World Bank predicts robust economic growth
By Liu Weiling (China Daily)
Updated: 2004-04-21 08:29

With better economic co-ordination, China is likely to maintain a growth rate of 7.7 per cent this year with a small trade surplus and inflation of 2-3 per cent, according to a report released yesterday by the World Bank.

But challenges facing the country remain daunting as the nation takes measures to restrict the growth of overall demand - especially investment, which is running ahead of production capacity, and to ensure that the financing of future growth is both efficient and sustainable.

Runaway fixed assets investment fuelled the country's gross domestic product (GDP) to grow by 9.7 per cent in the first quarter of the year, the National Bureau of Statistics announced last week. Zheng Jingping, a spokesman for the bureau, admitted that fast-rising fixed investment has become a prominent problem for the current economic development picture.

Many economists also warned that investment fever in some overheating sectors, such as real estate, steel and cement, will seriously affect China's economic growth.

To achieve a soft-landing, the Chinese authorities must balance economic reforms and job creation while keeping the economy stable and make efforts to slow down excessive investment, the World Bank report said.

The bank believes that China's efforts to engineer a soft-landing, in the face of a blistering growth rate, has "significance beyond its borders."

Since 2001, China has been a locomotive for growth in East Asia, and its continued prosperity and economic stability will influence the economies of the region as a whole.

With the Chinese Government taking measures to cool down the growth, many people are questioning how long China will continue to be the engine for the regional economy.

Homi Kharas, the bank's chief economist for the East Asia and Pacific Region, said China's slower growth might only have a modest impact on the region.

"Even a 10 per cent reduction in the growth of China's imports would result in a loss of less than 1 per cent of gross domestic product (GDP) in Korea and less than half of one per cent of GDP in a country like Thailand," he said. "If this slowdown took place in 2004, it would be offset by an acceleration of Japanese imports from the region and higher global trade growth," he explained.

"The real risk to the region," Kharas noted, "comes not from slower growth in China but from a hard landing, which will take skillful and coordinated policy-making to avoid."

The bank also predicted that East Asia's economy is expected to grow by more than 6 per cent in 2004, the strongest since the beginning of the global slowdown in early 2000.

"With the strong recovery in the United States and Japan, increased demand for East Asian exports and the long-awaited rebound in the high-tech sector, the outlook for the region is very positive both for the big countries and for the smaller ones," said Jemal-ud-din Kassum, the World Bank's regional vice-president for East Asia and the Pacific.

In another positive sign for the region, domestic and foreign investments are also showing signs of recovery. Net portfolio flows to six large regional economies - China and the five post-crisis economies, Indonesia, South Korea, Malaysia, Philippines and Thailand - are estimated to have jumped to about US$33 billion from a net outflow of US$9 billion in 2002. Foreign direct investment into China has remained stable at about 4 per cent of its GDP since 1990, while South Korea, Malaysia, the Philippines, and Thailand are receiving about 2 per cent of GDP or about the same as the world average.

Increasingly other regional economies are also looking forward to solid investment growth, he said.

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