The World Bank is more optimistic about China’s prospects than some of its putative leaders.
The bank forecast yesterday that China’s growth can remain around 8% to 9% for the foreseeable future.
And while it said that emerging Asian economic growth could be hurt by the slowdown in Europe and the attendant financial crisis, it remains confident the area will remain the growth engine for the global economy over the next year and more.
That’s good news for Australia and our resources boom.
In an update issued yesterday the bank said China is heading for a soft landing of growth in excess of 8% in 2012 and most Asian nations have financial strength to cope with the eurozone’s financial problems.
The semi-annual East Asia and Pacific economic update saw the World Bank ease upwards up its 2011 growth forecast for China. But it expects growth to moderate from next year as overseas economies slow and Beijing steers the economy to rely less on investment and manufacturing and more to domestic consumption.
The Bank also dropped growth forecasts for developing Asia, excluding China, due to weak export demand from developed countries and as widespread flooding has hit Thailand’s manufacturing base.
"On balance, we believe that while there are issues (in China), they are being managed and the magnitude of those issues does not add up to something that would lead necessarily to a major slowdown as some have talked about," Bert Hofman, World Bank chief economist for East Asia and the Pacific, said.
China can continue growing at a 9 to 10% a year for the foreseeable future, based on the experience of other countries with a per capita gross domestic product of around $US5,000, according to Hofman. That’s a bit more than China’s current per capita GDP.
The World Bank report offsets the very gloomy assessment issued by senior Chinese official Chinese Vice Premier Wang Qishan at the weekend who received a lot of publicity for his gloomy forecast that the world is likely to experience a prolonged recession.
He also said described the outlook as “extremely severe,” according to a report by the state-run Xinhua news agency. The World Bank scenario doesn’t avoid that sort of outlook, but points out the impact on China could be smaller than many people think
His comments helped send Asian markets lower on Monday and while a possibility if Europe fails to control the current crisis, are seen as part of the emergence of the debate in the Chinese leadership about who will lead China from 2012.
Wang is seen as one of the major contenders and his comments were also seen as an attempt to burnish his international economic credentials.
His gloomy comments were also at odds with more optimistic forecasts reported on official Xinhua newsagency website at the weekend. Nothing published on Xinhua is untrue, at the time of publishing in China.
The forecasts included a prediction that China’s economy is expected to grow 9.2% next year, a slight drop from 9.4% this year. That’s hardly the stuff of recession or depression.
Xinhua said that forecast came from the Beijing-based Renmin University of China in comments released on Saturday.
That forecast is also an improvement from one last September when Xinhua quoted a senior government economist as being more gloomy and predicting that China’s economy was likely to grow at a rate of less than 9% in 2012, due to the faltering economic recovery of the largest developed countries.
At the time many groups, including the Asian Development Bank were forecasting Chinese economic growth around the 8.2% to 8.5% annual rate for next year.
Seen against that background the latest World Bank update is realistic, so long as you believe Europe resolve its problems in a speedy fashion (for Europe).
If it doesn’t, all bets are off and the faster growing economies in Asia will all suffer collateral damage.
The World Bank said in the update that "Growth is still strong in developing East Asia, but continues to moderate mainly due to weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity."
The report, issued biannually, projects that amid uncertainties in Europe and a global growth slowdown, real GDP in developing East Asia will increase by 8.2% in 2011 (4.7% excluding China) and by 7.8% next year.
It said domestic demand in middle-income countries would be the largest contributor to growth in the region, "although it is easing driven by the normalization of fiscal and monetary policy."
Developing East Asia excludes Japan, Hong Kong, Taiwan, South Korea, Singapore and India.
The bank said that while China faces a real-estate correction (as evidenced by reports yesterday of Government concern about the impact of falling property prices on banks), its gross domestic product will rise 8.4% next year and about that pace thereafter.
The report suggest that Asia will likely withstand the impact any slump in demand for its exports or pull-back in credit by European banks.
The World Bank said countries with high investment rates, suc
