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Low Western demand to hit China

Uwe HeßlerMay 23, 2012

With low demand in its main export markets, China must spur domestic growth to avoid a hard landing for its economy, the World Bank has said. It warns that a sharp downturn might ripple across Asia and the Pacific.

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construction worker
Image: Reuters

Economic growth in China will slow for a third year in a row, the World Bank said Wednesday, as it predicted a rate of expansion of 8.2 percent for this year, down from 9.2 percent in 2011 and 10.4 percent in 2010.

In its biannual East Asia and Pacific economic outlook, the world development lender said that the Asian economic powerhouse was facing a challenge "to sustain growth through a soft landing."

"While the prospects for a gradual slowdown remain high, there are concerns that growth could slow too quickly," the bank's report said.

A primary "downside risk" for China was a further slowing of demand in "high-income countries" in the West which would "ripple quickly through" the region's production and trade networks, in which China held a central position.

The report noted that the European Union, the United States and Japan accounted for 43 percent of the region's exports, and added that Europe's banks provided one-third of all trade and project financing in Asia.

In addition, China was facing the domestic risk of a sharp downturn in its property markets, the report said, adding, however, that corrections had so far remained "gradual and orderly."

Policy action

Concerns over sluggish Chinese growth have intensified in recent months, after the government reported marked slowdowns in industrial output, imports, exports, fixed asset investment and bank lending.

The World Bank said that Beijing had the means to boost economic activity, but warned that a repeat of the massive infrastructure spending which characterized China's response to the 2008 economic crisis must be avoided.

"Fiscal measures to support consumption, such as targeted tax cuts, social welfare spending and other social expenditures should be viewed as first priority," the World Bank report said.

Warning that a sharp slowdown in China would drag down the region as a whole, the World Bank predicts emerging economies in East Asia and the Pacific will grow 7.6 percent in 2012, up from 8.2 percent in 2011.

Describing the region as a "bright light," Pamela Cox, World Bank Vice President for East Asia, said that East Asia was proving "resilient" to the crisis in Europe.

"Europe is a cloud on the horizon, but it is not pouring rain yet in East Asia," she added.

Nevertheless, developments in Europe should prompt the region's emerging economies to "rely less on exports and more on domestic demand to maintain high growth," the World Bank report concluded.

uhe/mll (Reuters, AFP, dpa)