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World Bank says China Can Absorb Impact of Global Economic Slowdown


Economists at the World Bank say China is well-placed to absorb the impact of a possible global economic slowdown stemming from the U.S. sub-prime lending crisis. VOA's Heda Bayron reports from Beijing.

The World Bank's senior economist in China, Louis Kuijs, says China's economic prospects remain bright, even though much of the rest of the world is bracing for the effects of the home loan crisis in the United States.

The crisis, triggered by defaults on cheap or "sub-prime" home loans, has sparked worries of tightening credit and a slowdown in consumption in the U.S. - China's biggest export market.

But Kuijs says this slowdown may actually benefit China.

"That is because, at the moment, the main concerns of the authorities are that growth is a bit on the high side, inflation is on the high side, and the trade surplus is on the high side," he said. "A slowdown in the world economy that is not too drastic and not too severe would actually help mitigate those concerns."

Chinese authorities have had little success trying to reign in soaring growth. The economy expanded 11.5 percent in the first half of the year, driven by massive exports.

This means China's trade surplus with the rest of the world continues to widen, jumping 33 percent in August from last year. At the same time, consumer prices are at their highest in more than a decade.

A global slowdown could help address these problems. In addition, Bert Hofman, the World Bank's lead economist here, says China's raging growth could help the global economy deal better with a slowdown.

"If the world economy will do much worse… there may even be a scenario where the international community would look at China to stimulate world demand," he said.

For instance, China - with its trillions of dollars in foreign exchange reserves - could buy more foreign goods and invest overseas.

But economists stress that balancing the trade gap for the long term will mean foreign exchange reform. The United States has repeatedly urged China to adopt a market-driven exchange rate so that the undervalued yuan no longer gives Chinese producers unfair price advantage over U.S. manufacturers.

While the yuan has strengthened some nine percent since it was removed from a U.S. dollar peg in 2005, Western governments say that is not enough.

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