World Bank Raises China GDP Growth to 8.4 percent

November 5, 2009 Posted by China Briefing Reading Time: 2 minutes

Nov. 5 – The World Bank became the latest major institution to raise its forecast for growth in China on Wednesday when they projected China’s economy to grow by 8.4 percent this year.

The organization had forecast the economy to grow by 7.2 percent in June. The new 2009 estimate is just short of the 8.5 percent being projected by the International Monetary Fund, which likewise raised its forecast for China and the rest of Asia last week, and also echoes recent upward revisions by economists at several private-sector banks. The World Bank cautioned that more policy adjustments would be necessary in the medium term to ensure the country’s recovery is sustainable. It has forecast China’s growth in 2010 at 8.7 percent.

Many think more policy measures will be needed to rebalance growth given the strong underlying momentum of the traditional model. Structural reforms to unleash more growth and competition in the service sector and stimulate more successful, permanent migration are required. The speed of rebound, coupled with vast liquidity as state-owned banks cranked up lending to help boost growth, has prompted a debate about whether some of the stimulus measures should now be reined in. A rapid rise in stock and property prices also has fueled this debate, as some analysts worry that a bubble may be in the making.

China’s rebound stems mostly from the massive spending package of US$585 billion which the government announced a year ago. Lower interest rates and vastly increased lending by the country’s state-owned banks also have helped offset the fallout from the collapse in demand in Europe and the United States, which has hit export industries in China and elsewhere in Asia hard. Chinese export growth is likely to resume, helped by strong fundamental competitiveness and the recent depreciation of the nominal effective exchange rate, the World Bank said in its quarterly review of China on Wednesday.

Net exports are likely to stop being a drag on growth, it said. But the challenge, according to the institution, would be to continue weaning China off its reliance on exports and stimulate domestic demand. Although the bank said that China had already seen broad-based domestic demand growth, it stressed that more was needed.

Following on earlier initiatives, some steps have been taken in recent months to rebalance and boost domestic demand, including increasing the presence of the government in health, education, and social safety and other measures like improving small and medium-sized companies’ access to financing, the World Bank said.