China urged to rebalance growth

"The rebalancing would be away from the relatively volatile export and investment-based growth to more stable consumption-based growth."

David Dollar, the World Bank's country director for China

China's is likely to slow gradually from roaring 9.5 percent growth in the first half of this year, the World Bank says in a report that urges a shift away from reliance on exports and investment toward higher domestic consumption.

Growth expected to slow to 9 percent on-year for all of this year and to about 8 percent next year, said the report, though it noted, "The outlook remains good."

Although economic growth has exceeded 9 percent for two years running and was 9.5 percent in the first half of the year, it is bound to slow as exports, foreign investment and domestic spending moderate, said the report, seen yesterday in China.

With global trade growth forecast to fall from 12 percent last year to 6.4 percent this year, China's exports are likely to be affected, the report said.

"Downward risks include lower than expected export demand," it said.

The report forecast that China's year-on-year export growth would fall to 15 percent in the first half of next year, from almost 30 percent last year.

It said that a recent revaluation of the yuan was also likely to have a limited effect on exports. The 2 percent appreciation of the yuan against the dollar, coupled with a loosening of the yuan's decade-old peg to the US dollar, will make Chinese exports slightly more expensive overseas.

The report recommends shifting some government spending on physical infrastructure such as roads, airports and big government buildings into investments in health, education and social security -- areas neglected by China's recent boom.

"The focus ahead should be more on the structural issue of rebalancing growth," David Dollar, the World Bank's country director for China, said in a statement accompanying the report.

"The rebalancing would be away from the relatively volatile export and investment-based growth to more stable consumption-based growth," he said.

With the government spending almost a tenth of the country's GDP on investment, there is large scope for such a shift, the report said.

Such changes could help increase domestic consumption and reduce reliance on exports, the report said.

It attributed 40 percent of China's nominal economic growth to its trade surplus, which hit US$50 billion for the year last month and is expected to rise further by the year's end.

Some Chinese economists also argue that more needs to be done to expand domestic demand, which has lagged due to relatively low incomes, especially in the countryside.

Stronger could also boost purchases of imports, helping to reduce friction with China's trading partners over surging exports, and would help compensate for slowing growth in foreign investment and government spending.