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World Bank cuts its growth forecast for China

A Chinese grains vendor counts yuan notes at a market in Beijing yesterday. The World Bank said yesterday it had slashed its growth forecast for the Chinese economy this year by 1.2 percentage points to 9.6 percent because of a weaker global outlook. PHOTO: AFP

The World Bank cut its economic growth forecast for China this year to 9.6 percent from 10.8 percent yesterday because of cooling global export demand and said storms battering southern China should have little long-term impact.

Growth should be buoyed by expected strong demand from China's own consumers, though a possible US slowdown might hurt the country's large export sector, the bank said in a quarterly report.

Economists have slashed forecasts for China's fast-growing economy amid worries that a US recession could cut US imports from China and hurt other Chinese markets such as Europe and Japan.

"The world economy is going to be weaker and this will have an impact on China," said Louis Kuijs, a bank economist who was the report's chief author.

Still, "China is in a relatively strong position," he said.

Growth of 9.6 percent was "still robust," Kuijs said.

Snowstorms that have wrecked crops and disrupted trains and trucking in southern China would hurt industrial output and push up prices of vegetables and other perishable goods, but there should be little long-term effect, the bank said. The government has reported storm damage so far at 53.8 billion yuan (US$7.5 billion).

"There is no doubt it is going to affect industrial production and economic activity in the short term," Kuijs said. "We do think, though, that most of this impact is going to be temporary."

The slowdown in global demand would hurt China's manufacturers and exporters, Kuijs said. The government said exports rose 25.7 percent last year to US$1.2 trillion.

But Chinese consumer spending and corporate profits are "still strong" and Beijing is moving ahead with investment plans that should help to shore up growth, Kuijs said.

The bank warned that China still faces potential problems as it tries to manage rapid growth, control a surge in inflation and cope with a flood of export revenues that are straining the central bank's ability to contain pressure for prices to rise.

Inflation so far is limited to food, but if it continues, "the risk remains that it will be fed through into general inflation," Kuijs said.

The central bank has raised interest rates repeatedly over the past year and Kuijs said regulators were right to focus on such a "relatively tight" monetary stance.

Beijing has responded to the surge in food costs by imposing price controls and trying to increase supplies by boosting subsidies to pig farmers and curbing grain exports.

David Dollar, director of the World Bank's Beijing office, said such controls could help in the short run. But he echoed warnings by other economists who say they could hurt the economy by eliminating incentives to expand output.

If pork or grain prices are set below what it costs farmers to produce them, "then you are discouraging production of exactly what is in short supply," he said.
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