Growth in China will slow to the lowest rate for almost two decades next year, the World Bank predicted earlier this week.
It cut its 2009 GDP growth forecast from 9,2% to 7,5% amid concerns that the sharp downturn in the export and property sectors is spreading through the economy. China’s shares fell again on the news as other Asian markets reported gains.
If the bank’s prediction is correct, next year would see the lowest rate of growth since 1990, when the economy grew by 3,8%. The bank has already said it expects growth this year to fall to 9,4%, after five years of double-digit expansion. Last year the economy expanded at 11,9%.
“China is going to face a difficult coming six months,” said Louis Kuijs, the bank’s senior economist in Beijing, predicting that the impact of the global crisis would intensify. He said heavy industries, such as steel and cement, had already slowed remarkably.
The bank expects a big boost from the four trillion yuan stimulus package Beijing announced two weeks ago, but estimated that exports, which grew at 11% this year, will grow at 3,5% in real terms next year. Other analysts have predicted they could fall.
With imports expected to increase more rapidly, that will mean net external trade will cut one percentage point off GDP growth. It is widely believed that China needs to grow by 8% a year to absorb new entrants to the labour market.
David Dollar, the World Bank’s country director for China, insisted that figure had no scientific basis, attempting to dispel the spectre of mass unemployment. He also said the bank had opened talks with China about how it could contribute additional financing to help developing countries.
Despite the bank’s confidence that the stimulus package will boost China’s economy, details are still hazy more than two weeks after its announcement. Private investment and local government will provide much of the four trillion yuan and at least some of the projects included are already under way.
“The government hasn’t defined clearly what it means and where the money comes from,” said Wang Yijiang, professor of economics at Beijing’s Cheung Kong Graduate School of Business.
“Up to this point the signalling effect and confidence-boosting effect is more important than the actual extra money put into the economy … [It] gives the green light to all levels of government to spend as much as they wish to and can.”
He added that increased spending on social welfare and more help for small- and medium-size enterprises was needed. The existing package appears to be concentrated on large infrastructure projects, although some Chinese media are predicting a further injection of funds for public services.
The president of the European Union Chamber of Commerce in China said that kick-starting the ailing real estate sector would be the key to recovery. Presenting the chamber’s annual survey on business confidence, Joerg Wuttke also warned: “Recession normally breeds protectionism. So the pressure on politicians to close borders is certainly rising. —