"Regulation of Tech Companies in China: The Trap for Emerging Middle-Income Countries"

[Asia Economy Reporter Yujin Cho] China, which is strengthening control over its domestic technology companies, is highly likely to fall into the "middle-income trap," according to an analysis.

Pascal Lamy, former WTO Director-General, stated in an interview with Bloomberg on the 7th (local time) that China's political decision to pursue decoupling in all parts of the economy could lead to a slowdown in high-speed growth.

He particularly diagnosed that China's rapid growth, which relied on trading technology companies, is losing momentum due to government control.

He argued, "The growth of the Chinese economy is centered around giant technology companies, but this digital industry is more vulnerable to trade conflicts with the U.S. than traditional industries such as automobiles or clothing."

He predicted that regulations on the digital industry, which is the main pillar of future growth, will slow economic growth and cause China to falter without entering the ranks of advanced countries.

The middle-income trap is a theory that a country can remain in the middle-income bracket for decades after reaching the world median level of per capita income if it fails to transition paradigms such as industry.

He pointed out that unless the Chinese government replaces all exports with domestic demand, it will not escape the middle-income trap, and although China grew based on manufacturing, the technology service sector will be the key to escaping the middle-income trap in the future.

He added, "China is strengthening control over its domestic companies and believes that further separation from market capitalism is necessary," and “this is a dark cloud that did not exist in China’s economic growth phase just a few years ago.”