Abstract:

China’s per capita GDP surpassed US$4,000 in 2010, the threshold for an upper middle income countries. By drawing on examples of both Latin American countriesthat fell into the middle income trap and "Asian Tigers" (Singapore, South Korea, Taiwanand Hong Kong) that avoided this trap and became high income countries, this paperidentifies two transformations in China’s economic development: market-driven and factor driven stages. China’s growth is currently driven by efficiency, i.e. the upper middle income stage, and is set to reach the high income stage driven by innovation. This paper analyzes various factors that may drag China into the middle income trap during its upper middle income stage, warns of the urgency to avoid traps and transform its development model,and identifies seven traps that must be guarded against.