WB cuts China growth forecast to below 10%

By Xin Zhiming (China Daily)
Updated: 2008-02-05 07:29

The Chinese economy will grow at 9.6 percent this year, instead of 10.8 percent as forecast earlier, because of a global economic downturn, the World Bank (WB) said yesterday.

The bank's latest quarterly economic update on China, however, says the impact of the snowstorms battering a large part of the country now would be limited and temporary.

This is the first time in six years that the economy has been forecast to grow by less than 10 percent. And it comes on the back of a year that saw the economy grow by a 13-year-high of 11.4 percent.

"The slowdown in the global economy should affect China's exports and investment in the tradable sector," WB director for China David Dollar said at a press conference, held to release the bank's report.

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"The momentum of domestic demand, however, should remain robust and a modest global slowdown could contribute to rebalancing of the economy."

For the first time in seven years, China's consumption outweighed net exports and investments in 2007 to contribute 4.4 percentage points of the overall 11.4 percent GDP growth. Investments contributed 4.3 percentage points while net exports, 2.7 percentage points, the National Bureau of Statistics (NBS) said on Thursday.

The economy grew at a blistering 11.9 percent in the first half of 2007. But a series of policies implemented to anchor the economy slowed down exports in the second half, when consumption picked up.

The slowing down of the country's economy should not be seen as a bad omen because the government is in a strong macroeconomic position to stimulate demand by easing the fiscal policy and credit controls if and when the US and global downturn worsens, the report said.

Inflation, however, remains a serious challenge for the government, WB senior economist and the main author of the quarterly report Louis Kuijs said.

The consumer price index (CPI), bellwether of inflation, is expected to have risen further in January after being above 6 percent during the last five months of 2007. But it is likely to ease after the short-term impact of the bad weather wears off, the bank said.

"Most of the impacts (of the weather) would turn out to be temporary," Kuijs said, because "the government has been fast in responding to the crisis."

The high rise in prices would not lead to generalized inflation, he said.

"We don't see a lot of spillover of the food price inflation into more generalized inflation," although risks remain.

Some analysts say China is revaluing the yuan at a faster pace to reduce the pressure of inflation because it will make imports cheaper. But the WB said that can't be the ultimate tool.

It is irrational to rely too much on the exchange rate to manage inflation, Dollar said. A gradual revaluation would be more advisable because it gives the economy more room to adapt to changes.

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