Managing the Middle-Income Transition
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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.
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Chapter 4: From economic miracle to normal development

Yiping Huang


When the People’s Republic of China (PRC) began economic reforms in 1978, its gross domestic product (GDP) per capita was only $152; by 2012, it had reached an estimated $6076, according to the International Monetary Fund (IMF). Although ranking only 87 out of the 182 economies (in per capita terms) in the IMF dataset, the PRC’s economy is already the world’s second largest, overtaking Japan in 2010. Some experts have even proposed the notion of ‘Group-of-Two’ consisting of the United States and the PRC as the global economic power (Bergsten et al. 2008; Zoellick and Lin 2009). Having successfully engineered a remarkable economic take-off and gained upper middle-income status, the PRC now faces the challenge of sustaining rapid growth and avoiding a middle-income trap. World Bank economists coined this term to describe the experiences of the many developing countries that achieved rapid income growth until they reached middle-income levels, but then had trouble moving to a higher income level. The PRC now faces this challenge as the low-cost advantages that aided its rise diminish. In October 2009, the PRC celebrated its sixtieth anniversary. Economic policies during those years can be summarized by two economic experiments: in the first 30 years after 1949, the government abolished free markets and adopted a central planning system; in the next 30, from 1979, it reintroduced them. Despite initial success, the first policy experiment failed. By the mid-1970s, the economy was on the verge of collapse.

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