Avoiding Pitfalls in China's Transition of its Growth Model

Abstract

The pace of GDP growth in China has shifted from an average of 10 per cent between 1980 and 2010 to below 7 per cent recently. This change is to some extent desirable, if the moderated growth reflects a successful transition towards a more efficient, inclusive and sustainable economy. However, certain ideas about China’s transition are problematic. This article rebuts a particular notion that China needs to replace its investment-driven growth by consumption-driven growth. This notion is erroneous both theoretically and empirically. Should China follow this path, its growth in the future would decelerate more precipitously than intended, falling into the middle-income trap.