China must avoid ‘premature’ exit from economic support given ‘precarious’ global outlook: World Bank

World Bank says the near-term global economic outlook has ‘dimmed’ due to the resurgence of the coronavirus in major economies

The Washington-based agency projects China’s economy will grow by 7.8 per cent in 2021 before slowing to 5.2 per cent growth in 2022

3-MIN READ3-MIN

China’s economy grew by 4.9 per cent in the third quarter of 2020 compared with a year earlier, accelerating from 3.2 per cent growth in the second quarter. Photo: Reuters

Published: 10:03am, 23 Dec 2020Updated: 11:09pm, 23 Dec 2020

China should avoid a “premature” exit from its economic support policies given the “precarious” global outlook next year, according to the World Bank.

“A premature policy exit and excessive tightening [following the coronavirus pandemic] could derail the recovery,” the Washington-based World Bank warned on Wednesday, urging the People’s Bank of China to “proceed cautiously” in tightening its monetary policy.

“Despite an initial rebound, the global economy remains in recession, and its recovery path is uneven and precarious. In addition, near-term global prospects have recently dimmed amid re-escalating Covid-19 outbreaks and renewed lockdowns in several major economies.”

To rescue its coronavirus-hit economy earlier this year, China unleashed a flurry of stimulus measures, including the issuance of special treasury bonds, lower lending rates and tax exemptions, while it also lifted the fiscal deficit ratio to a record high of 3.6 per cent of gross domestic product (GDP).

And after its economy shrank by 6.8 per cent in the first quarter after the coronavirus shut down large swathes of the country, China was the first major economy to show a recovery with a growth rate of 3.2 per cent in the second quarter and 4.9 per cent in third. The stimulus effort, though, brought with it concerns over its record high debt level.

In its latest issue of its China Economic Update, the World Bank urged the country to strengthen its “still fragile private demand”, embrace “market-oriented, structural reforms”, and increase external incentives for change by joining the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP).

CPTPP is an 11-nation trade deal between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. President Xi Jinping’s said last month that China “will actively consider” joining the formerly American-backed accord.