The World Bank works closely with China’s economic policy makers which gives its latest cut in its forecast for the country’s growth rate this year additional weight. The Bank is now estimating 7.7% growth for this year, sharply down from the 8.2% it forecast as recently as May. Its forecast for some recovery in 2013 has been similarly cut, to 8.1% from its previous 8.6%. With weak international demand for China’s exports and lower investment growth causing the slowdown, the Bank also fears that there is a risk that the slowdown could be deeper and longer lasting than expected.
The consequences of this on growth in the region are laid out in its latest report on the economies of East Asia and the Pacific.The Bank now expects developing East Asia to grow by 7.2% this year and 7.6% in 2013, down from earlier estimates of 7.6% and 8.0%, respectively. The Bank does not expect Beijing to introduce a large stimulus project, but thinks it will continue to rely on easier monetary policy and the bringing forward of planned infrastructure projects to prod growth into moving at a faster pace.
That is in keeping with the Bank’s belief that because growth in developed countries will remain modest, at best, continued growth in the region’s developing economies will driven mainly by strong domestic demand. It also calls for continued structural reforms, improvements in the business climate and investments in infrastructure and education systems, which it says will become more important.
A bolder version of the some of the same policies has been urged on China’s leader presumptive, Xi Jinping, by Strategy and Reform, a domestic think thank. They say that China risks economic malaise, deepening unrest and ultimately a crisis that could loosen the Party’s fast grip on power unless stalled economic reforms are pushed forward. Whether Xi is prepared to take on the vested interests that that will involve, or instead treat China’s economic problems as cyclical rather than structural will define his leadership as much as achieving the apex of its fast growth has done for the outgoing Hu-Wen generation of leaders.