Xingmin Yin Fudan University, Shanghai 1

 What is an incentive for the ongoing discussion of middle-income trap?  Is it possible to define the fundamental factors of China’s moving to middle-income country?  How can the middle-class play a great role in country’s global competitiveness?  Can we analyze the trajectory of income per capita in terms of China’s comparative advantage? 2

 What is a major feature of China’s comparative advantage over the past decade?  It may be argued that the country’s huge pool of human resources and capital will generally move China along the path of both knowledge-intensive and capital- intensive mode of production and growth. 3

 What is the term of middle income country? How to better capture it?  China made leapfrog from US$1042 per capita in 2001 to US$7500 in  It is better to discuss China’s income growth under the consideration of fundamental factors. 4

Low income Middle income1,8603,397 Low middle1,2302,321 Upper middle4.5507,502 High income26,51037,990 China10426,000 (in 2012) 7,500 (in 2014) 15,000 (in 2020) 35,000 (in 2030) 5

 Can China continue and even accelerate its economic growth and enter into the gate of high income country by 2020?  A positive effect of economic growth on disposable income for China’s households. 6

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 There is sizable income rising in China in the past decade.  Daily disposable income of more than 50 percent of urban population is in the higher $10 levels.  Rural areas also saw a very sharp increase in the population earning $10 per person per day.  The prosperity to high income country can only be built on the higher productivity. 8

 Education policies have sought to improve labor quality to make schooling better serve the needs of the labor market, stimulate the economy, and promote China’s global competitiveness.  As education provision has expanded, the composition of enrollment has changed.  Schooling expansion in every level, particularly in higher education. 9

Senior Secondary School Junior Secondary School

N. Of College Students, 10,000 No. of Postgradu ates, 10,000 No of Students per100,

 Promotion rate  Mass higher education movement  Subject composition of college students  Overseas study  More measures: 12

 As the middle class grows it raises investment in human capital, in turn, drives national economic growth.  The causality can also go the other way, with human capital accumulation (typically education) pulling more of the poor into the middle class.  Increasing demand for education, combined with technological advances, is fuelling a rise in income. 13

 China is making a great transition from middle-income toward an industrialized economy status as it intensifies its innovation effort.  Discussion on R&D intensity with special reference to international experience. 14

CountryR&D Persons /million R&D/ GDP Ratio CountryR&D Persons /million R&D/ GDP Ratio France China Germany Japan Indonesia UK Malaysia USA Philippines Korea Thailand Singapore India

 By 2013, China’s R&D intensity remarkably rose to 2.03 percent. As a middle-income country, its R&D spending to GDP already passed its Asian counterparts.  In 2012, China graduated 250,000 scientists and engineers with degrees at the master’s level and above.  Against the backdrop of the R&D spending of the middle income countries, China has begun to move to the high income country. 16

 These educational and technological developments are likely to affect trade patterns because of their impact on country’s comparative advantage.  How to analyze China’s trade performance?  A rising sophistication in China’s exports relative to countries with similar aggregate endowments. 17

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 There has been a pronounced shift in China’s exports, first to more capital- intensive industry such as steel and then to those coming from more technology- intensive industry, which is in consistent with the growing role of higher education and R&D intensity to GDP ratio.  Exports of skill-intensive goods to rich countries can be a source of growth for middle-income country. 19

 R&D is highly concentrated. Nearly 85 percent of R&D spending takes place in the manufacturing sector.  China’s industry labor productivity increased from US$3,437 in 2000 to US$10,439 in 2008, further to US$16,029 in  The size of China’ manufacturing capacity.  The case of industrial products. 20

Industrial Labor, million Growth Rate, % Textiles Steel Transportation equipment Electric Power Manufacturing industry Industrial ProductsGrowth Times Yan, million tons Rolled steel, million tons Motor vehicles, million units Electricity, trillion kwh Output value, RMB trillion In US$ trillion

 The capital-intensive industrialization involved the establishment of an extensive set of capital- intensive industries, including steel, chemicals, heavy machinery, electric and electronics, automobile and civil aircraft industries.  High returns from investing in relatively capital- intensive technologies, with the support of R&D spending, China has retained an enormous achievement in its quest for economic efficiency and rising income level. 22

 Changes of China’s comparative advantage.  Among the middle-income countries, China has been the only country where level of R&D intensity has risen beyond 2 percent and the student new enrollment rate in higher education for the same age population reached 30 percent.  China’s rapid rising labor productivity has been a key factor for income growth. 23

 THANK YOU! 24