Tag Archives: World Bank

World Bank Sees China’s GDP Growth Continuing To Decelerate

ECONOMIC GROWTH IS expected to decelerate to 6.2% this year from an estimated 6.5% in 2018, and trend towards 6% thereafter, according to the new edition of the World Bank’s Global Economic Prospects.

The Bank cites weaker exports amidst elevated global trade uncertainty as the main cause of the slow down, although domestic demand is seen as remaining robust as policy boosts consumption. The impact of higher tariffs as a result of the US-China trade dispute, the Bank expects, will be offset by fiscal and monetary stimulus.

The risk is that propping up growth will slow the necessary work of deleveraging the economy.

As the Bank notes:

New regulations on commercial bank exposures to shadow financing, together with stricter provisions for off-budget borrowing by local governments, have slowed credit growth to the non-financial sector. However, in mid- and late 2018, the authorities reiterated their intention to pursue looser macroeconomic policies to counter the potential economic impact of trade disputes with the United States.

Four key charts from the report:

A screenshot of four World Bank charts on China's economy.

And six more:

Six charts from the World Bank Global Economic Prospects report, January 2019


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World Bank Ups Its Prospects For China’s Economy

THE WORLD BANK has become more bullish on China, at least for the near-term. In its newly published annual Global Economic Prospects, it has upped its estimate of GDP growth in 2017 to 6.8% (an 0.3 percentage point increase from its forecast a year ago and reiterated in June) and said it expects 6.4% growth this year (an 0.1 percentage point increase from its previous number).

China benefited, the Bank now says, from the recovery in world trade last year, fiscal stimulus and the rebalancing of the economy, which eased the drivers of the economy away from state-led investment. Inflation rose but was still within target and housing price increases moderated in response to policy measures.

The current account surplus continued to narrow, but the clampdown on capital outflows meant that exchange-rate pressures eased and foreign-exchange reserves recovered modestly.

On the flip side, non-financial sector debt continued to grow, reaching 260% of GDP, regardless of further monetary and regulatory tightening. Credit growth still outpaces nominal GDP growth.

The Bank says that financial sector vulnerabilities — particularly high corporate indebtedness in sectors with overcapacity and deteriorating profitability — are one of the key downside risks to growth.

Others include the possibility of protectionist policies in advanced economies (for which read the United States) and rising geopolitical tensions (for which read mainly North Korea).

The Bank also expects the economy to continue its measured deceleration, averaging 6.3% growth in 2019 and 2020, and less beyond that as adverse demographics kick in over the next decade.

A steeper-than-expected slowdown or debt- or geopolitical-driven financial stress would have impacts well beyond China’s borders.

The Bank’s view is that authorities have substantial ‘policy buffers’ to absorb financial shocks. Nonetheless, it, like others, calls for further structural reform to reallocate economic activity towards more productive sectors.

This would include financial and corporate sector reform as well as greater efforts to deleverage and improve the fiscal sustainability of provincial, municipal and local government.


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Making The Half Empty Glass of Financial Reform Go Away

THAT CHINA’S FINANCIAL system is “unbalanced, repressed, costly to maintain and potentially unstable” will not brook many arguments among policymakers in Beijing. It is, after all, why they are deep into an extensive programme of financial reforms, reforms that are seen as central to the long-term rebalancing of the economy.

It is also why “a weakly regulated shadow banking system” and a tendency of “wasteful investment and over-indebtedness” that is the consequence of a “traditional investment-driven growth model shaped by heavy state intervention” are also being tackled as policy priorities.

However, it is one thing for officials to know that and quite another to have it told to them publicly by the World Bank.

The phrases quoted above were all contained in a section of the Bank’s latest China Economic Update, published mid-week, which called for a quickening of financial-sector reform. The entire section has now been removed from the update, because, the Bank says, “it had not gone through the World Bank’s usual internal review and clearance procedures.”

Whatever, this Bystander is tempted to say. Any red faces at the Bank are probably due as much to the tongue lashing that would have come from Beijing as from the embarrassment of having to redact a section of a report post-publication.

With share prices on the Shanghai exchange in meltdown and the signing ceremony earlier this week setting up the Asian Infrastructure Investment Bank (AIIB), a putative rival to the Bank’s regional clone, the Asian Development Bank, and longer term to the Bretton Woods’ multilateral institutions as a whole, there could be some understandable sensitivity on both sides. Also, China readily takes public offense at any perceived criticism by any institution seen to be in the pockets of the U.S. and the EU — and the World Bank has previous in this regard.

What, to our mind, lies behind this particular spat is that when the International Monetary Fund comes to consider in October whether to endorse the renminbi as an official reserve currency by including it alongside the dollar, sterling, euro and yen in the basket of currencies that comprise its Special Drawing Rights, progress on China’s financial reform — and particularly whether renminbi interest rates are market-based — will be a key criterion.

The IMF reviews the components of its SDRs every five years. It would be an unwelcoming rebuff for China, which is being ever more assertive in claiming its place at international top tables, if it were made to wait until 2020 for inclusion.

As recently as March, Prime Minister Li Keqiang told Christine Lagarde, the IMF’s managing director, that China intended to speed up the financial sector reforms needed to meet the stringent requirements of stability and liquidity demanded of a reserve currency.  With IMF staff preparing their internal assessments for the 2015 SDR review around now, this is not a time when Beijing will brook any public plain-speaking about the pace of financial reform.

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World Bank Adds Its Voice To Those Calling For China To Slow Its Growth

THE WORLD BANK is lending some international credibility to China’s likely switch to a 7% annual GDP growth target next year. In its latest economic update the Bank says 7% growth would not hurt China’s labor market, an indicator watched closely by the leadership in Beijing for any sign of incipient social unrest.

Attempting to sustain the current offical target of 7.5% annual GDP growth hampers the government efforts to rebalance the economy towards being driven by domestic consumption, the Bank says. “The current emphasis on meeting short-term growth targets will make it more challenging to implement the policies necessary to shift growth to a more sustainable medium-term path.”

In that the Bank echoes the words of the International Monetary Fund. In July the Fund said that Beijing should set a growth target of 6.5%-7% for 2015 and not introduce any stimulus measures unless the economy looked likely to decelerate to a pace below that.

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Xi Speaks Of 7% Growth

An unexpected signal from President Xi Jinping that China’s growth this year may slow more than the official forecasts have let on. Speaking informally at the Asia-Pacific Economic Cooperation meeting in Indonesia, he said that a 7% growth rate was “within a reasonable and expected range.” And, this Bystander expects, on plan. Xi dismissed any notions that China’s economy was facing a hard landing, saying that a “seven percent annual growth rate will suffice” to meet China’s medium-term goal of doubling per capita income by 2020. “The slowdown of the Chinese economy is an intended result of our own regulatory initiatives,” he said.

This Bystander also recalls the fuss in July when finance minister Lou Jiwei spoke of 7% annual growth for this year after the U.S.-China Strategic & Economic Dialogue. Xinhua swiftly added to the record the missing half a percentage point from this year’s official growth target. We doubt that in this case Xi misspoke (or that state media will do any after-the-event re-reporting of Xi’s words), and it should be noted, the president did not specifically forecast 7% as the growth rate for this year. That number is also the annual growth target in the current five-year plan. But it is the clearest public signal to date of where the leadership sees the economy headed.

Meanwhile, the World Bank has joined the caravan of those cutting their forecast of economic growth for China. In its latest semi-annual regional economic update, the Bank says it now expects GDP growth to be 7.5% this year and 7.7% next. That is down from 8.3% and 8% in its previous forecast published in April. The Bank expects the slowdown in China to cast its shadow over the region. It now forecasts growth for East Asia of 6.0% this year and 6.4% in 2014. That is down from 6.5% and 6.7% respectively in its previous forecast.

The Bank also highlights the increasingly conventional wisdom that China’s growth model of investment-heavy stimulus supported by credit expansion has run its course. Beijing must focus on containing the rapid growth of credit and tighten financial supervision, it says. The Bank  remains concerned by the levels of local government debt and the rapid rapid expansion of the shadow banking system. This, the Bank said, posed “serious challenges”. The Bank also credits China with making some progress in rebalancing its economy, though “the economy has yet to make the decisive turn toward consumer-based growth”.

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World Bank Raises China Growth Forecast For 2013

The World Bank raised its forecast for China’s GDP growth in 2013 to 8.4% from its projection of 8.1% made in October. In the latest edition of its East Asia and Pacific Economic Update, the Bank says it expects China’s growth rate to be 7.9% this year, down from 2011’s 9.3% and the lowest rate since 1999. Weak export growth and government efforts to deflate the housing bubble weighed on growth. A sign of how much global demand has weakened during this year is that back in January, the Bank had forecast 8.4% growth for 2012.

The Bank says that a pick-up in factory output and investment suggests that the recent slowdown in the economy has bottomed out in the wake of easier credit conditions and public spending on infrastructure. The effects of both of these stimuli will be felt more powerfully next year. Beyond that, the Bank projects that China’s potential growth will gradually slow, as investment levels off and productivity increases and labor force growth start to slow. Its 2014 projection of 8% growth reflects that.

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China’s Economy Seeing Slowing Faster Than Expected

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.


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