China Economy Slowing - World Bank

China's economy has continued to grow robustly, with some softening recently, according to a World Bank report.
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NEW YORK (TheStreet) -- China's economy has continued to grow robustly with some softening recently, according to the World Bank's latest China Quarterly Update. The findings suggest there has been a slowdown in government-led investment, but this has been offset by strong real estate investment.

Leading indicators and industrial production data point toward a slowdown in the pace of growth in the second quarter, although it is still rapid. The report also states that despite concerns about fiscal risks in some high-income countries, the global growth outlook remains favorable, in large part because of the strength in emerging markets. Nonetheless, risks around this global outlook are large.

"We project GDP growth of 9.5 percent for 2010 and 8.5 percent for 2011, with risks both ways," Ardo Hansson, lead economist with the World Bank China office. "Growth should be less investment-driven this year and benefit from more favorable external trade, while consumption is likely to remain supported by a strong labor market." China's gross domestic product growth stood at 11.9% at the end of the first, compared with 10.7% during the quarter ended December 2009.

On the trade front, the report states that China's trade surplus has declined due to surging import volumes and declining terms of trade. During the first two months of this quarter, trade surplus stood at $21.21 billion compared to $26.52 billion during the same period a year ago.

The outlook on China's trade remains bearish

and this will have a negative impact on China's growth. Moreover,

high exposure to the European market

may not act in China's favor.

The World Bank report also stated that inflation has picked up somewhat, but core inflation remains low. Also, soaring property prices have triggered tough property-specific measures, including tightening access to mortgage financing. China's Wholesale Price Index has moved up to 6.6% in April.

The World Bank report reckons that policy-making needs to take into account several features of the medium-term outlook. Considering the prospects for its key determinants, trend growth is on course to decline in 2010-2020, although to a still respectable rate, the report added.

Furthermore, government's intention to strengthen the role of private enterprises in the economy and remove barriers they face is welcome. In this connection, it would be useful to clarify the role that the government envisages state-owned enterprises to play in China's economy.