China is in a middle-income trap; And it can’t survive like Japan, South Korea, Singapore

China’s push to revive its economy in 2023 to circumvent the middle-income trap is a central theme now facing the world’s second-largest economy.

Japan, South Korea and Singapore have escaped the trap by re-skilling their populations and becoming innovation-driven economies. China has taken a more aggressive approach to sector-oriented investment to improve the overall productivity of the economy. But the current geopolitical environment is not conducive to its plans to escape the middle-income trap.

“The coming five years will be an important period in China’s effort to achieve success in becoming a modern socialist country in all respects and realizing high-quality economic development. The main goal is to … , ”said Wang Yiming, vice president of the China Center for International Economic Exchange.

Other experts agree with Wang’s assessment that the next few years are going to be critical if Beijing falls into the middle-income trap as growth slows.

“You need to see that a country remains a middle-income case for a number of years – and China only really became a middle-income country in 2012-13. George Magnus, an associate at Oxford University’s China Centre, said, “In the next five to seven years, we should have a much clearer idea of China’s trajectory.”

According to the World Bank, China’s per capita GDP in 2020 was $10,400 and will reach about $12,556 in 2021. “The average per capita income in developed countries is around $48,000. Except for some small-sized economies, this figure is still around $35,000 to $40,000,” Wang Yiming wrote.

If China is to escape the middle-income trap, it will need to raise its total factor of productivity to join the club of high-income countries – which is still dismal.

The transition from a manufacturing-driven economy to an innovation-driven economy will require retraining employees. But it will not be easy – there are many mistakes.

Contrary to rhetoric about Vietnam replacing China, Chinese companies have moved to Vietnam over the past decade looking for ways to cut manufacturing costs – which has only intensified since US-China tensions escalated .

A push by China’s own companies for offshore manufacturing in Vietnam has raised concerns among Chinese workers already struggling in the post-Covid jobs market.

The offshoring effort is being driven by the provincial government with large Chinese companies contributing significantly to local development. But these companies are more interested in maximizing their profits than re-skilling their workforce. There can sometimes be a gap between what the central government in Beijing wants and the policies adopted by local governments to promote their local companies.

Low skilled factory workers who are now unemployed are going to be a liability as there are barriers for them to learn new skills.

Wang Jing, a sociologist, links the lack of stable housing as a root cause of Chinese businesses’ inability to retrain their employees. Housing prices have risen even in urban villages, allowing workers to find relatively affordable housing as they move from job to job.

“Precarious living conditions often push workers into more flexible forms of employment. Deprived of stable housing and discriminated against by urban welfare systems, migrant workers have no way of establishing roots in the city, leading to their It becomes difficult for them to obtain long-term technical training from a single employer,” Wang Jing wrote.

Wang found in a survey that about 61 percent of Chinese companies had not even established an internal training program because the companies believed that if advanced training was provided, their competitors would poach their employees.