Is China Slipping into the 'Middle Income Trap'?

[Frodo]

It is a controversial theory (some economists claim it doesn't actually exist) that was coined by the World Bank.  At its simplest, it describes countries that after a period of high economic growth attain a certain income range, and get stuck there, performing below potential thereafter.  Could that describe China today?  

[Benjamin Frank]

Who could tell? China's economy is best described as 'state capitalism' and, at present, it seems that in the highest revenue generating industries the Chinese government isn't interested in having businesses maximize profits, but maximize China's influence in the world. In other areas of their domestic economy, the Chinese government seems to be primarily interested in keeping their population satisfied.

Beyond that, the Chinese economy has the problem of the 'one child policy' being maintained by the government for too long, which is also obviously also a governmental caused issue.

There are other problems with the Chinese economy that are more inherent to their economy and not caused by their government, but how can they be disentangled?

My overall point is that, obviously aside from the effects of the 'one child policy' which is too late to change, with different government policies that are genuinely free market (I.E seek to maximize profit, but legally unlike in the United States), the Chinese economy could look very different.

[Torie]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

[Skill and Chance]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

Hmmm... Singapore is pretty authoritarian.  However, it might not scale beyond a city state at a global trade chokepoint.

[Lord Halifax]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

[Torie]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

How rigorously did they restrict information flows, and is doing so now with the evolving economic structure more of a hindrance to growth now than in the past?

[Benjamin Frank]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

There was a theory in economic circles at least in the 1980s that it took a dictatorship to develop an economy because they didn't have to worry about trying to please every interest group.

[It’s so Joever]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

There was a theory in economic circles at least in the 1980s that it took a dictatorship to develop an economy because they didn't have to worry about trying to please every interest group.

I still personally ascribe to a watered down version of this theory. I don’t think it “takes” a certain path but I do believe certain paths make it easier.

I believe the “ideal” progression is true state-socialism (in cases where the necessary basic infrastructure for any economy is not existent) to an authoritarian capitalism/liberalization of the markets but not necessarily political freedoms to a very liberal state (both politically and socially) to a social democracy. But I’m not an economist so this is some layperson speaking.

[支持核绿派 (Greens4Nuclear)]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

Both of which had close ties to the US and had received hefty amounts of aid in the decades prior. Taiwan also benefitted from brain/wealth drain of fascistKMT-aligned elites following the Chinese Civil War, which is also true for British Hong Kong to some extent.

[Benjamin Frank]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

There was a theory in economic circles at least in the 1980s that it took a dictatorship to develop an economy because they didn't have to worry about trying to please every interest group.

I still personally ascribe to a watered down version of this theory. I don’t think it “takes” a certain path but I do believe certain paths make it easier.

I believe the “ideal” progression is true state-socialism (in cases where the necessary basic infrastructure for any economy is not existent) to an authoritarian capitalism/liberalization of the markets but not necessarily political freedoms to a very liberal state (both politically and socially) to a social democracy. But I’m not an economist so this is some layperson speaking.

Believe it or not, I kept all my school papers including back to elementary school, and since I just moved, I know where all the stuff is.

This was a sample essay question from high school history from 1988:
"With reference to at least one developed and one developing nation, outline the problems and growth of liberal democracy."

This is the quote from the article that referenced dictatorships and economic growth.

From: Post-election Brazil, a Victory for Democratization by Patrick Doyle (1982)

"It is useful to recall that when the military came to power in 1964 its thinking, largely molded by existing conditions, was dominated by two concerns - national security and economic development. The two priorities were not unrelated. The national development plan was highly dependent on substational inflows of foreign capital and this in turn necessitated a stable political and investment climate. Decision making became highly centralized and power was increasing concentrated in the executive branch. A number of Institutional Acts were passed which, among other things, granted presidental authority to suspend individual political rights, remove public employees from their positions, recess Congress and override electoral decisions at all levels.

These Acts and the concept of national security - so broadly defined as to encompass almost any form of political dissent or criticism as a breach of security punishable by up to 30 years inprisonment or death - made Brazil one of the most quietly repressive political systems in Latin America. This accelerated move towards highly centralized political power and the growth of repression during the early years of military rule was aided tacitly at least, buy a supportive, representative coalition formed in the early 1960s. The various elements were willing, initially at least, to accept the altered system and repressive military regimes, in return for law and order in the streets and the benefits of renewed economic growth.

The argument that at a certain stage in a country's development a strong, highly centralized, authoritarian regime is best suited to take the nation to a 'take off' point and to maintain order as an essential element of the process is a plausible (if not agreeable) one in the Brazilian case. There is no question but that the military (or military dominated) system that has governed Brazil for the last 18 years has maintained public order, created a stable economic environment and an attractive investment climate, brought about remarkable economic growth and has been responsible, through this development process, for making Brazil a dominant regional power and an emergent power in global terms.

There is, however, an aura of fatalism surrounding such a system. If it fulfills the role for which it was created, that system becomes an anachronism, and in an ideal world would self destruct. It is axiomatic that as a society develops and modernizes it becomes increasingly more complex...Authoritarian regimes, especially those entrenched in power for some time, tend to lack the adaptive capacity required to cope with drastically altered demands."

[2952-0-0]

There was a theory in economic circles at least in the 1980s that it took a dictatorship to develop an economy because they didn't have to worry about trying to please every interest group.

Up to a point, it might be possible, since the state could easily transplant existing technologies and marshal resources. But...

...once a certain level of modernization has been achieved, that by itself will create powerful interest groups who will resist further changes needed to attract investments. In China, you see this with Party apparatchiks grifting off state-owned monopolies and who don't want to see more market competition. In Latin America and Southeast Asia, you see oligarchs monopolizing entire sectors of the economy and who bankroll politicians to keep the status quo. Putin ensures his KGB buddies are at the helm of Russia's oil and gas sectors, and its heavy industries. In such an environment, success in business is based on your proximity to the big boss, rather than on innovation or competition. And, once you're successful, you'll naturally do whatever you can to defend the power structure.

Xi Jinping did recognize the previous paragraph, but his solution to the problem has been to remove the grifting apparatchiks at the state-owned monopolies and replace them with new apparatchiks who profess loyalty to himself as the supreme arbiter of Party ideology, and then act with a Pikachu face when they also start grifting.

[ingemann]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

Not really both were dirt poor when their dictatorships ended, in fact South Korea only overtook a North Korea a few years before.

[Lord Halifax]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

Not really both were dirt poor when their dictatorships ended, in fact South Korea only overtook a North Korea a few years before.

Nonsense.

Taiwan's "economic miracle" with rapid industrialization and exceptional growth rates happened from the early 60's to late 80's, and its democratic transition was in the late 80's and early 90's (and was only completed in 1996 with the introduction of direct presidential elections).

South Korea's economic transition also happened in the early 60's to late 80's, by then the entire foundation for a first world economy had been set up. It was a developed country in 1987 when it became a democracy (with freedom of the press and free overseas travel only introduced in the following years). It was the very interventionist and authoritarian reforms by General Park Chung-hee's government after his coup in 1961 that kicked off the economic transition promoting export-oriented industrialization and heavy-handed import substitution incl. banning most imports other than raw materials, privileging the conglomerates and nationalizing the financial system. Not something a democratic government could have gotten away with.

[Lord Halifax]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

How rigorously did they restrict information flows, and is doing so now with the evolving economic structure more of a hindrance to growth now than in the past?

Neither country restricted information on technology, economics and business related matters, so whether it was a hindrance to growth depends on if you believe that there are indirect benefits for businesses and STEM research from a free intellectual debate in general and that e.g. restrictions on foreign travel and lack of freedom of the press (both in place in SK to the late 80's) have an indirect effect on the economy. I'm sure there are researchers who have studied and discussed such indirect effects but it's not a topic I'm familiar with.

Today's economy is of course even more knowledge based than it was in the 60's, 70's and 80's when the economic transformation of these countries took place, so the effect of curtailing the free flow of information is likely greater, but it again depends on whether you can compartmentalize technology/STEM/business and separate such knowledge. Authoritarian regimes want to keep up with the "free world" when it comes to technology and business without being bothered with social, political, philosophical and artistic ideas that challenge their power and established social structures and norms, and that's almost certainly less realistic today than it was back then.

[Torie]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

How rigorously did they restrict information flows, and is doing so now with the evolving economic structure more of a hindrance to growth now than in the past?

Neither country restricted information on technology, economics and business related matters, so whether it was a hindrance to growth depends on if you believe that there are indirect benefits for businesses and STEM research from a free intellectual debate in general and that e.g. restrictions on foreign travel and lack of freedom of the press (both in place in SK to the late 80's) have an indirect effect on the economy. I'm sure there are researchers who have studied and discussed such indirect effects but it's not a topic I'm familiar with.

Today's economy is of course even more knowledge based than it was in the 60's, 70's and 80's when the economic transformation of these countries took place, so the effect of curtailing the free flow of information is likely greater, but it again depends on whether you can compartmentalize technology/STEM/business and separate such knowledge. Authoritarian regimes want to keep up with the "free world" when it comes to technology and business without being bothered with social, political, philosophical and artistic ideas that challenge their power and established social structures and norms, and that's almost certainly less realistic today than it was back then.

That is the issue, what economic price do authoritarian regimes pay for insulating their populace from destabilizing ideas?  And how possible is it to "train" a population to embrace a closed society, so even if the cage door is opened, those inside would prefer to stay in it?

[jaichind]

The future is always hard to predict but if you go by the WIPO's 2022 Global Innovation Index the correlation between income and the index is pretty clear with one clear outlier of PRC (the index has them ahead of Japan, France and Canada for example.)

If any middle-income economy is likely to break out of a "middle-income trap" it will be PRC.  Of course, nothing in this world is for certain.  We will have to wait and see

[Ragnaroni]

 The Chinese are gonna slip regardless their population is aging like mad. They're only popular with authoritarian sh**tholes and the like. They are also in the middle income trap however I'd like a few studies on this topic.

[jaichind]

US House passes bill announcing PRC as a developed economy and bypassing the middle-income trap

[American2020]

https://twitter.com/GerardAraud/status/1642263373403267073

[lfromnj]

US House passes bill announcing PRC as a developed economy and bypassing the middle-income trap

But Beijing insists that it does not use money from international institutions to invest in foreign countries. China believes this US campaign is aimed at slowing its growth and destroying Chinese jobs. "The economic consequences can be very real. Indeed, without this status, Beijing would no longer be able to impose tariffs on imports [which raise the price of goods produced abroad] and these companies would become less competitive, which could force some to lay off workers," explained Sun.

https://www.france24.com/en/asia-pacific/20230405-the-us-wants-to-elevate-china-to-developed-country-status-beijing-disagrees

[It’s so Joever]

US House passes bill announcing PRC as a developed economy and bypassing the middle-income trap

This is a pretty pathetic post even for you.

[Antonio the Sixth]

No, because China's issues are pretty different from the countries for which this theory was coined, but it's certainly true that the past few years have shown that the rapid growth we'd seen in the 2000s and 2010s is not going to be sustainable.

[Frodo]

If China's deflation becomes entrenched (like Japan from the early 1990s onward), then it will become all but certain that China will enter the 'Middle Income Trap':

China Slips Into Deflation in Warning Sign for Global Economy

[PSOL]

Is it even possible for a nation which truncates the free flow of information because of its authoritarian/totalitarian tendencies to achieve a first world economic status and income? Has that ever happened before in the post war period as economies became more information based and agile and supple?

South Korea was a military dictatorship and Taiwan an authoritarian one-party state with permanent martial law when they made the transition to a first world economy.

There was a theory in economic circles at least in the 1980s that it took a dictatorship to develop an economy because they didn't have to worry about trying to please every interest group.

Except the interest groups that make up the lynchpin of said dictatorship, which overtime may change.

The thing about liberal democracies is that it is only vital in serving interest groups which get you to "win" and you don't need to win just through majoritarian rule, indeed most states do not when you account for turnout and government-building.

[The Economy is Getting Worse]

No, China still has fewer taxes, regulations, and a smaller welfare state than the US. This is indicative for a faster growth environment. Contrary to conventional wisdom, deflation is a good thing - it means a lower cost of living for everyone. We had a lot of deflation in the late 1800s, when our innovation and growth were the fastest.

It is possible that Xi Jinping could screw things up - he implemented extremely authoritarian COVID lockdowns for example which have slowed the economy for the last 2 years.