The Research On The Path Of China Span The Middle-income Trap

The term "middle-income trap" first appeared in the report of the World Bank’s East Asian Renaissance:the point of view of economic growth in2007. Since then, the concept widely discussed by economists, and is used for analog the plight of Latin America and some Asian economies, but also, as the reference, is often used to judge China’s economic prospects. In2010, China’s per capita GDP exceeded4,000U.S. dollars, which officially entered the ranks of middle-income countries. Whether China can smoothly leap to high-income stage draws more and more attention. History tells us that the middle-income stage is a critical period of development of a country’s economy, if it suffers bad treatment that could fall into the middle-income trap.In this paper, we try to figure out the reasons that fall into the middle-income trap, through investigating the economic characteristics of a typical case of countries (Brazil, Argentina) in the middle-income stage. The results show that its long-term economic hovering and even retrogression due not only to the impact of external factors (foreign capital), even more important is the low capacity of the domestic capital formation (or inefficient investment). On this basis, the paper examines the efficiency of investment in China since the reform and opening up, and found that there is similarity between china’s efficiency of investment and typical trap countries. So China has the possibility of falling into the middle-income trap. However, China’s economy had not signs of the trap, this also shows that there must be special in China’s economy, which promote the steady growth of China’s economy. In the comparison of China and the typical trap countries, we found that the high savings promote the steady growth of China’s economy. The savings and invest transformation mechanism is the key in the chain. It’s the core of this paper, which is also China’s unique:institutional arrangement of state-owned banks. On the one hand, the government remain financial gathered in the account of the state-owned banks through a variety of ways, on the other hand, the government achieve centralized configuration of financial resources by strengthening the control of the state-owned bank credit behavior to ensure the steady growth of output.This wonderful institutional arrangement promoted China’s economy continued to grow steadily after the reform and opening, but there are some hidden dangers. We find that this institutional arrangement may make China fall into the middle-income trap in both cases. For problems that may arise in China, this paper argues that we should improve the allocative efficiency of government funds and reduce the rate of non-performing assets in the short term, the transformation of the government in the investment field and market-oriented interest rate reform is a long-term path to follow.