This aerial photo shows the full Internet of Things container terminal of Tianjin Port in north China's Tianjin, February 21, 2023. /Xinhua
Editor's note: Djoomart Otorbaev is the former prime minister of the Kyrgyz Republic, a distinguished professor of the Belt and Road School of Beijing Normal University, and the author of the book "Central Asia's Economic Rebirth in the Shadow of the New Great Game" (Routledge, February 2023). The article reflects the author's views and not necessarily those of CGTN.
China is entering a new decade of its development with critical challenges. According to the World Bank classification, China will move this year into the high-income country group when its GDP (gross domestic product) per capita exceeds $13,000. Additionally, the problem of its aging population has become more acute. These factors accompany each other worldwide throughout modern history. Hence, many nations had fallen into the so-called middle-income trap conundrum.
When explaining this phenomenon, some say that people lose their motivation to work harder after they have paid off their mortgage. Wealthier citizens live mainly in cities and have smaller families. Due to rising wages, countries can't attract investments requiring cheap labor. Meanwhile, they cannot switch quickly enough to an innovative economy and high-quality development, since this requires large-scale investments in high-tech sectors. Accordingly, the transition requires a high level of education and state-of-the-art scientific achievements.
Growth models based on accelerating investment and stimulating domestic consumption were applied by all fast-growing economies, such as the Soviet Union and Latin America in the 1960s, Japan in the 1970s, and South Korea in the 1990s. The fundamental difference between them was that the countries failed to reorganize to move towards innovative and high-tech industries in the first two cases and had gotten stuck in the middle-income trap.
American economist Albert Hirschman said the priorities should change regularly in the economic development of the nations. As a rule, previously successful models become a brake on further progress. He explained that it's very complicated to abandon an outdated development model that has brought success. Its successes give rise to deeply ingrained political, economic, financial and even cultural institutions that become insurmountable in the transition. Staying in a familiar environment is easier, but transitioning to a different growth model is painful, as the transition requires decisive actions, the most important of which are the political will and popular support.
This aerial photo shows a view of the Yangpu international container terminal in the Yangpu Economic Development Zone, south China's Hainan Province, December 10, 2022. /Xinhua
Economic growth depends on the number of workers, their productivity, and capital they use in their work. How are these characteristics in China? The country's pension legislation has been in force since 1951, when life expectancy was not 77 years, as it is now, but less than 50 years. Men retire at 60, white-collar women at 55, and blue-collar women at 50, making the country one of the youngest retirement ages in the world. In the 1950s, it was necessary to create jobs for unemployed youth since most industries required physical strength.
According to the National Bureau of Statistics, China's population dropped last year for the first time in 60 years, nine years earlier than the Chinese and UN officials predicted. The number of births per woman over her lifetime fell to 1.0-1.1, well below the official forecast of 1.8.
The country should urgently take measures to increase the birth rate, which has fallen far below Japan's 1.37, even though its GDP per capita is almost three times higher. The government pledges to upgrade childbirth services and make fertility treatments more accessible to couples. Nonetheless, other measures to encourage fertility, such as housing subsidies, cash incentives for the birth of a child, free education and free medical care, should be implemented.
To overcome the middle-income trap, the countries of North America and Europe have used external migration. Perhaps, China should consider this approach. For mono-ethnic societies that restrict incoming migration, there is a straightforward correlation between the growth of the standard of living and declining birth rate.
The number of workers in China will steadily decline. Therefore, the country has to increase labor productivity and attract more capital to maintain economic growth, so there's no alternative to economic modernization and high-quality development. Greater urbanization, massive scientific, education and healthcare investments, and drastic measures to increase labor productivity are required.
Additionally, a few reforms should be implemented to raise the retirement age and increase the birth rate. Historically, China has coped with many challenges. But the next decade's challenges will be unprecedented, and only full-scale mobilization of the whole nation can overcome them. China's success as the world's largest developing country in overcoming the middle-income trap and demographic problems will serve as an example for many emerging nations. Sustainable international cooperation in global modernization and qualitative development will make our world much more harmonious and better.
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