Making the big transition(2)

Justin Yifu Lin, former chief economist at the World Bank and professor of economics and honorary dean of the National School of Development at Peking University, is one who is confident China will meet the target of becoming a high-income country.

He believes that its economy has huge scope for fast growth over the next 15 years without even changing its existing investment-led model, which others argue might itself cause a bust.

His view is based on the fact that China reached a per capita income of 21 percent of that of the United States in 2008. Japan achieved that level in 1951, Singapore in 1967 and South Korea in 1977 and all grew at above 7.5 percent or more annually for 20 years thereafter.

"What drives income levels is an improvement in labor force productivity. This requires continuous technology innovation and industrial upgrading," he says.

China, according to Lin, has what he terms a late development advantage in that it does not need to develop its own new technology but can just copy that which exists elsewhere.

"China has realized this advantage in its first 30 years of development after reform and opening-up and there is no reason why it shouldn't continue to do so. It can innovate and upgrade its industry (and boost incomes) by imitating the technology of developed nations. It involves much lower costs and risks than developing its own technology."

But some are not as confident as Lin that China will escape the middle-income trap.

Sharma, also author of Breakout Nations: In Pursuit of the Next Economic Miracles, believes there are big dangers in the government setting relatively high growth targets such as the current 7.5 percent to achieve high income status.

"I think the risks of China failing to become a high income country have gone up markedly in the last 18 months or so. I think the current growth targets are far too ambitious. The risk is of taking on too much debt to achieve that target. The economy is at risk of becoming dangerously unbalanced.

"There is an old saying, better late than never, and I think that particularly applies to China right now."

Zhu, at the Shanghai Advanced Institute of Finance, also believes there are major risks and that the government should avoid targets for GNI per capita income.

"It has been setting a clear target for economic growth and I think it is now moving away from this and developing a GNI per capita mentality."

He believes they would be better targeting the Gini coefficient, which measures income inequality.

China's official measurement was 0.474 in 2012. The scale is from 0 percent for perfect equality to 1 percent which is completely unequal. Anything above 0.4 percent is high and some countries such as South Africa have consistent ratings above 0.6 percent. A survey by Southwestern University of Finance and Economics in Chengdu says China's measurement was 0.61 in 2010.

"I think the real figure (for China) is probably somewhere near that (0.61), although it is difficult to assess. I think this is becoming an increasingly pressing issue for China."

Back in Wuxi, Wu at Jim Brothers does not see too much evidence of the income inequality and materialism that many Chinese are now renowned for, such as buying up luxury brands in Paris and London.

"People say that young Chinese people are actually materialistic but I would say they were not. Sure, they want a nice apartment and a nice car but who doesn't? I think they care about their future and the society in which they live more than what many think."

Xavier Zhou, manager of the Sheraton Wuxi Binhu Hotel, says that if Wuxi is representative of how China will be in 2020, it will not be a place where people throw their money around.

The 44-year-old may be in charge of one of the city's plushest five-star hotels with Chateau Lafite available on the wine list at around 4,000 yuan a bottle, but local residents have more modest tastes.

"They prefer wine at around 100 yuan a bottle," he says. "People, in fact, come in for our Chinese and Japanese buffet at 150 yuan per person. We actually have to compete with all the franchise restaurants in the shopping malls."

Zhou says the low prices might also have something to do with the competition in the hotel market rather than the income level of consumers. The room rate of 680 yuan a night for his premium hotel is less than many would pay in the UK for a Travelodge motel.

"I do, however, think people are more conservative in their spending here than people think. They probably prefer to save their money for healthcare or for their children's education or spend it on other things."

Li at Phoenix Arts Group, however, believes there is real evidence of people's incomes increasing in Wuxi from their retail behavior.

The company - already established as one of the world's largest fine art materials suppliers, with bases in Shuyang, Jiangsu province, and Ho Chi Minh City in Vietnam as well as Wuxi - set up a subsidiary selling fine art eight years ago.

"That business has grown 100 percent every year since we started. People are getting richer. They now buy an apartment and they want more than just a reproduction from a store to put on their walls."