1. Challenges of becoming a high-income country: rising labor costs, shifting of L-shaped recovery, and stagflation risk
During the 14th Five Year Plan period, China's transformation direction is "the superpower of consumption and manufacturing", and it is expected to cross the trap of middle-income countries and become a high-income country. Historically, the United States, Japan and South Korea have successively become high-income countries. Since then, they have continuously experienced economic structure transformation and industrial structure upgrading, providing ideas for China's future transformation and upgrading. According to the division criteria of the world bank, the United States, Japan and South Korea achieved a leap in per capita GNI in 1945, 1974 and 1999 respectively and transformed into high-income countries. There are some common points before and after the transformation:
First, the international competitive advantage of human cost has declined. In terms of quantity, the population growth of the United States began to slow down in 1944. However, due to the baby boom after World War II, the population growth rate remained high in the 1940s and 1950s, and the population growth rate continued to decline after the 1960s. After Japan and South Korea became high-income countries, the population growth rate remained below 1% for a long time. From the perspective of structure, the proportion of labor force in the United States, Japan and South Korea peaked or the upward slope slowed down during the transition period. From the perspective of quality, the per capita GDP center of the United States, Japan and South Korea has moved up rapidly in the decades since they became high-income countries. The United States has transformed into a consumer country, while Japan and South Korea have developed into medium and high-end manufacturing countries. At the same time, during the transition period, the urbanization rate of the United States, Japan and South Korea was higher than 60%, and the action on this issue can be slowed down. As the global industrial transfer depends on the relative labor endowment advantages among various economies, once the human cost advantages of the recipient countries that enjoyed the demographic dividend before are no longer, the next round of industrial transfer will inevitably be started and the recipient countries with lower human cost will be found.
Second, the L-shaped recovery of economic growth. After the great depression and before the United States became a high-income country (1934-1944), the year-on-year peak of real GDP was 18.9%, with an average of 10.3%. Since then (1945-2021), the year-on-year peak of real GDP has been 8.7%, with an average of 2.8%; Before Japan became a high-income country (1956-1973), the year-on-year peak of real GDP was 13.1%, with an average of 9.2%. Since then (1974-2021), the year-on-year peak of real GDP is 7.1%, with an average of 2.0%; Before South Korea became a high-income country (1954-1998), the year-on-year peak of real GDP was 14.9%, with an average of 8.4%. Since then (1999-2021), the year-on-year peak of real GDP has been 11.5%, with an average of 4.2%. The economies of the United States, Japan and the Republic of Korea both experienced significant stalls during the transition period. Since then, the long-term growth center has moved to a new level relative to that before the transition. We can see this more intuitively from the year-on-year real GDP trend term obtained by HP Filtering.
Theoretically, there are two logical chains in L-shaped recovery of economic growth: one is "the urbanization rate is close to or higher than 60%, the population growth rate drops → the housing demand drops → the growth rate of real estate investment drops → the domestic demand of the real estate related industry chain drops sharply → the potential economic growth drops"; The second is "the per capita GDP rises → the international competitive advantage of labor costs decreases significantly → the industrial transfer out → the proportion of domestic secondary industries decreases significantly → the potential economic growth declines".
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