Is China Due for a Slowdown?

The great differences in income between the poorest and wealthiest provinces in China could save this country from a recession, I don´t think it will be suffice but this work  worth to read it to have an idea in the way could be this escenario.

Is China Due for a Slowdown? by Israel Malkin and Mark M. Spiegel

Historically, countries don’t seem to be able to grow at such rapid rates forever (8%). Fast-growing countries often fall into what is commonly referred to as the “middle-income trap,” in which rising wages erode global competitiveness, leading to a marked slowdown. Eichengreen, Park, and Shin (2011) demonstrate that growth rates of fast-expanding countries decline on average around 2% per year when per capita income reaches about $17,000. China will soon approach that level. Moreover, studies of sustained rapid growth episodes suggest that, on average, they do not exceed ten years (see Aizenman and Spiegel 2010). China has grown rapidly for over 30 years. Given China’s prominence in the global economy, a prolonged slowdown could weigh on Western economies and hamper a global recovery already under pressure from the euro-area downturn and weak U.S. expansion.

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Our results indicate that growth of the wealthier portion of China is likely to slow, but substantial room remains for continued growth in China’s interior. For example, among the advanced Chinese provinces, average growth is predicted to slow to 7% in the five years beginning in 2016. However, growth among China’s emerging provinces is not expected to fall to that rate until sometime during the five years beginning in 2024. Thus, the emerging Chinese provinces are predicted to enjoy more than an additional decade of high growth before succumbing to the middle-income trap.

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This implies that, in the near future, rapid growth in China will be concentrated primarily in the Chinese interior rather than in the more advanced areas near the coast. For example, by 2020, growth in the developed provinces is expected to slow to a still-healthy, but unexceptional 5.5%. But growth in the emerging provinces is expected to remain a robust 7.5%. Thus, China’s overall growth slowdown may not be severe. The advanced provinces may indeed reach income levels associated with the middle-income trap. But rapid expansion in the emerging provinces will at least partly offset the overall effect on China’s growth