World Bank:China’s Growth to Slow

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Nov. 26 – The World Bank’s latest China Quarterly Update forecasts that the country’s GDP growth rate should reach 7.5 percent next year, down from 9.4 percent.

The report also says that China’s export growth is estimated to reach 3.5 percent from 11 percent. It said that China’s domestic economy and the government’s stimulus policies will be vital in maintaining growth.

“In terms of the effect of China’s slowdown on the world, there’s good news and bad news,” said David Dollar, World Bank Country Director for China, in a press release. “China’s recently announced stimulus package is good news because it will keep China’s growth rate up at a pretty healthy rate and so imports will continue to go into China at a fairly good rate.”

He adds, “That’s good news for countries like Mongolia and Australia that export commodities like copper and iron ore to China – it’s also welcome news for countries selling primary products, machinery and parts to China. The bad news is there won’t be as much stimulus to these exporting economies as China was giving in the past.”

The economy’s slowdown is said to be linked to the weakening real estate market, which has led to the government to revise macroeconomic policies.

Private sector investment is expected to be hampered by the ongoing global crisis and continued weakness in real estate as well as private consumption growth will slow down next year but will receive some support from fiscal policy.

The report went on to say that inflation is slowly receding with lower prices of raw commodity and is no longer a great concern.

“The emphasis will be on accelerating and increasing infrastructure and other investment, but of a different nature than in the wake of the Asian crisis, with many projects focusing on broad long term development and improving living standards,” said Dollar.

“We’re encouraging China to look to a new growth model that depends more on domestic demand and domestic needs,” said Dollar. ” So, as China builds infrastructure as part of the stimulus package we’re hoping it’s focusing on infrastructure that addresses future needs such as energy efficiency, urban public transport and high speed rail.”

WB senior economist and the report’s main author, Louis Kuijs, said that the recently announced ten points for stimulating domestic demand and growth will translate to increased direct government-influenced spending through either investment or consumption and should have an effect on output in the short term. The Chinese government’s macroeconomic measures and increased government-influenced spending will play an important role next year.

Kuijs said, “More than half of our GDP growth forecast of around 7.5 percent for 2009 is coming from government-influenced spending.”

The full report can be accessed here.