The World Bank has raised its forecast for growth in China this year to 9.1%. In March the bank had forecast 9.0% GDP growth. But it sees growth slowing next year to 8.4% against the background of a slowing global economy. That will also put the brakes on regional growth already hit by the flooding in Thailand that has disrupted manufacturing supply chains.
In its semi-annual regional economic outlook, the bank highlights the Chinese economy’s vulnerabilities to the debt crisis in Europe and the heavy endebtedness of local governments at home, which it says may be exacerbated by the central government’s success so far in dampening the property bubble. “Policymakers will need to walk a fine line guarding against the short-term risks to growth and the lingering vulnerabilities associated with a still buoyant, if not overheated, economy,” the bank says. It also notes that the moderation in inflation gives policymakers scope to manage a soft landing by loosening their monetary tightening.
The bank also says that the slowdown in global growth provides an opportunity for governments to refocus on reforms that will boost growth in the medium- and long-term, including investment to increase productivity and move toward higher value-added production, a task it calls “urgent” for China’s coastal manufacturers. In a clear nod to Beijing, it also says that where investment levels are already high, increasing the quality and efficiency of these investments should be the first priority alongside rebalancing growth towards domestic consumption. To drive ahead the structural changes in China’s economy, the bank repeats its calls for Beijing to focus on completing the transition to a market-based economy and strengthen the national innovation system. The China-specific part of the outlook is here.