By John Sexton

China's export sector has been hit hard by the global crisis, but the economy as a whole is holding up well, according to the World Bank's latest China Quarterly Update.

The Bank revised its prediction for China's 2009 GDP growth down to 6.5 percent, one and a half percentage points lower than the government's target, but still an exceptional figure in difficult times.

"China is a relative bright spot in an otherwise gloomy global economy," said the World Bank's country director for China, David Dollar.

One of the main strengths of China's economy, according to the update, is that the country's state owned banking sector has been largely unscathed by the international financial turmoil. Another is the ability and willingness of the government to undertake large scale stimulus measures.

The update warns, however, that 6.5 percent growth will leave significant spare capacity which will be expressed in a slower rate of job creation, lower investment by the private sector, and downward pressure on prices.

But with its solid macroeconomic fundamentals, China will continue to outperform nearly all other countries, the report says. Stimulus policies are providing support for activity, and the banks with their strong balance sheets are keen to lend to businesses.

The report sees private consumption continuing to grow significantly, and government-directed investment accelerating, both contributing to a healthy level of domestic demand.

Mr. Dollar said the subdued prospects for the global economy highlighted the importance of boosting domestic demand and domestic consumption in China. He welcomed recent initiatives to stimulate consumption and improve people's livelihoods by expanding the government's role and spending on health, education, and social protection measures.

(China.org.cn March 18, 2009)