China needs to take more policy action to contain the rising
trade surplus - the main macroeconomic issue for China, according
to a World Bank report released yesterday.
Meanwhile, the World Bank maintained its 2007 forecast for
China's economic growth rate at 11.3 percent, based on a bulging
trade volume and fast-expanding domestic demand.
"China's macroeconomic prospects generally remain good," said
the World Bank in its East Asia and Pacific Update report, which
also predicted that growth may ease a bit in 2008 to 10.8
percent.
"Domestically, prospects remain buoyant. With profit and credit
growth strong, investment is likely to continue to expand
strongly."
The World Bank estimated in April this year that China's gross
domestic product will grow 9.6 percent and raised the forecast in
May to 10.4 percent. In September, it lifted the estimation again
to 11.3 percent.
The GDP growth is boosted by a continued strong contribution of
external trade and an investment-driven recovery in domestic
demand.
The recent international financial-markets turmoil may affect
China's economy, but the nation is well-placed to absorb the
impact, said the report. However it added that "the external
balance remains China's main macroeconomic issue."
In October, China's trade surplus reached a record high of
US$27.05 billion, accelerating 13.5 percent year on year.
"Reducing the external imbalance may become an important
contribution from China to world growth," said the report.
"The government has taken some largely tax-based measures to
slow export growth. However, given the size of the surplus and the
drivers behind the surplus, significantly more policy action is
likely to be needed."
The policy package urged by the World Bank include:
More exchange-rate flexibility;
Tightened liquidity;
Increased interest rates;
A change in fiscal spending, with more emphasis on health and
education;
Increased reform in the financial sector.
Structural policies to switch focus from manufacturing to the
services industry and to remove the remaining obstacles to
rural-urban migration are also listed as key points.
Meanwhile, the decade-high consumer prices in China are not
likely exert a serious influence over the economy.
"The consumer prices rose to a decade high in part due to high
pork costs after a pig disease," the report said. "However, prices
of many other food items have risen in line with higher
international food prices. So far, the price pressures have been
confined to food."
(Shanghai Daily November 16, 2007)
