China-EU Relations

Focus

China's economy weathering storm, says World Bank

18.03.09 @ 17:31

  1. By Andrew Willis

BRUSSELS - China's economy is fairing better than most during the current economic downturn but has suffered considerably from falling exports, according to a report published by the World Bank on Tuesday (17 March).

  • Last November, the Chinese administration announced a substantial stimulus programme worth $586 billion (€450 billion) (Photo: EUobserver)

The bank's China Quarterly Update is upbeat about the Chinese stimulus programme's capacity to boost domestic demand but the fall in trade levels has nevertheless caused the international financial institution to downgrade the country's growth forecast.

The reviewed growth figure for 2009 is now 6.5 percent, down from the previous estimate of 7.5 percent. Last week the Chinese administration said it was still targeting 8 percent growth in 2009 in a bid to maintain solid job creation and prevent social unrest by the unemployed.

"The continued global crisis is bound to contain China's growth in 2009 and 2010, especially via weaker exports and market-based investment," says the report.

China has been hit by falling demand in the European Union, the world region that purchases more Chinese exports than any other. As a result production has plummeted in many Chinese factories, forcing millions of workers to return to rural areas in search of farm work.

However, the World Bank's report says the country's economic fundamentals are still strong, enabling policy makers to take a longer-term approach to market reform.

"Looking ahead, less focus on targeting short term GDP growth would allow for more emphasis on the rebalancing and reform agenda," it says.

Stimulus spending

Last November, the Chinese administration announced a substantial stimulus programme worth $586 billion (€450 billion) to the delight of Asian markets. The money will primarily be targeted towards housing, infrastructure and post-earthquake development over two years, but with some spending on technological development and environmental areas.

The EU's €200 billion stimulus programme has been criticised recently as being insufficient to lift Europe out of recession, while the commission and member state governments argue that they wish to see the results of the first wave of spending before announcing more.

Speaking last week at the annual parliamentary session, Chinese premier Wen Jiabao showed no such constraint, saying his government was ready to introduce new stimulus measures "at any time." He stopped short however of announcing a second stimulus package that some analysts had predicted.

"We have prepared contingency plans to handle greater difficulties," he said. "We have prepared enough ammunition and we can launch new economic stimulus policies at any time."

Interdependence

It was also during this parliamentary session that Mr Jiabao called on the United States to guarantee the safety of Chinese investments, in particular US treasury bills and other official notes in which China has invested almost half of its $2 trillion (€1.53tn) in foreign currency reserves.

"We have made a huge amount of loans to the United States. Of course, we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Mr Jiabao said.

While the US continues to look to China to buy its debt and help fund its $787 billion (€600 billion) stimulus programme, the EU is also acutely aware that China will play a vital role in ending the current economic downturn.

"They are a large part of world consumption as well as production, so a growing economy in China is of very high importance," the head of the European parliament's delegation to China, MEP Dirk Sterckx, told EUobserver in a recent interview.

However Mr Sterckx said some of the structural issues facing the Chinese administration are significantly different to those that need to be tackled in the EU and US.

The Chinese government is keen to encourage its citizens to save less and spend more in order to boost the economy whereas Europe must tackle issues of flexibility and competitiveness he says.

"We each have our problems. The Chinese have their part to do and we have our part to do, and I wouldn't be surprised if they did their part before us," he added.

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