World Bank Chief Robert Zoellick has asked the Chinese government to hasten planned structural reforms to shift the focus of its export-driven economy toward domestic consumption-led growth as the global economy entered a “new danger zone” this autumn.
“The bigger challenge for China in the autumn is if events (in the global economy) lead to a deeper downturn that affects demand for China’s exports,” Zoellick, currently touring China, was quoted by state-run China Daily as saying.
“China needs to be thinking about the structural basis for future growth. The world economy is entering a new danger zone this autumn. China’s structural challenges occur in the current international context of slowing growth and weakening confidence,” he told a conference here.
He said global economic indicators make for a bleak reading. A monthly report by the European Commission showed that business and consumer confidence in the euro zone for August slid to its lowest level since May, 2010.
A report by the White House also predicted that US GDP growth will remain between 1.7 per cent and 2.1 per cent in 2011.
Earlier predictions had put it at 2.7 per cent.
More From This Section
The report also said that the unemployment rate would stand at 8.8 per cent to 9.1 per cent this year in the US.
Zoellick started a five-day visit on September 1, his fifth since he assumed office in July, 2007.
The main reason for the visit is to discuss key medium-term challenges with government officials. Given the gloomy prospects for developed economies, many economists lowered the expectations for China’s growth this year.
UBS, a global financial services firm, reduced its 2011 forecast for China’s GDP growth to nine per cent from 9.3 per cent and from nine per cent to 8.3 per cent in 2012.
It said that the expected drop in developing market growth will hurt China’s exports and related investment.
“I think it’s a good sign that the 12th Five-Year Plan (2011-2015) has recognised the need to shift the nation’s growth model,” Zoellick said.
But he said the challenge facing China is daunting.
“Because if you’ve grown successfully, which China has, it’s very tempting for officials and businesses to say, ‘Let us just keep doing what we’ve been doing’.”
“As China is committed to increasing domestic consumption, import growth is expected to outpace exports for the rest of the year,” a recent report by UBS said.
Statistics from China’s Federation of Logistics and Purchasing showed that the country’s purchasing managers’ index gained 0.2 points in August to 50.9.
This reversed a four-month decline and, according to economists, indicated a soft landing for the economy, the daily said.
The World Bank and the Development Research Centre of the State Council are working together on identifying and analysing China’s medium-term development challenges by 2030, with the report due to come out at the end of this year, the daily said.
In this regard, the World Bank has pointed out that China is well-positioned to join the ranks of the world’s high-income countries.
“The challenge was the so-called mid-income trap, which is when countries reach levels of income of about $3,000 to $6,000 per capita, their productivity rate tends to slow, their growth rate tends to slow,” Zoellick said.
In an article released last Thursday, Premier Wen Jiabao said reining in soaring consumer prices was China’s top priority, as it has been for most of this year, and that China’s "macro-control and adjustment direction cannot be changed”.
The consumer price index, a major gauge of inflation, hit a three-year high of 6.5 per cent in July on higher pork prices.
The UBS report predicted it would be moderate in August and fall further in the autumn.
“Premier Wen mentioned it is a primary concern, I think it can be dealt with,” Zoellick said.
When you have inflation there are different tools. One is if China appreciated its currency more, that would make foreign goods cheaper in China. Another is the expansion of credit. A third dimension is to remove supply barriers," he said. There are growing concerns over grain production as the rate of urbanisation intensifies. Chinese Vice Premier Hui Liangyu on Sunday called for favorable policies on grain and agricultural production to stabilise prices. Zoellick disagreed that growing urbanisation, in itself, harms food production. "The challenge is to have smart urbanisation," he said. "China is moving with technology so that each farmer can be more productive. China can boost output without necessarily using more land," he said.