World Bank predicts a moderating economy for China
The World Bank said in its report released on Friday that China is indicating symptoms of moderating growth following a solid recovery last year, largely fuelled by stimulus programs though it noted that the country's economy has remained strong, propped up by real estate investment and stronger export demand.
The report said that the country's economic outlook is still positive, even predicting that China's economy would expand by 9.5 percent this year and 8.5 percent in 2011 as it noted that the world's third largest economy veered away from global recession and surprisingly grew by 11.9 percent in the first quarter.
However, World Bank's lead economist for China, Ardo Hansen said that China's second half should be a little softer or even off "given all the policy tightening measures and what we see going on in the rest of the rest of the world probably."
At the same time, the World Bank said that global economy would also grow by 3.2 percent in 2010 and by 3.3 percent next year though it gave reminder that risks on that forecast are prominent owing to the large debts that bedevil some countries.
It added that the debt issue in eurozone countries could spillover and transform into a contagious debt crisis that could dislocate fresh recoveries seen in the United States and Europe.
In China, real estate investment by private investors has filled the void left by withdrawn stimulus spending by the government but the World Bank is wary that excessive investment and speculative acquisitions were pushing up prices to unrealistic levels, which prompted the government to strictly cap bank lending that cooled down property growth.
The report identified strains on local government finances and the ballooning bad loans as possible serious risks for the country's economic stability as it urged Beijing to rebalance growth away from investment and institute more flexibility in interest rates.
The World Bank report is still optimistic on China's export growth but it noted that rising raw materials costs could erase the country's cost advantage as prices of manufactured goods has remained steady.
The report lauded the country's strong job creation which supported strong consumer demand, leaving note that China is right on path towards greater dependence on domestic growth and maybe slowly shifting its focus from export-driven expansion.
The World Bank is eerily silent though on increasing labour costs amidst the recent rise in workers' activism among migrant workers who started advocating for better wages and working conditions.
Over the long haul, the World Bank report said that China's annual economic growth should reach an average of seven percent from 2016 to 2020, which is about the level that Beijing has determined as sustainable growth.