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
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.”
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.
“Going forward, joining the CPTPP could provide an anchor for additional reforms, as China’s [World Trade Organization] accession did almost 20 years ago,” the World Bank said.
“The Covid-19 shock has accentuated pre-existing domestic and external macroeconomic imbalances, lending additional urgency to reforms to rebalance the economy.
“Over the medium term, deeper structural reforms to engender more balanced, inclusive, and sustainable growth remain a central policy priority for China.”
However, headline GDP growth is estimated to moderate to 5.2 per cent growth in 2022 given domestic obstacles.
In particular, the World Bank also pointed to China’s rising mountain of debt – a result of this year’s stimulus measures – while noting that vulnerabilities in fiscal, corporate and banking sector balance sheets would all weigh on growth.
Expanding on its warning against a premature stimulus policy exit, the World Bank said China’s central bank should continue its accommodative monetary stance and focus on maintaining adequate liquidity. It added that China could use its fiscal space to hedge against downside risks and boost private demand.
“Focusing these fiscal efforts on social spending and green investment rather than traditional infrastructure investment would not only bolster short-term demand but contribute to the intended medium-term rebalancing to greener and more inclusive growth,” it suggested.
Aside from tariff reductions and measures to improve market access and infrastructure connectivity, the Chinese government was advised to focus more on “behind-the-border issues”, including intellectual property rights, trade-in services and public procurements.