World Bank sees slower growth in China, East Asia
Forecasts trimmed due to economic shift on mainland and weaker commodity prices
The World Bank yesterday lowered its economic growth forecasts for China and most of developing East Asia for this year and next year, citing slower growth in the world's most populous country as well as weaker commodity prices that have hurt exports and investments in countries such as Indonesia.
"Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand," the World Bank said in its "East Asia Pacific Economic Update" report.
"Growth in larger middle-income countries, including Indonesia, Malaysia and Thailand, is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports."
The bank now expects developing East Asia to expand 7.1 per cent this year and 7.2 per cent next year, down from its April estimates of 7.8 per cent and 7.6 per cent, respectively.
The World Bank now expects the mainland economy to expand 7.5 per cent this year, against its April forecast of 8.3 per cent and below the International Monetary Fund's most recent forecast of 7.75 per cent.
The mainland's economic growth next year was estimated at 7.7 per cent, down 0.3 percentage point from the previous forecast, the bank said.
It said the mainland's massive, investment-heavy stimulus programme supported by credit expansion had run its course and policymakers must focus on containing the rapid growth of credit and tighten supervision.
Local government debt was a concern, given the complexity and opacity of municipal finances, and they should be reformed "with clear rules on borrowing, on allowed sources of borrowing, on debt resolution and on the disclosure of comprehensive financial accounts by local governments", it said.
"The rapid expansion of shadow banking poses serious challenges, since shadow banking is closely linked to the banking system, is less regulated, and operates with implicit guarantees from banks and local governments," it said.
But local governments on the mainland had significant assets to meet liabilities as they held land reserves worth 10 per cent of gross domestic product as well as shares in state-owned firms worth a similar amount, it said.
The mainland had shown some progress in rebalancing its economy, with consumption contributing more to quarterly growth than investment in the two years up to the first quarter of this year and services accounting for a larger share of GDP, it said.