Price setter, middle income trap and China

Comments on Editors, East Asia Forum"China’s two big challenges", 29/03/2016

While I agree with almost all major points in this editorial, some points seem to be a little contentious. Firstly, the Singapore experience among those experiences points out some diversity in the road to rich, at least it is not that high degree of universality in terms of political freedom. One might argue that was an exception as opposed to a rule, but nevertheless it existed.

Secondly, while the size of the Chinese economy may present some challenges for specialisation to be an option on the road for it to be rich, it could also mean some opportunities. For example, it may mean if China can focus on it economy better, that will be probably and comparatively enough for it to go rich. In other words, a price setter, as opposed to price taker, is relatively less affected by external factors purely because of its price setter status.

So if China can manage its own economy well, perhaps modelled on those economies ahead of it (and taking into account emerging technologies and trends), it is advantageous to be a price setter.

In that context, I would recommend caution in planning too grandiose international schemes, given the difficulties for any country to make good decisions, let along many countries to make the right decisions at the same time, where China has little control of them.

Finally, the so called middle income trap is as much a challenge as a myth. Some of the countries that have fallen into that trap can perhaps all find its fundamental causes, particularly some Latin American countries which may have coincided with the Oil Crisis and subsequent change in the world economic structure including high inflation and high interest rates when those countries were having high debt associated with their exploration of their natural resources.

One should not be too pessimistic about the potentials for countries to develop and to join the ranks of the rich in the world.

Having said that the continued slowing of the Chinese economy may have reinforced the pessimism. But I hope the Chinese leaders will wake up to the potential dangers of excessively slowing of its economy.