Bloomberg analyst Matthew Brucker argues that the Chinese policy of “common prosperity” will lead to a limitation of the growth of income of the population, concluding citizens in the “trap” of the middle class.
The authorities presented a new economic course as a complex of efforts to reduce inequality and ensuring “moderate welfare for all.” At the same time, China, despite the active growth of the economy, has not been to enter the ranks of high income countries for several years. In 2012, the World Bank and the Development Research Center under the State Council of China issued a report, where they advised the government a number of measures to avoid the “middle income trap” and increasing the earnings of citizens. Then the President of the World Bank Robert Zellik called the growth model of the country’s economy “unstable.” Matthew Brucker summarizes the reforms proposed in the report as follows: “More markets, less than the annoying government.”
The term “middle income trap” describes the country’s economic trend towards a certain level of development. At the same time, salary increases, and the growth of labor productivity slows down. Only a very limited circle of citizens can achieve a significant increase in earnings. The country’s economy ceases to develop and ultimately GDP growth stops after reaching the average income level.
In 2013, the Chairman of the PRC became Si Jinping, taking a big role in the management of the economy, despite the lack of relevant education. Si always highly put the communist ideology, and the weakening of the market control was not included in his plans. In 2021, China’s chapter went on decisive measures. In his speeches, Si began to actively use the rhetoric of “common prosperity”, condemning excessively high earnings, and also struck the country’s technological giants by increasing state regulation.
However, Bloomberg analyst called the new economic exchange rate of the party “powerless convulsions in the face of inevitable fate.” World history shows that the role of the state in the economy should be reduced as markets are growing. With an active increase in GDP, the economy becomes too complex for command and administrative management a narrow circle of officials. Transparent, predictable and fair laws allow the market forces to take over the adjustment of this system to increase its efficiency and ensure the prosperity of innovation. The assignment from the authorities is necessary when the country threatens the “middle income trap”. South Korea and Taiwan, becoming richer and being faced with a similar problem, switched from an authoritarian political system to democratic. Almost all the largest economies of the world were formed in democracy.