The World Bank raised this year’s economic growth forecast for China from 6.5 percent to 7.2 percent because of its stimulus-driven investment boom, but cautioned yesterday that it was too soon to say a sustained recovery was on the way.
Beijing’s stimulus has had a bigger impact than expected and will “strongly support growth” this year, said Ardo Hansson, the bank’s lead economist for China.
The 4 trillion yuan (US$586 billion) plan calls for shielding China from the global slump by pumping money into the economy through higher spending on public works.
“Growth in China should remain respectable this year and next, although it is too early to say a robust recovery is on the way,” Hansson said at a news conference.
Trade and private investment will remain weak, consumption will slow and a full-fledged recovery has to wait for the global economy and demand for exports to rebound, the Washington-based lender said in a quarterly report.
China’s economy grew 6.1 percent in the first quarter from the same time last year, the strongest rate of any major country but below the government’s target of 8 percent for this year and far from 2007’s explosive 13 percent.
Yesterday was the first time the bank has raised its outlook for China since November, when it slashed its forecast for this year from 9.2 percent to 7.5 percent.
The bank cut that again in March to 6.5 percent.
The bank said the growth rate should rise slightly next year to 7.7 percent.
Hansson expressed surprise at Beijing’s order, reported this week by state media, for stimulus-financed projects to use domestically made goods.
Foreign business groups appealed to the government on Wednesday to avoid protectionism, warning that it might hurt Chinese and foreign companies at a time when cooperation is needed to revive global growth.
“China had earned an enormous amount of goodwill and was leading the charge globally to make sure protectionism did not take off,” Hansson said.
“I think that position, that leadership reflected an understanding that China, relative to many other economies, has a lot more to lose from protectionism given the importance of the export sector,” Hansson said.
The World Bank highlighted China’s dependence on government spending to support growth.
The stimulus will supply up to 6 percentage points of this year’s expansion, with private activity producing 3.6 percentage points, said Louis Kuijs, a World Bank economist.
He said the contraction in exports will be severe and that trade will subtract 2.4 percentage points from this year’s growth, resulting in the forecast total of 7.2 percent.
“We see very little growth coming out of the market-based economy in 2009,” Kuijs said. “We do expect a nice pickup in exports next year, so that will help.”
Government spending boosted domestic investment in factories, real estate and other fixed assets by 32.9 percent in the first five months of the year.
The World Bank cautioned there was a limit to how much China could buck global trends through stimulus spending while exports are weak.
It warned that domestic consumption would slow despite the stimulus.
“We think that this surge in government-influenced investment is unlikely to lead to rapid growth and a recovery in China in the current global environment,” Kuijs said.
Last month’s retail sales rose 15.2 percent from a year earlier, but the growth rate was falling, indicating Beijing has yet to spur a rebound in private spending.
Last month’s exports plunged by a record 26.4 percent from the same month of last year.
The World Bank estimates each percentage point of lost growth in China’s non-agricultural GDP means 5.4 million fewer jobs.
Nevertheless, Kuijs said the bank saw no need for more stimulus plans this year because Beijing already has spent so heavily.
“It would be good to have some fiscal fire power left next year,” Kuijs said.
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