Concomitant with China’s economic aggregate transcending Japan’s as the second-largest economy in 2010, the rise of the country and its future trend has become the most popular topic among policymakers and research fellows in China and abroad. While the achievements of China in the economic, diplomatic and international governance domains are spectacular, the potential dilemmas or traps confronting China equally deserve vigilance.
Joseph Nye, a distinguished professor of Harvard University, advised US President Donald Trump that the US should be wary of two major traps: the Thucydides Trap and the Kindleberger Trap. The former theory predicts that China, with its irreversible assent, would challenge US dominance by military force. However, the latter, Nye said, is based on the assumption that China is too weak to shoulder its international responsibility. Chinese Foreign Minister Wang Yi responded by saying “China has the confidence to avoid the two traps through enhanced dialogue and coordination with the US” during a luncheon speech at the 2017 China Development Forum.
Actually, there is a third conundrum that has close affiliations with the two traps and should be included in any alert lists China has to face—the middle income trap.
Ever since the World Bank’s Report of Economic Development in East Asia 2006 first put forward the concept of “the middle-income trap”, the speculation that China may fall into this trap has never ceased. According to the World Bank, achieving an average national-income growth rate of at least 5 percent over a period of 50 years is a steppingstone for a middle-income country entering into a high-income level. If not, the country may fall into the middle-income trap. The key to avoid or stride over the trap is beyond any annual increase of the gross domestic product, but the transition from labor-intensive to technology- and knowledge-intensive production.
During the past three decades, the Chinese economy has achieved 9.9% growth per year. In this decade, its pace of growth decreased annually from 9.2% in 2011 to 7.4% in 2014, and may slip to an anticipated 6.4% in 2017. Considering the recent economic slowdown, there is a debate about whether China can sustain its fast growth. A majority of the middle-income countries (88 out of 101) failed to ascend to high-income status, and whether or not China can avoid the middle-income trap is undoubtedly one of the most important questions of the day. The relatively low costs, especially the ample and cheap labor, and massive investment in infrastructure were drivers for the economic takeoff during its low-income level. With the disappearance of those advantages, any continued economic ascent will depend on technological innovation and industrial upgrading. For China, overcoming the middle-income trap depends on two preconditions that lie in internal industrial upgrading and structural adjustment and externally improving its economic relationship with the US - the biggest economy of the world.
However the latter precondition, improving the bilateral relationship with the US, is encountering a second dilemma: the well-known “Thucydides Trap”. With economic interdependence in the era of globalization, it is debatable that the rising power will slide into an inevitable conflict with the established power. Chinese and American senior leaders have been trying to solve the security puzzle. Chinese President Xi Jinping tried to take advantage of the concept of a new model of major power relationship to replace the Thucydides Trap, which has been deemed as the inevitable fate of a rising power. Thanks to efforts on both sides, the recent Xi-Trump summit achieved more than anticipated by most diplomatic observers and policy predictors, including a 100-day negotiation of financial and commercial activities with the aim of increasing the US export share to China. However, this does not mean that China and the US have wiped out the risks of falling into the Thucydides Trap. Their divergences on regional affairs such as the North Korean nuclear issue and international affairs from climate change to space and cyber security are likely to draw them into conflict and destroy China’s international responsible image, which is relevant to the Kindleberger Trap.
The Kindleberger Trap, according to Joseph Nye, will confront China and the US due to China’s insufficient capability and willingness to assume its due international responsibility should the US afford less public goods than before. Actually, this worry is not only held by Nye but also shared by a majority of Americans. They have deeply rooted mixed feelings toward China’s rise. On one hand, they have suspicions of China’s political behavior and revisionist intention as a non-democracy, and they expand this suspicion to the realm of international affairs and conclude that China may dodge from its supposed international obligations. On the other hand, due to globalization and great economic interdependence, they worry that China’s irresponsible behavior “manipulating” its currency exchange rate or breaking the trade relationship may hurt the US more. Further, divergent policy positions on multi-dimensional domains held by the two countries contribute to their sense that China is irresponsible. Undeniably, China has made great efforts such as making commitments to a market economy and greater social reforms domestically, pushing for denuclearization and stability on the Korean Peninsula regionally through Six-Party Talks and its recent double-pause initiative, and affording public goods globally. However, in most Americans’ eyes, a huge gap exists between China’s willingness and capability to assume its due international responsibilities and expectations for doing so.
The three traps that China currently confronts are internally connected. The middle-income trap, concerning China’s domestic economy surge, stands as the base of the Thucydides and Kindleberger Traps. If China cannot solve the middle-income trap, there is no need to consider the latter two traps. Whether China could improve the bilateral security relationship with the established power, key to avoiding the Thucydides Trap, is determined by the extent of China stride over economic stagnation and meanwhile determines its international image. The Kindleberger Trap, relevant to China’s international diplomatic image, has close affiliations with the other two “traps” and stands as the final phase in the road of China’s rise. The three traps in their diverse domains of domestic economy, bilateral security and international diplomacy, pose an unprecedented challenge to China and demand that it accelerate the development of not only hard power but also soft power.