The World Bank cut its forecast for China's 2008 economic growth to 9.6 percent in a report released on Monday, 1.2 percentage points lower than an earlier estimate of 10.8 percent.

In the newly-released China Quarterly Update, the World Bank said China's economic growth has begun to inch down from its record high in 2007, as external demand slowed in the fourth quarter.

China's economy expanded by 11.4 percent in the whole of 2007, compared with 11.5 percent in the first three quarters. The annual growth rate, the highest in 13 years, recorded the fifth year of double digit growth.

"The slowdown in the global economy should affect China's exports and investment in the tradable sector," David Dollar, Country Director for China, said in a statement.

"However, the momentum of domestic demand should remain robust and a modest global slowdown could contribute to the rebalancing of the economy," Dollar said.

"If the global slowdown will be more pronounced, China is in a strong macroeconomic position to stimulate demand by easing fiscal policy or credit controls," the bank said in the statement.

China needs to introduce macroeconomic policy to address the challenges of inflation and persistent external surpluses, noted the Quarterly.

Inflation, which is expected to ease in 2008, is not likely to decline to low levels with the risks, including from international food prices and wage cost pressures, it said.

China's consumer price index, the main gauge of inflation, jumped by the 11-year-high of 4.8 percent in 2007, primarily driven by huge rises in food prices.

"The inflation concerns call for relatively tight monetary policy," said Louis Kuijs, Senior Economist and main author of the Quarterly.

The Quarterly, however, noted the Chinese government has limited room for interest rate rises amid concerns over more overseas capital inflows. It added China's monetary policy will continue to rely on credit controls and liquidity management to curb huge global surplus.

"Continuing to appreciate the RMB against the U.S. dollar will help dampen inflation pressures and reduce the current account surplus," it said.

The bank also suggested the government replace some price controls with direct subsidies to target needy groups, as the detrimental effects the administrative measures generate are likely to outweigh the benefits.
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(Xinhua News Agency February 5, 2008)