BEIJING, Aug. 16 (Xinhuanet) -- The World Bank said
Tuesday China's economy is expected to grow by 9 percent in 2005, and about 8
percent in 2006.
In its quarterly update on the
country's economy, the China mission of the World Bank said the economic outlook for
China "remains good" in a stable macroeconomic environment and with favorable
"We now project (China's) GDP (gross domestic
product) growth of 9 percent in 2005, and about 8 percent in 2006," the bank
said in the report released in Beijing Tuesday.
The bank based the projection partly on global
economic factors, saying the growth in world economic activity and trade is
projected to slow during the rest of 2005.
"World trade growth is now expected to slow from 12
percent in 2004 to 6.4 percent in 2005, which is likely to affect China's export
China's exports will also be affected "somewhat by
the modest revaluation of the RMB (the Chinese currency)" and the recent
measures designed to discourage exports of "highly energy intensive products"
including the cancellation of rebates to exporters of VAT (value-added tax) on
aluminum and steel, the bank says.
"Domestically, investment growth is expected to ease,
reflecting the moderation in credit growth since the first half of 2004 and the
more recent reduction in profitability and profit growth."
Price pressures are projected to ease. International
raw material prices are generally easing, with the important exception of oil
(energy) prices, according to the report.
Based on past patterns and the World Bank's
international commodity price projections, increases in China's raw materials
prices are expected to decline from 9.6 percent year-on-year in the second
quarter to 7.3 percent in the fourth.
In addition, continued rapid productivity increases
in China's manufacturing industry put downward pressure on prices, the report
says, adding that the recent revaluation of the Chinese currency will help ease
imported inflationary pressures somewhat.
According to the bank, China's domestic demand is
slowing down.GDP growth remains high due to a large contribution of external
trade as exports continued to power ahead while imports decelerated
"Net of external demand, the GDP numbers suggest that
a slowdown in domestic demand is under way."
"Slower credit and profit growth, lower FDI (foreign
direct investment) and modest growth in machinery and equipment imports are
pointing to a further slowdown in investment to a more sustainable pace in the
The change in the exchange rate system and the
accompanying revaluation may further slow domestic demand, but the impact on the
trade balance is likely to be limited, the report says.
The bank suggests China's macroeconomic policy makers
should remain alert to the possibility that risks materialize, for now the focus
could be more on the structural issue of rebalancing growth.
The rebalancing would be away from the relatively
volatile export and investment-based growth to more stable consumption-based
growth, it says.
"Measures in social security and shifting government
spending away from investment towards health, education, and social safety could
help increase consumption's share in GDP, policies that would also help in
redressing the surpluses on the current account."
To maintain growth and employment creation as
consumption increases, however, more efficient investment as well as a shift of
investment to services is needed, it says.
"Financial sector reforms, better corporate
governance, and a dividend policy for state enterprises could be measures
towards that goal." Enditem