BUSINESS MAVERICK: China, South Africa and the middle-income trap

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BUSINESS MAVERICK: China, South Africa and the middle-income trap By Tim Cohen tim_cohen

Chinese economic growth has become so important for the global economy, and particularly for commodity-rich Africa, that when China sneezes, we all stand a chance of catching a cold. So it is with some foreboding that the world watches Chinese growth slowly subside, even though absolute growth remains very high by global standards.

There are a number of immediate reasons for this. The trade war with the US is obviously taking its toll. According to Neil Shearing, group chief economist for Capital Economics, policymakers in Beijing are more cognisant now than in the past of financial vulnerabilities stemming from rising debt levels. Accordingly, the scale of policy stimulus this time has been much smaller than in previous downturns.

Shearing says his group has argued in the past that China has been facing two slowdowns: A cyclical one and a structural one.Policy stimulus can counter cyclical weakness. But China’s structural challenges require a different response, focused on addressing deeper-seated constraints that have built in its economy,” he wrote in a recent note to clients.

These are some of the effects of the middle-income trap, but philosophically, it is based on a different idea. He seemed to have hit on something, and this rough finding was examined more extensively by a host of subsequent researchers, some of whom did confirm his thesis. If you read IMF documents, they are absolutely unequivocal that South Africa, in particular, needs “structural changes”. But what does that mean? Essentially, it means SA needs a more skilled workforce, from top to bottom, and the National Development Plan recognised that very specifically — but subsequent to the plan, the government did little about it.

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