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World Bank Ups China '09 Growth Forecast

The Associated Press

BEIJING-- The World Bank raised its 2009 economic growth forecast for China to 7.2% from 6.5% because of its stimulus-driven investment boom but cautioned Thursday it was too soon to say a sustained recovery was on the way.

The stimulus impact is bigger than expected and will "strongly support growth," said Ardo Hansson, the bank's lead China economist. The 4 trillion yuan ($586 billion) plan is aimed at shielding China from the global slump by pumping money into the economy through spending on building airports and other public works.

"Growth in China should remain respectable this year and next, although it is too early to say a robust recovery is on the way," Hansson said at a news conference.

Trade and private investment will remain weak, consumption will slow and a full-fledged recovery has to wait for the global economy and export demand to rebound, the Washington-based lender said in a quarterly report.

China's economy grew 6.1% in the first quarter from the same time last year, the strongest rate of any major country but below the government's 2009 target of 8% and far from 2007's explosive 13%.

Thursday was the first time the bank has raised its outlook for China since November, when it slashed its 2009 forecast from 9.2% to 7.5%. The bank cut that again in March to 6.5%. The bank said the growth rate should rise slightly in 2010 to 7.7%.

Hansson expressed surprise at Beijing's "Buy China" order, reported this week by state media, for stimulus projects to use domestically made goods. Foreign business groups appealed to the government Wednesday to avoid protectionism, warning it might hurt Chinese and foreign companies at a time when cooperation is needed to revive global growth.

"China had earned an enormous amount of goodwill and was leading the charge globally to make sure protectionism did not take off," Hansson said. "I think that position, that leadership reflected an understanding that China, relative to many other economies, has a lot more to lose from protectionism given the importance of the export sector."

The World Bank report highlighted China's dependence on government spending to support growth.

The stimulus will supply up to 6% percentage points of this year's expansion, with private activity producing 3.6% percentage points, according to Louis Kuijs, a World Bank economist. He said the contraction in exports will be severe that trade will subtract 2.4% percentage points from this year's growth, resulting in the forecast total of 7.2%.

"We see very little growth coming out of the market-based economy in 2009," Kuijs said. "We do expect a nice pickup in exports next year, so that will help."

Government spending boosted domestic investment in factories, real estate and other fixed assets by 32.9% in the first five months of the year.

The World Bank cautioned there was a limit to how much China could buck global trends through stimulus spending while exports are weak.