Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AMD Ryzen 4900x / 5900x and 4950x / 5950x Zen3 4th Gen IPC and Clock Speed and Core Specs - 14th Aug 20
Stock Market Gap Fills Suggests Market Momentum May Stall - 14th Aug 20
Silver May Be Overextended – But It’s STILL Cheap - 14th Aug 20
A Short Guide To Making Your First Stock Market Investment - 14th Aug 20
Is Tech Reality Affects our Dating Possibilities? - 14th Aug 20
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Overcoming the Middle-Income Trap with Structural Reforms

Politics / Social Issues Nov 07, 2016 - 06:03 PM GMT

By: Dan_Steinbock

Politics According to the World Bank, China is an upper-middle-income country. However, only structural reforms will allow China to surpass the middle-income trap.

According to a recent report by the Chinese Academy of Social Sciences (CASS), China has entered the ranks of the so-called “upper-middle-income” countries. It has triggered a fair amount of interest among those Chinese who are concerned for the middle-income trap; that is, a status quo in which a country attains a certain level of income but gets stuck at that level.


While most observers agree that the pace of transformation has been extraordinary in China, many remain concerned about increasing wealth and income inequality. Others point to to successful industrialization in East Asia - from Japan to South Korea - arguing that improving social welfare will be critical to to avoid the middle-income trap.

These viewpoints are not mutually exclusive. Together, they drive the rebalancing of the Chinese economy and the associated new urbanization and industrial upgrading that seeks to overcome the middle-income trap in the next 10-15 years. But why do many countries get stuck in the trap?

Elusive categories

Actually, China has been among the so-called upper-middle-income countries for a few years. The CASS report relies on the World Bank classification, which groups economies based on gross national income (GNI) per capita. Based on the bank’s method, that generates four categories:

- low-income economies ($1,025 or less)

- lower middle-income economies ($1,026-$4,035)

- upper middle-income economies ($4,036-$12,475)

- high-income economies ($12,476 or more).

In the early days of economic reforms, China was still in the low-income group, which even today features countries, such as Senegal, Haiti, and Afghanistan. In 2008, after decades of investment and export-led growth, China joined the ranks of the lower-middle-income countries, which now include Tunisia, El Salvador, Sri Lanka and the Philippines.

According to CASS, Chinese per capita GDP is currently $8,016 (52,000 yuan). In effect, China joined the ranks of the upper middle-income countries around 2012. As a result, Chinese living standards are approaching those of Turkey, Brazil and Southern Europe. However, these findings should be taken with a grain of salt.

Today’s advanced economies industrialized in the late 19th and early 20th centuries. So they have enjoyed the benefits of wealth and income for a long while. In China and other emerging economies, prosperity is still very new - and thus far, far more fragile.

Potential is not reality

Just because an economy has great potential does not always mean that this promise will be delivered. And yet, that’s what my good acquaintance Goldman Sachs’ Jim O’Neill, who created the ‘BRIC’ concept in the early 2000s, seemed to imply. While O’Neill did wonderful work in promoting emerging economies, analysts focus on abstract data rather than real life.

If the theory had been valid, we would continue to see solid economic progress in China, India, Brazil and Russia - not to speak of the mini-BRICs, such as Nigeria, Saudi Arabia, Indonesia, Iran, Pakistan and so on.

Yet, the reality is that we don’t. The emerging and developing countries have always relied on diverse sources of industrial advantages. Before the global crisis, those BRIC economies that relied excessively on their natural resources enjoyed high growth as long as the prices of oil, gas and commodities continued to soar. Conversely, with the end of the ‘commodities super-cycle,’ the very same nations have taken heavy hits.

What’s worrisome, even if economies diversify their industrial structures and get their policies right, external constraints - including sanctions by Western nations - effectively undermine the benefits of modernization.

In many cases, their economic woes have been compounded by geopolitics and the new Cold War, including the US-EU sanctions against Russia, Washington’s tacit support for the ‘soft coup’ in Brazil, the spread of Boko Haram in and from Nigeria, and huge destabilization across the Middle East.

History matters

It is for these reasons that I have argued, for more than a decade, that the hopes associated with some BRIC economies or mini-BRICs will prove inflated. It was misguiding in the early 2000s to project glorious futures for economies that relied excessively on resource- and commodity-driven growth.

There’s nothing new in this. In 1960, Ghana and South Korea were at similar starting-points and the conventional wisdom was Ghana would inevitably evolve faster than South Korea. Today, GDP per capita in South Korea is $36,600 but below $4,300 in Ghana. What really matters in economic development is not just industrialization but how it actually materializes.

Once, when I met the legendary investor Jim Rogers and we talked about the future of emerging economies, he referred to some BRIC analysts as “number crunchers.” It sounded pejorative but, while Rogers is a commodity expert, he started his career as a gifted historian and knows only too well that numbers without history and context are hollow.

In this regard, China is better positioned to overcome the middle-income trap with a more diversified industrial structure, as long as regional rebalancing can proceed and the external environment remains peaceful.

However, it does not follow that all, or even most emerging economies can follow in the footprints. Success requires structural reforms.

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. He is the CEO of Difference Group and has served as Research Director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net   

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules