China’s Future

Developed or Developing?

With economic growth slowing in much of the world, China’s future matters internationally; today, its economy is a locomotive pulling a hefty 35% of total global GDP growth. Despite warnings of doom and gloom, China’s economy is still growing at an envious rate. But can China defy the historical patterns of other developing countries and reach developed-nation standards? Can it move beyond the “middle-income trap”? No nation has ever progressed successfully to a developed modern economy without democratizing. Since 1960, 101 nations have gained middle-income status, but only 13 of these states have become high-income, fully developed nations.

The Deng Xiaoping era set an economic model in motion that relied on “large fixed-asset investment domestically (primarily into hard infrastructure) plus low-end, low-cost export manufacturing.” That strategy brought massive gains, but it’s now garnering “diminishing returns.” The GDP generated by spending a certain amount of credit on infrastructure and on the manufacture of export goods has fallen significantly as wages and other costs have started to rise, thus reducing China’s competitiveness...