World Bank raises China growth target
Martin Zhou in Beijing
The World Bank raised its forecast for economic growth on the mainland this year to 7.2 per cent yesterday but warned against further stimulus measures by Beijing.
The projection tops a previous forecast for growth of 6.5 per cent in the world's third-largest economy and comes amid soaring government-directed investment and steady domestic consumption.
The mainland stock market took heart from the bullish outlook, sending the benchmark Shanghai Composite Index up 1.56 per cent to 2,853.903 points.
The new forecast still fell short of Beijing's target of 8 per cent, with the bank saying continued weakness in exports and less willingness to invest in the private sector were drags on growth.
The bank also signalled its concern about the amount of pump-priming spending the mainland authorities were undertaking to kick-start the economy.
'On current projections, it is not necessary and probably not appropriate to add more additional stimulus in 2009,' it said.
'One reason is that the fiscal deficit is on course to be significantly higher than budgeted this year, and additional stimulus now would reduce the room for stimulus in 2010.'
The bank said the mainland's budget deficit was set to leap to 4.9 per cent of gross domestic product this year from 0.4 per cent last year, and Beijing should keep some powder dry in case it was needed next year.
Liu Yuanchun, a professor at Renmin University, said the World Bank had gone too far in its concern about the mainland's fiscal health.
'The overall indebtedness level is far from alarming,' Mr Liu said. 'But it is right to say that Beijing should contain some local governments' urge to over-invest and borrow excessively. That could lead to economic and social consequences.'
The State Council has lowered minimum equity capital requirements for newly started stimulus projects in various sectors, effectively allowing local governments to borrow more from the banks to fund their spending spree.
It has also given tacit approval for local officials to use proxies to borrow from the interbank market on top of the officially anointed plan to issue 200 billion yuan (HK$226.78 billion) worth of local government bonds this year.
Li Wei, an analyst with Standard Chartered, said what mattered most was where the stimulus dollars were being spent, and the focus on infrastructure should be re-examined.
'The government should channel more money into the right kinds of projects,' said Mr Li.
'They should shift away from the infrastructure-heavy mode to issues such as how to sustain momentum in consumption growth.'
Although nominal household consumption figures achieved two-digit growth over the first half of last year, he pointed out that most of the increase was built on one-off factors, such as more incentives for vehicle purchases.
'More stimulus programmes need to be rolled out to sustain consumption levels down the road this year,' he said. 'But we certainly don't want to see more dollars thrown at dams and highways.'
While raising its forecast for the mainland's economic growth this year, the World Bank advised Beijing policymakers to delay any further stimulus measures until next year
2009 growth forecasts
World Bank 7.2 %
Asian Development Bank 7 %
International Monetary Fund 8 %
Morgan Stanley 7-8 %
Merrill Lynch 8 %
Goldman Sachs 8.3 %