezzle; (b) the frequent use of macro-stabilization tools that hurt long-term productivity growth; (c) flaws in socio-political governance that exacerbate social tensions; (d) ineffective management of environmental challenges that threaten sustainable development; and (e) inept handling of international economic tensions that could unleash trade conflict. We recommend new governance principles and management methods to prevent China from falling into these five types of middle-income trap.

Suggested Citation

  • Wing Thye Woo, 2012. "China meets the middle-income trap: the large potholes in the road to catching-up," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(4), pages 313-336, August.
  • Handle: RePEc:taf:jocebs:v:10:y:2012:i:4:p:313-336
    DOI: 10.1080/14765284.2012.724980
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    File URL: http://hdl.handle.net/10.1080/14765284.2012.724980
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    Citations

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    Cited by:

    1. Li Xie & Wing Thye Woo & Zhichao Zhang & Zhuang Zhang, 2015. "A Multiple-Goal Investment Strategy for Sovereign Wealth Funds: An Application to China," Asian Economic Papers, MIT Press, vol. 14(1), pages 78-97, Winter/Sp.
    2. repec:ksa:szemle:1704 is not listed on IDEAS
    3. Székely-Doby, András, 2014. "A kínai reformfolyamat politikai gazdaságtani logikája
      [The politico-economic logic of the Chinese reform process]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1397-1418.
    4. Ding Lu, 2017. "China's Growth Slowdown and Prospects for Becoming a High-Income Developed Economy," Asian Economic Papers, MIT Press, vol. 16(1), pages 89-113, Winter/Sp.
    5. Semih Gökatalay, 2015. "Political Economy of Middle-Income Trap Concept," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 275, Ekonomik Yaklasim Association.
    6. Xiaolan Fu & Wing Thye Woo & Jun Hou, 2016. "Technological innovation policy in China: the lessons, and the necessary changes ahead," Economic Change and Restructuring, Springer, vol. 49(2), pages 139-157, August.

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