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In China, Slowdown Is a Bigger Danger Than Growth

Author: Peter R. Orszag
January 15, 2013


A slight acceleration in Chinese economic growth at the end of last year is reinforcing the common narrative that China's expansion is a threat to other nations, including the U.S.

The bigger danger over the medium term, however, may be a slowdown in Chinese growth -- which appears to be more likely than most U.S.-based commentators seem to realize.

China, after all, is fast approaching income levels associated with the "middle-income trap," the point at which many other countries have moved from rapid to sluggish growth. This trap opens up for several reasons, including that economies expand disproportionately, at early stages of development, by shifting workers from agriculture to manufacturing. At some point, though, the gains from such shifts disappear, and new sources of growth are needed. China appears to be near this point.

The middle-income trap typically occurs at two income levels: about $10,000 in per-capita income, and again at about $15,000. This is based on the most recent data, assembled by economists Barry Eichengreen of the University of California at Berkeley, Donghyun Park of the Asian Development Bank and Kwanho Shin of Korea University, and published this month by the National Bureau of Economic Research.

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