These days it’s not uncommon to see news headlines saying that our public debt to China has risen to some astronomical amount and that each American household owes thousands of dollars to China. Now, you may be asking yourself, “What does this mean? I never borrowed money from China!” Well, to clear things up, the debt we owe to China is actually US government debt, a.k.a. US Treasury bonds that China’s central bank has bought up. Today, China owns a disproportionately large amount of US government debt, currently amounting to just over $1 trillion.
The Tufts Economics Society is hosting a lecture by Professor David Dapice about how nations grow fast for a while and then get stuck before becoming rich, and how that illuminates the shortcomings of standard development theory. The event will be happening on Wednesday April 4th at 6:00pm in Braker 001. Feel free to come check it out—it’s open to all Tufts students, and we’ll be serving Dave’s Fresh! This post is an interesting introduction to the middle-income trap, using China as a case study.
A few weeks ago the World Bank Group released a 400-page long report on China’s future economic prospects, termed “China 2030: Building a Modern, Harmonious, and Creative High-Income Society”. In the report economists analyze China’s current economic conditions as well as various risks that pose a threat to its economic growth. The report proposes a series of broad recommendations that should help China shift from a middle-income country to a high-income country, thus avoiding what is commonly termed the “middle-income trap”.
What is this so-called “middle-income trap”? Well, theories of economic convergence state that it is natural for low-income countries to grow faster than high-income countries, eventually allowing them to catch up in terms of per-capita income levels. Part of the reason is because an abundance of cheap labor in poorer countries and inward flows of advanced technology from advanced countries help propel rises in productivity and output. The middle-income trap occurs when developing economies, for some reason or another, run into difficulties after a certain point (say, when poorer countries approach the technology barrier) and growth in per-capita income levels stagnate, trapping these countries in the so-called middle-income category.