Beyond the middle income trap: What kind of high income country can China become?

China's middle income status has given rise to the question whether it will be able to avoid the 'middle income trap.' Some authors, such as Kharas and Kohli (2011), suggest that, in order to avoid the trap, it is necessary to switch the economic development strategy after a country progresses from the low to the middle income stage. However, others, such as Lin (2012), argue that no such switch is necessary; instead countries need to pursue the Comparative Advantage Following (CAF) strategy in both the low and middle income stages. The paper provides a review of these two apparently contrasting perspectives. It notes that, despite the differences, both these perspectives agree on the necessity of a more equitable income distribution as a condition for avoiding the middle income trap. However, while the Kharas and Kohli perspective allows for redistribution, Lin thinks that equity should be achieved at the stage of functional distribution of income. The paper reviews these alternatives routes to achieving equitable distribution and compares China's record regarding inequality with that of Japan, South Korea, and Taiwan Province of China. It also poses the question what China could do differently in order to emerge as a high income country with some distinctiveness.