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Thu, Nov 05, 2009 - Page 10 News List

World Bank boosts China forecast

WARNING The bank also cautioned that Beijing can no longer rely on exports and investment to propel growth, but must encourage Chinese consumers to spend more


A Beijing shop displays shirts and bags bearing an image of US President Barack Obama’s face imprinted over that of former Chinese leader Mao Zedong on Sept. 21. The World Bank raised its growth forecast for China this year by 1.2 percentage points to 8.4 percent.


The World Bank raised its growth forecast for China this year from 7.2 percent to 8.4 percent but warned yesterday a sustained recovery will require a shift in the economy to emphasize consumer spending instead of industry and investment.

The strength of China’s rebound led the bank to increase its growth forecast for developing East Asia by 1.3 percentage points to 6.7 percent, though it cautioned the region was struggling and would grow by as little as 1 percent if China were excluded.

The Washington-based bank said its higher outlook for China reflects the government’s stronger-than-expected stimulus.

But it said the impact of the stimulus would fall sharply next year and manufacturing industries will be under pressure as excess capacity at home and abroad holds down prices.

Ultimately, the World Bank said China can no longer count on exports and investment to drive growth and needs to encourage its own consumers to spend more.

“We think that now that the government has basically succeeded in dampening the impact of the global crisis, it’s a good time to concentrate and focus effort on rebalancing the economy and getting more growth out of the domestic economy,” said Louis Kuijs, the bank’s chief China economist, at a news conference.

“This calls for more emphasis on consumption and services and less emphasis on investment and industry,” he said.

The hike in the bank’s growth outlook followed a June increase from 6.5 percent to 7.2 percent. China’s rebound has helped to power other Asian economies as its consumers and factories buy imports.

“The economic rebound in East Asia and the Pacific has been surprisingly swift and very welcome, but take China out of the equation and the regional picture is less rosy,” the bank said in a report titled Transforming the Rebound into Recovery.

“The rebound has yet to become a recovery,” the report said.

Indonesia and Vietnam are doing well but output is contracting in Cambodia, Malaysia and Thailand and barely growing in Mongolia, the bank said. Industrial production in Singapore and Taiwan is 15 percent below pre-crisis levels 18 months ago.

The costs of maintaining China’s expansion will rise over time, but Beijing does not need to worry yet about hiking interest rates or reining in a surge in bank lending that has helped to fuel the rebound, the bank’s report said.

“However,” it cautioned, “risks of asset price bubbles and misallocation of resources amidst abundant liquidity need to be mitigated and the overall monetary stance will have to be tightened eventually.”

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