Nice analysis by Israel Malkin and Mark M. Spiegel of FRBSF.
Instead of looking at aggregate China econ outlook, they see disaggregated picture of Chinese provinces/states. The idea is that growth can still continue if laggard states are converging to the earlier growth states. So when one looks at Chinese picture, it looks as if growth to continue albeit at a slower rate:
This Economic Letter examines whether a substantial Chinese slowdown is imminent. We pay special attention to the fact that per capita income in China is extremely unequal. China ranks 27th out of 136 countries in income inequality (Central Intelligence Agency 2012). Moreover, income distribution is highly skewed geographically. Wealthier provinces are mainly located on the eastern coast, while poorer provinces are concentrated in the largely rural interior. Some provinces, most notably Beijing and Shanghai, are close to, or even beyond, the $17,000 per capita income level associated with the middle-income trap. But many Chinese provinces have far to go before reaching this level (see Eichengreen et al. 2011). If growth in these provinces outpaces that in the wealthier regions, China’s economy could continue to grow at a robust pace for a long time.
The highest per capital Indian states are even far off from China’s poorest states (Goa has highest per capita of about $ 2000). So tremendous catching up to do..
What is interesting is this discussion on middle income trap in Asian economies. The trap comes at lower incomes in Asia:
What evidence exists for middle-income traps in a group of Asian economies that, like China, experienced episodes of rapid growth? We pool data for Hong Kong, Japan, Korea, and Taiwan from 1950 to 2009. Data are measured in five-year intervals to concentrate on long-term growth patterns and avoid the volatility that stems from short-term business cycle effects. GDP per capita is measured in international 2005 dollars using the Heston, Summers, and Aten (2012) Penn World Table 7.1.
Figure 2 displays a scatterplot of the relationship between per capita income and average growth over the following five years for the four economies. It shows that growth of these economies slowed markedly after they reached middle-income status.
Growth rates for these economies are highest just below the $10,000 per-capita-income level and then slow down rapidly as income increases. The blue curve indicates that these economies grew on average at a 4.8% rate when per capita income reached $17,000, down from a high of 7.2% at the $7,800 level.
Interestingly, the middle-income trap appears to arise in Asia at lower income levels than has been found for broader groups of emerging-market economies. It may be that large Asian countries with relatively low prevailing wages cause the dynamic of the middle-income trap to shift. In Asia, countries may begin to become uncompetitive for certain labor-intensive activities at lower income levels than in other parts of the world.
Good stuff. ..
