China stands poised to shatter the myth of the middle income trap. The transient turbulence of COVID shutdowns and the CCP's private sector intervention cannot derail the country's inexorable march to high income status. The trap sprung on nations across Latin America, the Middle East, and Southeast Asia stalls development at middling wages between low-income drudgery and advanced economy prosperity. Yet China has already lapped peers in its escape velocity.
The country averaged economic growth exceeding 8% for over 40 years since reforms opened the economy in 1978. Few countries managed even short sprints near this speed before hitting a ceiling. China chose the marathon route, growing through property booms, infrastructure buildouts, exports, and industrialization waves. Now China is positioned for sustainable growth through three forces its peers lacked: the rise of domestic consumption, demographic dividends, and technology leadership.
Baidu Apollo robotaxis
China's consumer class already exceeds the entire population of Europe. The country is undergoing one of history's great urbanizations alongside rising wages. Disposable incomes support domestic travel, e-commerce, luxury products, and services. China no longer relies on frugal foreigners to buy its exports. At the same time, China is strategically offshoring lower-value manufacturing to Africa and Latin America while focusing domestically on building electric vehicles, semiconductors, and soon, airplanes. This reshoring and nearshoring boom ironically makes China wealthier by keeping its workforce focused on advanced industries.
A related trend fortuitously emerged—the peak percentage of Chinese in the workforce crested just as consumption accelerated. More workers earning and spending multiplies GDP. Past Asian tigers like South Korea and Japan stagnated when aging populations dragged on growth.
Finally, by racing to build 5G networks, install cameras pushing computer vision, and become world leaders in solar power and electric vehicles, China avoids fossil fuel dependence and seized first-mover advantage in technologies underlying 21st century prosperity.
The strengths compound each other. Rural migrants flowing into gleaming high-tech cities demand digital payments, fast e-commerce delivery, rideshares, and fintech services. Building this infrastructure creates jobs for the swelling workforce. Export revenues from advanced industries then fund greater domestic consumption.
Of course China's progress faces headwinds. The imploding real estate sector will deflate parts of the economy. Concerns over the country's military activity near Taiwan and the government's high level of intervention in the private sector deter investment from the country. Demographics tilt older. And foreign hostility elsewhere threatens access to markets, capital, and intellectual property.
But the momentum China already has seems unstoppable. Many analysts who predicted China would fall into the middle income trap years or decades ago persist with stale skepticism even as the country barrels through milestones. At some point the risk flips—betting against China reaching advanced economy status becomes riskier than imagining further ascent. The middle income trap ensnares stagnant countries resigned to copying existing technology, not inventing new ideas. China zagged by building a tech industry to call its own, supported by economic and cultural advantages. China faced the trap head on. Rather than accept a middling fate, China reinvented the playbook and wrote its growth story on a blank page unconstrained by conventional wisdom. The result will soon be cemented in per capita GDP figures trailing only the West. The middle income trap has finally met its match in China's great income leap.