Transforming govt functions key to averting income trap

BEIJING -  After three decades of reform and opening up, China has already become a middle-income country by World Bank standards.

But the achievement also comes with a challenge: how to avoid the so-called middle-income trap that had plagued so many developing countries after they reached similar income levels?

Based on the experiences of South Korea, Chile and other countries, transforming government functions and changing economic development mode in a right way is the key to solving the problem.

Take South Korea as an example. Between mid-1980s and early-1990s, Seoul had shifted its economy from a government-led to a market-centric mode that required a fundamental transformation of government functions. As of 1995, the country's per capita income exceeded $10,000 and thus skipped the middle-income trap.

However, changing the government's role in the economy does not mean we should go to the other opposite extreme of market fundamentalism.

A relevant lesson could be drawn from Argentina, which has been mired in the middle-income trap for over 30 years since it pursued a failed reform in 1980s that called for weakening government functions despite premature market conditions. As a result, the country has since then been prone to the shocks of market liberalization forces.

The middle-income trap is not only a pure economic problem, but also is closely related to social and political issues.

In some countries, the government is unable to play its due role in the economic development due to strong social resistance to reforms. In other countries, with proper design and mechanism, a functionally-transformed government became a driving force for socioeconomic progress.

In this respect, Chile is a good example. In 2011, the South American nation averted the middle-income trap and increased its per capita income to 12,280 dollars.

Aside from transforming its economic development mode and pursuing more balanced income distribution, the country over the past decades has restricted government power and relentlessly fought corruption.

At present, it is a consensus in China to deepen reform, which is needed for the country to skip the middle-income trap, achieve sustainable development and realize the revival of the Chinese nation.

The keynote report of the 18th National Congress of the Communist Party of China last November made it clear that the core of the economic system reform is to properly handle the relationship between government and market. It also called for increased respect for the law of market and a better way for the government to play its role.

The message is clear -- transforming government functions would provide an institutional foundation for the country to successfully skip the middle-income trap and achieve sustainable growth and lasting prosperity. And Beijing has the resolve and capability to get the job done.