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Minister of Finance on Areas to Help China Overcome the Middle Income Trap

Phoenix Chinese News and Entertainment reported that, on April 24, when attending the Tsinghua China high-level economic forum held at Tsinghua University, Lou Jiwei, China’s Minister of Finance, said that there is a 50 percent chance that China will fall into the middle income trap [where a country attains a certain level of income and then gets stuck at that level] in the next 5 to 10 years due to its fast becoming an aging society. Lou listed five areas that will help China to overcome this problem.

1) Agricultural reform: to promote agriculture imports and reduce farm subsidy spending. Lou believes this will shift the labor force in the countryside to supplement the labor shortage in the manufacturing and service sectors while keeping salary increases below the growth of productivity.

2) Reform of household registration: to break the registration barriers. Lou said that since the reform initiation published in July 2014, only 14 provinces have introduced a plan to execute the reform and none of these are in the areas where most people wish to migrate. Therefore, in order to break the barrier, the government must provide education and medical resources that will help the migrant workers to have stable living conditions in the city.

3) Labor relations: to allow employers and the employees to manage labor relations themselves in order to promote flexibility in the labor market.

4) Land reform: Once the construction land is bought out, it can be freely traded, just like urban land. The government is not allowed to expropriate land and evict the tenants.

5) Social Security: the government needs to allocate more funds so as to reduce the social security rate. More changes are needed in social security payments and in collection and investment. Otherwise, China will not be able to deal with its aging population.

Source: Phoenix Chinese News and Entertainment, April 26, 2015