World Bank says China's economy slowing rapidly
Updated
The World Bank says China's economy is slowing rapidly and will not meet the Government's target for growth this year. Just last week Premier Wen Jiabao was optimistic that the Government's goal of 8 per cent was still possible.
But with the Bank's new forecast of just 6 and a half per cent unemployment and the risk of instability will rise.
Presenter: Karon Snowdon
Speakers: David Dollar, the World Bank's Country Director for China and Mongolia
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SNOWDON: From a forecast of more than nine per cent to seven and a half in November and now just six and a half per cent growth this year ...with so many downgrades the World Bank sounds gloomy on China.
Not so says David Dollar, the Bank's Country Director.
DOLLAR: That is something of a come down as you said we had it at seven-point-five per cent last November. But since then we've gotten all bad news for the world economy. So I feel that we're relatively positive about China.
SNOWDON: But it seems to me that the report is saying that the Chinese government stimulus package will only have a limited effect because it's unable to counter if you like the massive effect of the global slowdown?
DOLLAR: That's right, you know not long ago China was growing at 13 per cent, and I think everyone agrees that the global slowdown was having a big effect on China and that the government stimulus cannot completely replace what's being lost.
SNOWDON: What's being lost is private investment, export markets, retail spending and so far -and as far as we know - 20 million construction and factory jobs.
In June another 7 million college graduates will join the ranks of job seekers.
In its massive stimulus package announced late last year, the Chinese government poured money into infrastructure projects and rural programs.
The World Bank's latest quarterly report points out it would cost a lot less to provide income support to 20 million people than to create 20 million jobs.
David Dollar says more must go into the social safety net as direct benefits as well as training for what's likely to be a different economic future.
DOLLAR: We accept the somewhat casual estimates that are flying around that about 20 million migrant workers have lost their jobs. So I think the unemployment situation is fairly serious. But China does have a much better safety net now than it had ten years ago. So China certainly has the fiscal strength to take care of people, and so far it seems to be doing a very good job taking care of people.
SNOWDON: But at the same time the bank in your report does argue that spending on the social security safety net needs to be increased?
DOLLAR: Yes I mean the Premier announced an 18 per cent increase in central funding for the safety net and that's a very solid increase. But we think that could even go higher and it's not just direct transfer payments. China has a lot of scope to increase spending on education and health and there's a limit to how quickly you want to do that. But looking ahead over the next one to two years it makes sense for China to be increasing social services which are both good stimulus but also setting up a country to do well in the future as the global economy recovers.
SNOWDON: Last week Premier Wen Jiabao said he was worried about China's almost one trillion dollars worth of investments in the US. Now if, and it's a remote if, if those investments indeed turn bad what's the significance of that for China in the first instance and for the rest of the world?
DOLLAR: I think if the United States becomes an unreliable source of investment that's such an enormous problem for the world that I think loss on someone's reserves is going to be the smallest problem that we have to worry about. But frankly that doesn't seem remotely possible to me as an economist.
SNOWDON: And what would be the impact?
DOLLAR: If investors lose confidence in the US then I don't see we have any real anchor in our global system, but it really doesn't seem at all remotely possible.
