The View

Can China’s booming EV industry help it avoid the middle-income trap?

Creating advanced industries which generate high profits is essential for countries that want to graduate to high-income status

While one industry cannot sufficiently influence China’s GDP per capita, its success in the EV sector is just the kind of progress needed for a prosperous future

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Robotic arms assemble cars on the production line for Leapmotor’s electric vehicles at a factory in Jinhua, Zhejiang province, on April 26. Photo: Reuters

Anthony William Donald Anastasi, PhD, is an assistant professor of economics at the Sino-British College, University of Shanghai for Science and Technology.

Published: 3:45pm, 2 May 2023

China’s rise as a producer and net exporter of cars has been as impressive as it has been rapid. Despite making traditional fossil-fuel-powered vehicles, China’s success can be found in its electric vehicle (EV) producers.

This is important for China at this moment. Of course, there are environmental reasons, yet there are important economic development reasons as well. The automotive industry is considered a late industry, meaning the technological and industrial requirements for building the industry are quite high and hard to achieve, which translates into the ability to extract more profit from exchange.

Creating late industries which generate high profits, such as the automotive industry, is essential for countries that want to graduate to high-income status and avoid the middle-income trap. This raises the question of whether China’s EV industry is its ticket out of the middle-income trap.