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ReturnWB：China's economy to grow fast, face more external imbalance
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PublishDate：
2007-02-14 14:43:00
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The World Bank said here Wednesday that China's economy may still enjoy favorable prospects in the near time, with a possible high growth rate of 9.6 percent this year.
It also warned in its latest China Quarterly Update that the country must cultivate new sources of growth to rebalance its economic expansion.
"China still has a vast potential for catching up in productivity, but China's industry, investment and export based growth has become increasingly problematic because of trade tensions and environmental and resource constraints," said Louis Kuijs, senior Economist on China and main author of the Quarterly.
"With a growth pattern that relies more on services, and more labor-intensive urban growth, more of growth could come from reallocation of labor out of agriculture."he said.
Kuijs contended that growth along such rebalanced patterns could boost urban employment, wages and household incomes and reduce rural-urban disparities, while mitigating external imbalances.
The Washington-based group stood by its previous quarterly update on November 14, insisting that China's internal macro challenges remain manageable despite the growing external imbalance.
"Policy measures that address domestic concerns could ideally also reduce the external imbalance," says Bert Hofman, Lead Economist for China of the World Bank.
Hofman said that the government had already decided on a dividend policy for state-owned enterprises and a more rapid increase in spending on health and education, and has stepped up the pace of currency appreciation.
"These measures tend to reduce investment and increase consumption, and are thus steps in the right direction", he said.
But Hofman warned that containing investment growth and inefficiency on a more sustainable basis would call for structural policies that addressed the underlying causes of inefficiency and excess investment.
China's economic growth eased slightly in the second half of 2006 as investment cooled in response to tightening measures. However, as exports continued to outpace imports by a wide margin, the impact on overall growth by a cooling investment was largely offset.
As a result, China's external surplus reached new highs, while foreign reserve accumulation continued apace. Surging stock prices prompted government measures to slow new funds moving into the stock market, noted the report.
China's exporters and manufacturers have been affected by several recent policy measures to rebalance the economy, including tax measures and appreciation, and more such measures are likely to follow.
But continued productivity growth and a resilient world economy promise only a minor export slowdown, warns the update.
Domestically, the fundamental drivers of investment remain, and investment is therefore unlikely to slow drastically in 2007, while boosting consumption will remain challenging, particularly in rural areas.
The World Bank report says China's external imbalance is unlikely to shrink much in the near term, and considers a significant surge in inflation "unlikely".
The Quarterly Update also deliberate upon the possible influence of China's third national financial work conference held in January, which set out directions for future financial sector reform in the key areas of rural finance, foreign exchange management, and policy banks.
On rural finance, it was decided to reduce the access thresholds for financial institutions to attract a more diverse set of providers and to continue the reforms of the Agricultural Bank of China.
The Quarterly notes that rural finance would also benefit from interest rate liberalization and further reforms in existing providers.
Source: Xinhua News
It also warned in its latest China Quarterly Update that the country must cultivate new sources of growth to rebalance its economic expansion.
"China still has a vast potential for catching up in productivity, but China's industry, investment and export based growth has become increasingly problematic because of trade tensions and environmental and resource constraints," said Louis Kuijs, senior Economist on China and main author of the Quarterly.
"With a growth pattern that relies more on services, and more labor-intensive urban growth, more of growth could come from reallocation of labor out of agriculture."he said.
Kuijs contended that growth along such rebalanced patterns could boost urban employment, wages and household incomes and reduce rural-urban disparities, while mitigating external imbalances.
The Washington-based group stood by its previous quarterly update on November 14, insisting that China's internal macro challenges remain manageable despite the growing external imbalance.
"Policy measures that address domestic concerns could ideally also reduce the external imbalance," says Bert Hofman, Lead Economist for China of the World Bank.
Hofman said that the government had already decided on a dividend policy for state-owned enterprises and a more rapid increase in spending on health and education, and has stepped up the pace of currency appreciation.
"These measures tend to reduce investment and increase consumption, and are thus steps in the right direction", he said.
But Hofman warned that containing investment growth and inefficiency on a more sustainable basis would call for structural policies that addressed the underlying causes of inefficiency and excess investment.
China's economic growth eased slightly in the second half of 2006 as investment cooled in response to tightening measures. However, as exports continued to outpace imports by a wide margin, the impact on overall growth by a cooling investment was largely offset.
As a result, China's external surplus reached new highs, while foreign reserve accumulation continued apace. Surging stock prices prompted government measures to slow new funds moving into the stock market, noted the report.
China's exporters and manufacturers have been affected by several recent policy measures to rebalance the economy, including tax measures and appreciation, and more such measures are likely to follow.
But continued productivity growth and a resilient world economy promise only a minor export slowdown, warns the update.
Domestically, the fundamental drivers of investment remain, and investment is therefore unlikely to slow drastically in 2007, while boosting consumption will remain challenging, particularly in rural areas.
The World Bank report says China's external imbalance is unlikely to shrink much in the near term, and considers a significant surge in inflation "unlikely".
The Quarterly Update also deliberate upon the possible influence of China's third national financial work conference held in January, which set out directions for future financial sector reform in the key areas of rural finance, foreign exchange management, and policy banks.
On rural finance, it was decided to reduce the access thresholds for financial institutions to attract a more diverse set of providers and to continue the reforms of the Agricultural Bank of China.
The Quarterly notes that rural finance would also benefit from interest rate liberalization and further reforms in existing providers.
Source: Xinhua News
