WASHINGTON, March 3 (Xinhua) -- China may not necessarily fall into the "middle-income trap," which is just a knotty issue for the emerging economy to tackle, says Indermit Gill, a World Bank economist.
The trap caught eight major Latin American economies such as Argentina and Brazil when they tried to shift the growth model from low wages to high skills, a step that is critical to evolve into higher income economies.
The term, coined by Gill and former World Bank economist Homi Kharas, now looms large among middle-income countries like China that have escaped poverty but still await prosperity.
But not every economy falls into the trap, Gill, the World Bank's chief economist for the Europe and Central Asia Region, told Xinhua in a recent interview.
Five East Asian economies, such as Japan and South Korea, successfully ran out of the trap and emerged as advanced economies, according to Gill's study.
The characters that differentiate winners from losers, in Gill's opinion, lie in a large proportion of the middle-income class, inclusive and efficient urbanization and rule of law, though each economy faces different conditions.
By the World Bank standard, China has entered the middle-income era with its per capita income of about 4,000 U.S. dollars. But its purchasing power parity adjusted per capita income stood at about 7,000 dollars in 2010.
Gill pointed out that the middle class accounted for 40-50 percent of the total population in Japan and South Korea when they entered the middle-income era, compared with 15-20 percent in Brazil.
In this sense, China has reached a crucial stage as its middle class constitutes only 12-15 percent of population, said Gill.
In terms of land urbanization, China was at a rapid pace thanks to state ownership of land, but the household registration system, known as hukou, hindered labor and family urbanization, and migrant workers could hardly lead an urban life, Gill added.
Gill also noted that many countries tried to stimulate economic growth as a way to avoid the trap, but turned out to see more inequality in opportunities and incomes, which resulted in strong headwinds to sustainable growth.
The rule of law, he added, is a way to ensure equality and stem corruption.
Gill said China's leadership has done well in the past 35 years to steer the country out of poverty and drive it into the middle-income community, but in the future Chinese policymakers will have to do something different and more difficult to maintain the growth momentum.
China has learned to allow market forces and the rule of law to guide economic activities, but the land, labor and capital markets need further reform to tap the growth potential, the economist said.
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