The “middle income trap” has been a favorite buzzword in debates about China for some time now. In times of slower growth, the danger that China will fall into this trap seems more acute than ever before.
If higher wages lower the country’s competitiveness in exports of traditional unskilled labour-intensive manufacturing and if it does not move into higher value-added markets, it won’t be able to take the majority of its population beyond the “middle income threshold” of about 12,700 USD Gross National Income (GNI) per capita as defined by the World Bank.
In March 2016 China’s leadership set the goal to abolish poverty by 2020. This is an ambitious benchmark, considering that 56 million people still live below the domestic poverty line. In times of slowing economic growth it will be difficult for Beijing to keep its promise. The lagging progress in economic restructuring and a tense labour market even raise the risk that millions could fall back into poverty after having climbed out of it.
As part of a massive modernisation programme for Australia’s navy, the government in Canberra has placed its order for twelve new submarines. The $39 billion (€35 billion) deal with the (largely state-owned) French company DCNS, is a blow to its competitors in Germany and even more so in Japan. Up until the last minute, Mitsubishi Heavy Industries had seemed on track to win this contract – and in Tokyo the rejection is perceived as an economic loss as well as a diplomatic snub.
The publication of the Panama Papers made headlines around the world, just not in China. The country’s censors worked hard to block the entire nation from accessing information about the secret wealth and financial dealings of family members of its political leaders.
July 14, 2017