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Chinese Communist Party boss Xi Jinping has a problem, and the answer is — MORE COWBELL! I’m kidding, of course, except for the fundamental truth behind my silly Saturday Night Live gag. Since economic liberalization began under Deng Xiaoping in the 1980s, the answer to China’s economic questions — like Christopher Walken in the famous SNL sketch — has always been the same: MORE EXPORTS.
But exports are about to hit a wall.
Without getting too technical, China desperately needs to escape what economists call the Middle Income Trap. That’s when a Third World (or even Second World) economy comes this close to making the move from poverty to enjoying a middle-level income, then to joining the wealthy nations of the world.
South Korea escaped. Israel escaped. Singapore and Taiwan did, too. All four used to be dirt poor, or nearly so. All are now among the world’s high earners. Argentina was one of the world’s wealthiest countries a century ago but backslid into the middle rank under a crippling combination of economic populism and political corruption. Javier Milei is working furiously to fix all that, but I digress.
These countries escaped in two steps.
