China’s economic growth will ease further this year, presenting policymakers in Beijing with the challenge of preventing an excessively abrupt slowdown, the World Bank said in a report yesterday.
The bank warned slower expansion in China would ripple across Asia and the Pacific, but said the region remained resilient to Europe’s economic woes, describing it as a “bright light” in a world mired in low growth.
“China’s near-term policy challenge is to sustain growth through a soft landing,” the bank said in its half-yearly review of Asia’s developing economies.
“While the prospects for a gradual slowdown remain high, there are concerns that growth could slow too quickly. However, sufficient policy space exists to respond to downside risks,” it said.
The World Bank predicted that China’s economy, the world’s second largest, will expand 8.2 percent this year, down from 9.2 percent last year and 10.4 percent in 2010.
“A further slowing of demand [in high-income countries] would ripple quickly through East Asia’s production and trade networks, where China occupies a central position,” it said.
“Second, the main domestic downside risk arises from the ongoing correction in China’s property markets, even though such an adjustment has so far remained gradual and orderly,” it added.
Concerns over slowing growth have intensified in China after weak economic data for last month was released last week. Growth in industrial production, imports, exports, fixed-asset investment and bank lending all eased last month.
The Chinese government has set a growth target of 7.5 percent this year, mainly in a bid to keep unemployment under control and avoid social unrest.
The World Bank said China has the means to boost fiscal spending, but should avoid the kind of massive infrastructure spending that characterized its response to the crisis in 2008.
“Fiscal measures to support consumption, such as targeted tax cuts, social welfare spending and other social expenditures should be viewed as the first priority,” it said.
Slower growth in China will pull down the region as a whole, with the developing economies in Asia and the Pacific expected to expand 7.6 percent this year, from 8.2 percent last year, the bank said, but it kept an optimistic tone.
“In a world where growth is stuttering along in most regions, East Asia and the Pacific is a bright light,” World Bank Vice President for East Asia Pamela Cox said.
“It is a region that is resilient to Europe. Europe is a cloud on the horizon, but it is not pouring rain yet in East Asia,” she said, referring to the sovereign debt crisis in Asia’s key export markets.
Commodity exporters throughout the region experienced a boom last year, but may be vulnerable if China goes through a faster slowdown than anticipated, triggering an unexpected drop in commodity prices.
“If [China] were to slow down further, that might have an effect on commodity prices ... so it is something to take account of,” said Bert Hofman, the bank’s chief economist for the region.
“Some countries like Australia have a very diversified economy, but some countries that are more narrowly based and rely predominantly on commodity exports might prepare for a situation where commodity prices might be a little lower,” he said.
The bank said this should prompt developing countries in the region to speed up an existing trend of relying less on exports and more on domestic demand to maintain high growth.
“Some countries will need to stimulate household consumption,” said World Bank economist Bryce Quillin, lead author of the report.
“In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth, provided this does not exacerbate domestic demand pressures,” he said.
Hofman said the region as a whole seemed well-positioned to weather new global volatility.
“Many countries run current-account surpluses and hold high levels of international reserves. Banking systems are generally well-capitalized,” he said. “Still, risks emanating from Europe have the potential to affect the region through links in trade and finance.”
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