World Bank cautious optimism on China growth
Updated
At the start of the global recession many had pinned their hopes on China as the engine that would drive the world's economy back into positive growth.
That hope faded as China also felt the effects of shrinking credit and collapsing exports. But in its latest report the World Bank has raised its economic forecast for China from 6-point-five per cent to 7-point-two-per cent this year.
Presenter: Karon Snowdon
Speaker: Louis Kuijs, Senior Economist World Bank
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SNOWDON: China is big but not big enough to replace what's been lost. And the future isn't what it used to be. In the next decade China's exports will continue to expand but by a full ten percentage points less than the 19 per cent growth of the past decade. That says the World Bank's Senior Economist Louis Kuijs is part of the longer term impact of the global financial crisis. The lower demand for what China's factories make has seen a 20% fall in exports this April and May.
KUIJS: China is a very large economy. It's not yet lare enough to pull the rest of the world out of recession by itself but on the other hand we do notice that China's growth and the ability of China to grow in this weak environment, that type of growth is a net plus to the global economy for instance when we look at China's import data we see that in volume terms, in real terms, China's imports are growing very briskly at the moment and that is helping many other economies including Australia because raw materials are one of the bright sides of China's imports at the moment.
SNOWDON: China's GDP is growing at about 6 per cent now. The Bank forecast is for full year growth of 7.2 per cent. Its almost entirely from government spending. But its uneven. Despite the 700 billion US dollars stimulous package, rural areas aren't getting their share, partly for logistics reasons, partly for the way credit is controlled. Louis Kuijs, the lead author of the quarterly report on China, says even so the record so far is still good.
KUIJS: Quite a bit has happened in the second quarter, we don't yet have quarterly data on GDP growth in the second quarter but we do have monthly data on industrial production and other indicators and these indicators point to pretty good growth in that second quarter on the back of this massive stimulus that the government has been giving and we see that that is filtering through in the real economy as well so we think that a lot of that pick up in growth will actually have happened in the second quarter.
SNOWDON: That's not sustainable though?
KUIJS: That is not sustainable for a long time, if there is no push from the world economy, so that is why we are somewhat cautious about medium term growrth prospects, we are not as optomistic about growth prospects for next year as some other people are because we simply don't think this government influenced stimulus is going to be able to pull the rest of the economy forward in this pretty weak global environment.. China is quite intergrated, its real economy is pretty much intergrated in the rest of the world so we don't really see China recovering to the types of growth rates that it was used to until the world economy recovers.
SNOWDON: So China needs the rest of the world to recover. But Louis Kuijs says there's more that Beijing can do. Structural reforms that boost competition by letting the private sector into areas reserved for state owned enterprises plus a more comprehensive social security system will help build up domestic demand needed for longer term growth.
KUIJS: Realistically China will face a different world in the coming 10 years than it did in the previous 10 years where demand and growth of world imports is going to be more subdued so China needs to find policies and to implement policies that make it possible for China to grow in this different kind of environment and that means that China needs to get more growth from its domestic economy, from its own consumption.
