China’s economic growth will remain "respectable" this year, the World Bank said in its quarterly report on China. However, it said a sustained, broad-based economic recovery that returns China to high single-digit growth will rely on a rebound of the global economy and structural changes to China’s economic model.
The World Bank raised its 2009 GDP growth estimate for China to 7.2%, from its previous estimate of 6.5%, largely due to a larger-than-expected knock-on effect from China’s US$586 billion stimulus package and bank lending. Nonetheless, while government-influenced investment has been a major driver for economic growth this year – and government-influenced expenditure is expected to contribute a full 6 percentage points to GDP growth – market-based investment has lagged this year.
"There are limits to how much and how long China’s growth can diverge from global growth based on government-influenced spending," said Ardo Hansson, the World Bank’s lead economist for China, speaking in Beijing.
While the stimulus package has been effective in shoring up economic growth this year, its effects will not carry over much into 2010, according to the World Bank’s senior economist Louis Kuijs, who estimates China’s GDP will grow by 7.7% in 2010. China’s economic growth next year will be driven less by government measures, as exports are unlikely to fall further in 2010.
Given these factors, it is "not necessary and probably not appropriate" for China to enact any new stimulus measures in 2009, and rather save its remaining "fiscal firepower" for next year, Kuijs said.
This relatively strong economic position gives China the breathing room to implement changes to its economic model that would improve its long-term strength. The bank advocated for continued liberalization of China’s service sectors, as well as the creation of a more robust public finance system and social safety net. Permanent urbanization – in which families move to urban centers rather than send remittances back to the countryside – would be assisted by reforms to the hukou system and inter-governmental fiscal systems that would allow local governments to provide public services to migrants.
Hansson expressed surprise at media reports of new "Buy China" rules that will require stimulus package funds to be spent on Chinese goods and services. He said that China had earned an "enormous amount of goodwill” in leading the global charge against protectionism.
“That leadership reflected an understanding that China, relative to many other economies, has a lot more to lose from protectionism,” he said, adding that China’s import figures do not suggest a massive influx of foreign-made goods to the country.