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World Bank: Strong exports to spur growth
By Feng Jie (China Daily)
Updated: 2006-02-10 05:28
China will benefit from solid export demand this year but it will take time
for consumption to play a much-desired bigger role in generating growth, the
World Bank said yesterday.
If local governments continue to be obsessed with pursuing high growth
numbers, it threatens to derail the State's plan to shift its focus to
stimulating spending rather than investing heavily on infrastructure.
A port is seen in
this photo taken on January 11, 2006 in Nanjing, East China's Jiangsu
Province. [newsphoto/file] |
In its China Quarterly Update released yesterday, the bank presented a robust
outlook for China's economy in 2006, projecting a 9.2 per cent gross domestic
product growth for the year based on recently-revised data, which it said is
equivalent to its earlier forecast of 8.7 per cent based on the old data.
While domestic demand took the lead over net exports in fuelling growth in
the second half of last year, strong external demand this year "should prevent
too abrupt a deceleration in exports stemming from negative domestic supply side
effects," including a levelling off of foreign direct investment (FDI), some
exchange rate appreciation and tax measures taken to discourage energy-intensive
exports, noted the update.
China's strategic focus is to boost domestic demand for the next five years,
trying to reduce the economy's reliance on foreign trade. And the consensus is
consumption should play a bigger role in promoting growth, after a few years
when investment growth for a large part faster than expected was the major
engine of growth.
While household consumption will be supported by solid income growth as well
as tax and fiscal incentives, the World Bank said it did not expect a dramatic
pickup in consumption soon, noting the difficulty in significantly boosting
rural income growth.
"Rebalancing the composition of demand will have to rely to a large extent on
policies addressing structural issues, including public finance measures,
financial sector reform, dividend policy and corporate governance, and these
take time," it said.
Investment is expected to remain strong due to factors such as favourable
macroeconomic conditions, strong confidence, solid profit growth and,
particularly, ample liquidity in the banking system, said Bert Hofman, World
Bank's lead economist for China.
"Monetary policy could in the short run focus on absorbing some of the excess
liquidity to reduce the risk of excessive credit growth," he said.
While this task maybe somewhat complicated by rapid financial innovation,
Hofman said a more flexible exchange rate mechanism of the renminbi would have a
stronger effect this year on reducing the pressure of sterilizing foreign
currency inflows.
China's move last July to let its currency appreciate by 2 per cent and link
it to a basket of currencies instead of the US dollar alone has achieved "a fair
amount of success," he said, noting a presumable sharp decrease in non-FDI
inflows in the second half of last year.
(China Daily 02/10/2006 page1)
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