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Special> Global Financial Crisis> Latest
UPDATED: April 7, 2009
World Bank Forecasts China Recovery This Year
A recovery in China is likely to begin this year and take full hold in 2010

A recovery in China, fueled largely by the country's huge economic stimulus package, is likely to begin this year and take full hold in 2010, the World Bank (WB) said Tuesday in its mid-year report.

As countries in the East Asia and Pacific region prepare themselves for an expected surge in joblessness resulting from global slowdown, a ray of hope may be emerging with signs of China's economy bottoming out by mid-2009, said the report, a latest half-year assessment of the region's economic health.

Vikram Nehru, the WB's chief economist of the region, said that the forecast for China's recovery is based on recent positive statistics such as loans, imports, industrial value-added, and purchase management index (PMI).

But he emphasized that all forecast made under the current global financial crisis is uncertain, and more sure conclusion on China's recovery still relies on further data in the coming months.

Chinese banks extended 2.69 trillion yuan of loans in the first two months to fund the construction spree under the government's 4-trillion yuan ($584.8 billion) stimulus package.

The Purchasing Managers' Index (PMI) of China's manufacturing sector rose for the fourth straight month in March to 52.4.

A reading of above 50 suggests expansion, while one below 50 indicates contraction.

Despite stronger growth driven by government stimulus package, there are also pessimistic signs in market-based investment, which throw more uncertainty on recovery of the Chinese economy, said Louis Kuijs, senior economist with the WB's China Office.

The report, focusing on economic development of East Asia, forecast that real gross domestic product (GDP) growth in developing East Asia will reach only 5.4 percent in 2009, 1.3 percentage points lower than its previous forecast in December.

The bank defines developing East Asia as China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, the Lao PDR, Mongolia, Papua New Guinea and the island economies of the Pacific.

The report said the recovery of the Chinese economy will potentially contribute to the region's stabilization, and perhaps recovery.

But with China still heavily reliant on exports to world markets that continue to contract, the report warned that a truly sustainable recovery in the East Asia and Pacific region ultimately depends on developments in the advanced economies.

The bank in mid-March cut its forecast for China's 2009 economic growth to 6.5 percent from 7.5 percent.

The region's low income countries are expected to be among the worst affected by the slowdown and the limited room for government intervention to help those in need, said the report.

Cambodia is likely to experience the strongest decline in growth because of declines in the garment and tourism sectors, while Laos, Mongolia, Papua New Guinea and Timor-Leste will be especially hard hit due to lower commodity prices, the report said.

Weaker growth is expected to slow the pace of poverty reduction in the region, with over ten million more people likely to stay below the poverty line this year compared to estimates of a year ago.

"There is no doubt that the East Asia and Pacific Region is confronting very difficult times," said Nehru.

The countries that are able to tackle short-term challenges while staying focusing on longer-term priorities will likely emerge better placed after the crisis to resume growth, he said.

Nehru said China should focus on improving its economic structure while stimulating short-term GDP growth.

Shifting China's output from exports to domestic needs will help provide immediate stimulus while laying the foundation for more sustainable growth in the future, he said.

(Xinhua News Agency April 7, 2009)

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