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World Bank boosts China growth forecast to 8.4%

(Agencies)
Updated: 2009-11-04 15:38

BEIJING: The World Bank raised its 2009 growth forecast for China from 7.2 percent to 8.4 percent but warned Wednesday 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.

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"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."

Beijing's 4 trillion yuan ($586 billion), two-year stimulus has helped China to rebound even as the United States, Europe and Japan struggled with recession. Growth accelerated in the latest quarter to 8.9 percent over a year earlier.

Economists expect China to be the first major economy to emerge from the worst global slump since the 1930s. The hike in the World 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. "The rebound has yet to become a recovery."

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 bank's forecasts for developing East Asia cover China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea and Pacific island nations.

In China, stimulus spending has gone mostly to building highways and other public works projects, but some is consumption-oriented and domestic demand is holding up well, the World Bank said.

Trade is so weak that its impact on growth was negative over the first nine months of the year, subtracting 3.6 percentage points from China's expansion, the bank said. It said export growth should resume but a global recovery "is likely to be slow and subject to risk."

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."

Chinese banks have begun to cut back lending, though authorities say easy credit will continue. Banks lent about 1 trillion yuan ($125 billion) per month early this year but that rate has fallen by about half since July.

New jobs are being created, helping to make up for losses in export manufacturing as global demand collapsed in 2008, the World Bank said. The government says as many as 30 million migrant laborers were thrown out of work as factories closed; some have been hired for stimulus-financed projects but officials say as many as 12 million job seekers will not find new work this year.

Beijing is taking steps to boost consumer spending, including raising its outlays on social programs to reduce pressure on families to save for health and education expenses. But the bank said more measures to encourage growth and competition in services "would be particularly welcome."

The bank also recommended relaxing controls that restrict the movement of workers from the countryside to Chinese cities in order to make finding jobs easier.