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World Bank Cuts China's Growth Estimate


The World Bank estimates China's gross domestic product for 2009 will be 6.5 percent, falling short of China's own prediction of 8 percent growth for the year. Still, the World Bank says China's economy is holding up relatively well and it sees plenty of room for the government to implement effective stimulus measures.

In a report released Tuesday in Beijing, the bank says the estimate is significantly lower than potential growth.

This comes as Chinese exports continued to decrease by 25 percent in February. And, the economic forecast for this year is generally somber.

The World Bank predicts a 1.5 percent drop in global gross domestic product for 2009.

World Bank officials were positive about the fundamentals of China's economy and the effect of the Communist Party's $585 billion stimulus package. Louis Kuijs, the principle author of the World Bank's quarterly update, says available data indicates the government stimulus package is working.

"It's leading to increased financial flows. It's leading to increased activity," said Kuijs. "And, it's leading to confidence effects, sentiments that are all combined giving support for China's economy in this year ahead."

The World Bank estimates 75 percent of China's growth this year will come from government-influenced spending.

Last week, Chinese Premier Wen Jiabao called on China to do whatever is necessary to meet the government's eight percent growth target. But the World Bank's Kuijs says, instead of focusing solely on GDP expansion, China could work on strengthening the social safety net, improving its service sector and growing domestic consumption.

"It may be just as appropriate to shift the focus, as much as possible, to medium and long-term objectives and challenges, instead of a very narrow focus on short-term growth objectives," added Kuijs.

So far, most predictions by private-sector economists put China's 2009 GDP growth in the five to eight percent range. This would mean China will continue to grow in a year where many other countries will not, but it is a sharp decline from the country's 13 percent expansion in 2007.

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