Managing the Middle-Income Transition

Managing the Middle-Income Transition

Challenges Facing the People’s Republic of China

Edited by Juhzon Zhuang, Paul Vandenberg and Yiping Huang

The growth model of the People’s Republic of China has been based on high investments, exports, low-cost advantage, and government interventions. This model has successfully transformed the country from a low-income to an upper middle-income economy. However, the model has generated contradictions that could undermine future growth. Making the transition to high income requires greater reliance on efficiency and productivity improvement, innovation, and market competition. This book examines the challenges faced by the People’s Republic of China in sustaining robust growth, and policy options for making a successful transition to a high-income economy to avoid getting caught in the middle-income trap.

Chapter 1: The middle-income transition challenge: an introduction

Juzhong Zhuang, Paul Vandenberg and Yiping Huang

Subjects: asian studies, asian development, asian economics, asian politics and policy, asian social policy, development studies, asian development, development economics, economics and finance, asian economics, development economics, politics and public policy, asian politics, social policy and sociology, social policy in emerging countries


By any measure, economic growth in the PRC since reforms began in the late 1970s has been spectacular. Gross domestic product (GDP) has expanded about 10 percent per annum on average (Figure 1.1), and per capita income has risen by a factor of 15 in constant 2005 purchasing power parity dollars (Table 1.1). From a very poor and agriculture-based economy, the country has reached upper middle-income status with a large manufacturing base. Quite justifiably, the PRC is called the workshop of the world. Rapid growth and structural transformation have significantly reduced the country’s poverty and improved the well-being and living standards of its people. When reforms began, 84 percent of the population lived below the $1.25-a-day poverty line (Table 1.1). By 2009, that had fallen to 12 percent—an incredible achievement. Longevity increased from 67 years in 1980 to 75 years in 2011, and child mortality under the age of 5 years declined from 61 deaths per 1000 to 14 in the same period. These achievements have been replicated by very few developing economies; not surprisingly, the PRC’s economic development is the envy of many emerging countries. Rapid economic expansion has also led to a sharp rise in the country’s importance globally. The PRC is now the world’s largest trading nation, the largest holder of foreign reserves, and the second largest economy after the United States (US). What happens in the PRC matters greatly globally.