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WB pegs GDP growth at 6.5%

By Wang Bo (China Daily)
Updated: 2009-03-19 07:42

Containers at the Yangshan Deepwater Port in Shanghai. China's exports in February fell 25.7 percent from a year ago, the largest fall in more than a decade. [Agencies]

The World Bank yesterday downgraded its projection for China's economic growth this year to 6.5 percent, but said the nation is still a "bright spot" in a gloomy global economy.

In its latest quarterly economic update on China, the bank cut its forecast on the nation's GDP growth from the 7.5 percent it made last November, saying the still-evolving global crisis is bound to take a bigger toll on the world's third-largest economy this year, especially via weaker exports and market-based investment.

Related readings:  China may top Japan as world's second-largest economy  Wen: We can achieve 8% growth  Govt on track to reach GDP growth goal

China's exports in February suffered the largest fall in more than a decade, dropping by a drastic 25.7 percent, and the growing pace of industrial output, which accounts for some 48 percent of the nation's GDP, moderated to 3.8 percent in the first two months of this year from the 5.7 percent last December.

"The notch-down in our forecast is largely due to the much weaker international outlook," Louis Kuijs, senior economist with the World Bank and the report's main author said.

The World Bank recently projected the world economic output to contract by 1.5 percent this year, but still expects the world economy to recover in the second half of the year.

However, due to the substantial policy stimuli, China's economy could continue to grow significantly in a very challenging external environment, the report said.

Though private sector investment decelerated, the report predicted that government-influenced direct expenditure would come on stream to prop up the slowing economy by contributing a massive 4.9 percentage points to the projected 6.5 percent GDP growth, or three-fourths of the total.

"The fundamentals of China are strong enough to help it ride out the storm, and it has plenty of space to implement forceful stimulus measures," Kuijs said.

At the annual session of the 11th National People's Congress, which concluded last Friday, Premier Wen Jiabao said the country has preserved plenty of "ammunition" to fight against the global financial crisis and is prepared to launch new stimulus packages "at any time".

But Kuijs warned that it might not necessarily be the right approach to add new investment-oriented spending plans, as it doesn't help much in creating new jobs and improving people's livelihoods.

To this end, the report suggested the nation should boost its economic growth through investing more in improving the social safety net, rather than through overall government spending. The more-targeted use of fiscal policy is more efficient and less costly for the government, it said.

In the face of an unfolding global financial crisis, which may extend the global slowdown well into 2010 or even longer, the nation should also be prudent to preserve enough fiscal firepower to combat the difficult times after 2009, the report said.

China's CPI and PPI both fell into negative territory in February, which the World Bank said was not a sign of a real problematic deflation with core prices and wages, as well as output declining in tandem, but it did not rule out the possibility of further deterioration.

To cushion this risk, it is a good time for the government to remove remaining price controls on some industrial inputs, such as energy, water, natural resources and the environment, through price increases, tax measures and pollution charges, the report said.