China’s Slowdown and the Myth of the Middle-Income Trap

Most Middle-Income Countries Eventually Become Rich

FLASH: The Ministry of Finance (MOF) spent an estimated ¥5.5 trillion—about 1% of GDP—to keep the yen from getting weaker than ¥160. 

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It’s no secret that the once-stellar Chinese economy is suffering a big slowdown. In 2024-25, per capita GDP growth fell to 5.2%, the lowest rate since the Deng Xiaoping reforms (aside from two temporary disruptions). The IMF predicts that, by 2031, growth will decelerate to just 3.6%.

What is the reason for the slowdown? Some sources, like the World Bank, say China is caught in a very common “middle-income trap.” I disagree.

This is the first in a new series of reports that portrays China in a different trap due to Xi Jinping’s reversals of some of Deng Xiaoping’s important reforms. Economists call it a “high-technology/low-productivity trap.” In an earlier post, I introduced this concept and detailed how it applied to Japan.

For details and analysis, see