China could become a high-income country this year, but can it stay one?

There seems to be a never-ending amount of scholarship and commentary on how China can escape the middle-income trap. It moved from low-income to lower-middle-income status in 2001, then to upper-middle-income status in 2010. However, China’s next transition, to high-income status and joining the ranks of the club of developed countries, is much more difficult.

While the jury is still out on exactly when it might happen, it is possible that 2025 is the year China becomes a high-income country. The data points to it passing that threshold this year, but the question remains whether it will address the structural challenges that could push it back down to middle-income status.

It is important to define what economists mean by the middle-income trap. According to the China 2030 Report, jointly issued by the World Bank and China in 2013, only 13 out of 101 middle-income countries (classified by gross domestic product per capita) made the transition to high-income status between 1960 and 2008. The reason so few countries have been able to make the transition is the difficulty in achieving both the structural transformation and the technological and industrial upgrading needed.