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WB: China's economy to grow by 9.25% in 2004 (09/11/04)

    China's economy is to expand by 9.25 percent in 2004 year on year, and it will further slow down to around 8 percent next year, the World Bank said on Nov. 9 in its latest East Asia and Pacific Regional Update.

    That indicates the Chinese economy will continue to slow down in the last quarter, since China's National Bureau of Statistics (NBS) said late October the country's GDP (gross domestic product) grew by 9.5 percent in the first three quarters year-on-year.

    The bank said China's growth, investment and imports might also slow gradually, which would be more sustainable and add a measure of stability to the regional economy.

    On the future of the economy, the bank said "if the Chinese economy lands at all, it is likely to be a soft landing this time around".

    In its country report, the bank praised China's October 28 move to raise its interest rates, saying it serves as a signal that the authorities would be ready to use the interest rate instrument following administrative measures that seemed targeted at limiting investments in overheated sectors.

    The People's Bank of China, the country's central bank, raised the one-year deposit interest rate from 1.98 percent to 2.25 percent and the one-year lending interest rate from 5.31 percent to 5.58 percent. The rates hike, the first in nine years, became effect as from October 29.

    On regional economy, the bank said economic growth is expected to top 7 percent for East Asia and Pacific (excluding Japan), while developing economies in the region are expected to grow by more than 8 percent.

    Exports from the region should turn in their strongest performance since 1988, supported by demand from China, the global recovery, a rebound in the global high-tech industry, and strong commodity prices. Meanwhile, investment has also recovered, contributing half of aggregate demand growth, the bank said.

    The strong performance has lifted 40 million East Asians out ofpoverty, mostly in China, Indonesia, Thailand and Vietnam this year, the report said.

    The bank warned of growing economic uncertainty for the region in 2005.

    "There are growing concerns that the outlook for 2005 may be less favorable and more uncertain. The spike in oil prices, lower growth in rich countries, and downtown in the high-tech and commodity cycles are all unfavorable trends for East Asia.

    Major global macroeconomic balances, in particular record U.S. current account deficits and East Asian surpluses, and the investment boom in China, still need to brought onto sustainable paths, intensifying the risks facing the region."

    Homi Kharas, chief economist for the East Asian and Pacific Region at the bank, said "although 2004 has been a strong year, recent data also suggest that the recovery in East Asia has peaked,and the economic activities are shifting into lower gear."

    The consensus view is that growth in the developed world, including the United States, Japan, and Europe, will slow temporarily, but build into a sustained expansion, the world bank said in a press release.

    It said the steep spike in global oil prices will increase the oil import bill for emerging East Asia by 25 billion US dollars, reducing the incomes of the majority of regional economies that are net energy importers, as well as the region's primary export markets like Japan, the United States, and Europe.

    "The impact of higher oil prices could shave 0.5 to 1 percentage points off growth rates in the region next year, with countries like the Philippines, Thailand and (the Republic of) Korea at the upper end of this range," said Kharas.

    He called for reduction of the size of current account surpluses in East Asia and deficits in the United States.

    "The best contribution East Asian economies can make is to reduce their surpluses by expanding domestic private investment and further liberalizing trade, especially in services," said Kharas.

 


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