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>This middle income trap is not a good thing by the way One of OG researchers who coined the term believe phenonmenon is overstated, to the point of not being

>This middle income trap is not a good thing by the way One of OG researchers who coined the term believe phenonmenon is overstated, to the point of not being useful or existing at all. Fundementally, middle income trap is not a good concept in evaluating PRC because even according to the original middle income analysis countries with proper industrial policies designed to move up value chain (like PRC) is likely continue out grow developed countries and in PRC's case, close capability gaps. It's less about being trapped within arbitrary per capita bracket (which PRC is set to to reach upper income by years end anyway) and more about industrial stagnation that would theoretically lead to economic stagnation. Reality is PRC as you recognize is almost like two countries, rich developed coastal that is still rapidly developing, and developing (really neglected) interior. This segregation was by design (Deng's let some get rich first policy), but that "sliver" living in T1 region is ~200M people, which is about Japan, South Korea, Taiwan combined. And really one should include another 200-300M T2 cities due to industrial synergies. Essentially you have a 500M strong rapidly developing country that is spilling out comparable STEM graduates as OECD countries combined while rapidly moving up value chain in every industry, not just a select few like in Brazil. This is the component of PRC that is globally competitive and building up comprehensive national power to the point of becoming pacing threat with US, even if it's dragged down by the interior poor. Just look at record youth umemployment which is absolutely not something to brag about but reflects just how much oversupply of talent resulted from education reforms 20 years ago meanwhile PRC moving up every research and innovation index controlled for quality and have indigenous industries in almost every sector, many of which are increasingly competitive. Even with demographic crisis looming, rich PRC is really just getting started because it is increasingly oversatuated with talent for moving up value chains. Yeah there's still 600M undereducated poor that can't really be integrated into modern economy, hence common prosperity wealth transfer programs. Think of it as rich high-growth high-income PRC giving handout / economic aid to lower income PRC, not enough that rich PRC stops growing, but just enough that poor PRC isn't spiraling in subsistence and ready to rebel. Ultimately it's useful to think of PRC as massive developed China supporting massive low income China. It's better to have a country with 100 people where 50 rich people can build advanced tech but 50 are stuck being poor farmers then a country with 100 people with equal wages that can only make shoes or farm. Now consider India with 1400M people has 20% of PRC GDP... and while a drain, it really does not take crippling amount of resources relative to PRC GDP to subsidize 600M poor. Last time I did the math, if PRC spends 6% of GDP / 1 trillion per year, it can double income of the 600M poor on 1000rmb per month to 2000rmb. Which isn't great but enough to maintain stability especially if spread out over multiple years so people percieve they're getting richer YoY.

alephnerd 4y ago
What you have described is BY DEFINTION the middle income trap. Economic growth and development is not linear - the type of strategy that brought incomes up from $400 to $2000 a year are not going to be the same to bring them up from $2000 to $10000. The kind of regional income transfers you mentioned is a MASSIVE legal undertaking that will inevitabely face a significant amount of opposition from the richer coastal prefectures that would be subsidizing said development. You would need a revamping of tax brackets and also, you would still need to work on getting education quality in hinterland regions up to speed. We all want to say China is doing it's own thing for the first time, but this is the exact same story we saw with Malaysia and Mexico in the 90s and Turkey/Russia/Brazil in the 2000s-2010s. And it's not like economists and policymakers in the PRC are blind to this - Shaojie Zhou and Angang Hu at Tsinghua are two econometricians I can think of off the top of my head who are doing reseach on this conundrum specifically while also still in China. Li Keqiang himself is a former developmental economist btw and I wouldn't be surprised if a number of the recentish reforms that have started happening were lobbied by him. Paraphrase from previous comment: Countries can have cutting edge industries AND still lag behind in development - Brazil (Defense, Aerospace, ONG, Automotive), South Africa (Defense), Turkey (Defense, Automotive, ONG), Mexico (Defense, Automotive, ONG), Russia (ONG, Defense, Aerospace, Automotive), Malaysia (Automotive, ONG, Electronics), etc are all countries that are major innovators and even leaders in STEM/innovtion heavy industries, yet still have significant issues with spreading development across their countries. The PRC is facing a similar issue, and it is a hard nut to crack - I can't think of a single middle income to upper income economy that didn't also 1. receive a massive subsidy from either the EU (southern Europe, eastern Europe, Ireland) or the US (South Korea, Israel, Taiwan) 2. have a small population (<30mil at time of transition) It is harder to lift a nation of 400 million poor (using PRC poverty definition) people than to lift a poor nation of 30-40 million.
- senttoschool 4y ago
  >Countries can have cutting edge industries AND still lag behind in development - Brazil (Defense, Aerospace, ONG, Automotive), South Africa (Defense), Turkey (Defense, Automotive, ONG), Mexico (Defense, Automotive, ONG), Russia (ONG, Defense, Aerospace, Automotive), Malaysia (Automotive, ONG, Electronics), etc are all countries that are major innovators and even leaders in STEM/innovtion heavy industries, yet still have significant issues with spreading development across their countries. Again, these countries do not have any innovation advantage in those industries. Here are actual leaders in those industries: Aerospace --> USA, EU, UK, Japan Defense --> USA, EU, China, Israel, Russia Automotive --> USA, EU, Japan, South Korea, and soon to be China ONG --> USA, UK Electronics --> USA, Japan, EU, China, South Korea, Taiwan Energy --> USA, EU, China Gaming --> USA, Japan, China You're confusing having a large industry with leading SUSTAINED innovation. When was the last time you bought a Malaysian brand electronic? When was the last time you drove a Mexican brand car? High income countries produce innovation, hence the ability to move up in the value chain, hence moving above middle income trap.

alephnerd 4y ago

What you have described is BY DEFINTION the middle income trap. Economic growth and development is not linear - the type of strategy that brought incomes up from $400 to $2000 a year are not going to be the same to bring them up from $2000 to $10000. The kind of regional income transfers you mentioned is a MASSIVE legal undertaking that will inevitabely face a significant amount of opposition from the richer coastal prefectures that would be subsidizing said development. You would need a revamping of tax brackets and also, you would still need to work on getting education quality in hinterland regions up to speed. We all want to say China is doing it's own thing for the first time, but this is the exact same story we saw with Malaysia and Mexico in the 90s and Turkey/Russia/Brazil in the 2000s-2010s. And it's not like economists and policymakers in the PRC are blind to this - Shaojie Zhou and Angang Hu at Tsinghua are two econometricians I can think of off the top of my head who are doing reseach on this conundrum specifically while also still in China. Li Keqiang himself is a former developmental economist btw and I wouldn't be surprised if a number of the recentish reforms that have started happening were lobbied by him. Paraphrase from previous comment: Countries can have cutting edge industries AND still lag behind in development - Brazil (Defense, Aerospace, ONG, Automotive), South Africa (Defense), Turkey (Defense, Automotive, ONG), Mexico (Defense, Automotive, ONG), Russia (ONG, Defense, Aerospace, Automotive), Malaysia (Automotive, ONG, Electronics), etc are all countries that are major innovators and even leaders in STEM/innovtion heavy industries, yet still have significant issues with spreading development across their countries. The PRC is facing a similar issue, and it is a hard nut to crack - I can't think of a single middle income to upper income economy that didn't also 1. receive a massive subsidy from either the EU (southern Europe, eastern Europe, Ireland) or the US (South Korea, Israel, Taiwan) 2. have a small population (<30mil at time of transition) It is harder to lift a nation of 400 million poor (using PRC poverty definition) people than to lift a poor nation of 30-40 million.

senttoschool 4y ago
>Countries can have cutting edge industries AND still lag behind in development - Brazil (Defense, Aerospace, ONG, Automotive), South Africa (Defense), Turkey (Defense, Automotive, ONG), Mexico (Defense, Automotive, ONG), Russia (ONG, Defense, Aerospace, Automotive), Malaysia (Automotive, ONG, Electronics), etc are all countries that are major innovators and even leaders in STEM/innovtion heavy industries, yet still have significant issues with spreading development across their countries. Again, these countries do not have any innovation advantage in those industries. Here are actual leaders in those industries: Aerospace --> USA, EU, UK, Japan Defense --> USA, EU, China, Israel, Russia Automotive --> USA, EU, Japan, South Korea, and soon to be China ONG --> USA, UK Electronics --> USA, Japan, EU, China, South Korea, Taiwan Energy --> USA, EU, China Gaming --> USA, Japan, China You're confusing having a large industry with leading SUSTAINED innovation. When was the last time you bought a Malaysian brand electronic? When was the last time you drove a Mexican brand car? High income countries produce innovation, hence the ability to move up in the value chain, hence moving above middle income trap.