Will China become a mid-level developed country by 2035?
No, argue Clark and Higgins in this commentary. China is currently a middle-income country, with a per capita income of $21,400, placing it just above the 60th percentile of the global income distribution. To achieve its goal of a mid-level developed country, per capita income would need to rise by a factor of 2.3, corresponding to an average growth rate of 6.6 percent to reach the threshold by 2035. The authors state several headwinds that will prevent China from reaching the goal of mid-level developed country:
- Official data show trend income growth slowing since the mid-2000s. The authorities’ income goals imply the need to reverse or at least arrest this trend.
- Labor inputs are set to decline under the weight of population aging. According to projections from the United Nations, China’s working-age (20-64) population will fall by 6 percent by 2035. In principle, increases in labor force participation or hours per worker could offset some of the decline in the working-age population, but China already ranks high on both these measures.
- China’s high share of investment spending in GDP—consistently above 40 percent since the mid-2000s—has supported a rapid buildup in the country’s capital stock. But capital accumulation is subject to diminishing returns which are already in evidence: according to the authors’ estimates, increased capital inputs contributed an average of 3.4 percentage points to GDP growth in 2018-22, versus 4.3 percentage points for 2013-17.
- Total Factor Productivity (TPF) growth, in China has averaged 1.8 percent since 2009, assuming the data are accurate. To meet its income goals, China will need to achieve a TPF growth above its current level. However, no other country has succeeded in consistently exceeding the rate of 1.8 percent.
Can China Catch Up with Greece?
By: Hunter L. Clark, Matthew Higgins – Federal Reserve Bank of New York
