Evolution of Competitive Advantages of Chinese Industries

Abstract

According to the theory of economic growth projections, development in countries around the world tends to converge. However, the reality in economic development is that for the majority of countries, once they move into the middle-income range as a country, the pace of growth does not continue: they fall into the ‘middle-income trap’ in the middle-income club instead of moving on to the high-income club. In 2010, China’s per capita GDP went above USD 4000, which placed it into the upper middle income category. Will China also fall into the “middle income trap”? This question received widespread attention. However, there is still much debate about why there is a middle income trap and how to avoid it and thus, little guidance can be expected. This chapter attempts to explain the mechanisms of how a ‘middle income trap’ is formed from the perspective of industrial upgrade based on an evolution of comparative advantage, so as to provide meaningful insights to help China avoid the middle income trap.