The Middle Kingdom is barrelling toward the middle income trap. China’s 900 million rural residents are the key to pumping the brakes. 

In a recent New York Times op-ed, economist Paul Krugman noted that China’s economy is having problems. The economy isn’t growing as fast as it used to. There’s a real estate bubble; Chinese society also has few social programs, which force households to save money instead of spending it. China’s economic future is gloomy, but the facts in the op-ed point to an even more serious problem.

It’s called the middle income trap, and it goes like this: First, a country with hordes of unskilled workers opens its borders to low-wage manufacturing. International companies offshore jobs to the country. This spurs economic growth. Wages rise as locals are paid more to solder a component onto an iPhone than farm the land.

However, as wages rise, so do labor costs. Eventually, those same companies relocate to other countries with cheaper workforces. The country has been brought to middle-income status, but growth slows, because the factories that employed the workforce have relocated to cheaper shores.

This mirrors China’s rise. China opened its borders to international companies in the 90s and 2000s. The country exported everything from toys to televisions. Companies like Nike and Apple moved in. The rural population moved to cities and earned ten times what they earned in their hometowns. Young workers skipped high school and went into factories.

But prosperity came at a cost. As wages rose, international companies left China in droves. Nike now makes more shoes outside of China than inside; Ethiopian shoe exports, for example, have increased 500% in the last five years. Apple is investing in factories in India and continues to move production out of China. Every year, forty thousand factories in China shut down. As Krugman also notes, the youth unemployment rate is rising. Without an education and no work in their hometowns, rural workers who moved to the city are out of luck.

There’s a way to escape the middle income trap: invest in education. Ireland, Taiwan, and South Korea all successfully moved from low-income to high-income status. They did so by reinvesting the profits of the economy into its people, primarily through education. High income countries like the United States and Germany have high school graduation rates of 90% and 87% respectively. When Ireland, Taiwan, and South Korea were middle income countries, they had comparable high school graduation rates.

No country has ever become a high-income country if a population’s high school graduation rate is less than fifty percent. China’s graduation rate hovers at around 30%. Like in Mexico, Brazil, and Thailand, China’s economy will stagnate and the middle income trap will set in.

Part of the human capital issue is specific to China. The 户口 (hukou) system is a set of laws delineating which schools and services people can use. Of China’s 1.4 billion people, around 900 million are designated as rural in the hukou system. This has huge consequences for access to education. Parents born in a city can access the resource-rich elementary, middle, and high schools. If not, rural schooling, where education is much lower quality, is the only option.

Even the state of China’s rural elementary schools is bleak. Rural children are dealing with a trifecta of untreated health crises that stunt cognitive development. First, 40% or more of rural elementary students in Southern China have intestinal worms. These worms worsen cognitive performance and decrease focus. Second, 32% of all rural sixth graders need glasses, but there is almost no access to vision specialists in rural areas. Chinese students with untreated myopia have higher rates of school absences. Third, more than 30% of elementary schoolers are anemic, which has stark—and permanent—effects on intelligence, memory, and attention.

Whether it’s stunted cognitive development, the hukou system, or shuttered factories, there are real economic consequences from China’s uneducated rural populace. This problem will not only change the Chinese economy, but send economic shockwaves across the world.