Page last updated at 11:27 GMT, Wednesday, 18 March 2009

World Bank lowers China forecast

Worker has lunch, Liaoning Province, China, March 2009
Slowing growth will hurt job creation for China's huge poor population

The World Bank has cut its prediction for China's economic growth in 2009 from 7.5% to 6.5%, saying it could not "escape the impact of global weakness".

Falling demand for Chinese goods abroad is seen as the main reason for the cut.

But the bank added that China's economy was still holding up well compared to other countries, and remained a bright spot amid all the financial gloom.

Analysts are particularly worried about a slowdown in China, due to the threat of social unrest if the economy stalls.

Exports exposure

China is heavily dependent on the global economy that buys its imports. But as recession grips the US and Europe - which are among its largest customers - demand has fallen, resulting in factories closing and millions of people losing their jobs.

Chinese textile worker
The global economic downturn is hitting China's growth

"As the global crisis has intensified, China's exports have been hit badly, affecting market-based investment and sentiment, notably in the manufacturing sector," the World Bank said.

But the World Bank's country director for China, David Dollar, said China still remained a relatively bright spot in an otherwise gloomy global economy.

"In many ways [it's] a fantastic performance and it's based on the fact that there's a lot of strength in China," Mr Dollar told the BBC.

"On balance, you've got decline in real estate and exports and then you've got growth in areas that the government can directly influence," he said, mentioning infrastructure and social programmes.

Party worries

The World Bank warned that the drop in trade was set to hurt investment and job creation in China.

It expects between 16 million and 17 million non-farm jobs to disappear this year, but said the key to avoiding instability was an effective social welfare system.

China's economy cannot escape the impact of the global weakness
World Bank

"Somewhat lower overall growth is not likely to jeopardise China's economy or social stability, especially if the adverse consequences of dislocation and layoffs are alleviated by using and expanding the social safety net," the report said.

China's communist rulers have said they are prepared to offer more stimulus spending in order to achieve the 8% growth target.

But the bank said this may not be the right approach and the government should nurture reserves in case growth falls further.

"China's economy cannot escape the impact of the global weakness," the report said.

"Government-influenced activity makes up a modest share of the total: it cannot and should not offset fully the downward pressures on market-based activity."

However, China would still do better than other economies, and its stimulus plans were beginning to inspire confidence, the bank said.

According to the latest World Bank global forecasts, published in December, the world economy is set to expand at a weak annual rate of 0.9% in 2009, with a 0.1% contraction in developed economies offset by growth in developing countries of 4.5%.

A Chinese government think tank this month forecast first-quarter growth would slow to 6.5%, from a 6.8% pace in the fourth quarter last year.

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