News / Asia

World Bank Raises China Growth Forecasts, Urges Rate Hikes

In this 13 Oct 2010 photo, a worker installs a new layer on an advertisement board showing skyscrapers in Beijing's Central Business District, China
In this 13 Oct 2010 photo, a worker installs a new layer on an advertisement board showing skyscrapers in Beijing's Central Business District, China

The World Bank has raised its growth forecasts for the Chinese economy.  The bank warns of risks from the surging property market and bank lending.

In its quarterly update, the World Bank says the Chinese economy will grow 10 percent this year, up from an earlier forecast of 9.5 percent.  The bank says this is due to strong Chinese exports.

Chinese authorities have been trying to shift the economy's focus away from exports, and increasingly toward domestic consumption.

But Ardo Hansson, the World Bank's chief economist for China, notes that consumption has weakened this year.

"In contrast, we see the export sector, the foreign sector, contributing much more to growth this year than last year partly because the world economy is in so more better shape and because China's domestic economy is slowing a little bit," said Hansson.

Last year's strong domestic consumption was aided by government subsidies to people to buy durable goods such as refrigerators and television sets.  That was part of Beijing's $600 billion stimulus program after the global financial crisis in 2008.

Next year, the World Bank says China's economy will slow down to 8.7 percent because of the risk of slowing growth in high-income countries that buy Chinese products, and because of rising prices.  But that figure is still higher than its earlier forecast of 8.5 percent.

Hansson also warns of other potential stumbling blocks for growth.

"Domestically, we see the risks coming through the property market and some of the financial risks of the local governments and the possible spill over into the non-performing loans in the banks," he said.

Property prices in China have risen sharply in the past few years, making it difficult for many people to buy homes.  In addition, there are concerns that too many new buildings are being constructed, which could create a glut that weighs down the market.

China's banking authorities have curbed new loans after last year's record $1.4 trillion lending, of which an estimated 40 percent went to local government investment vehicles.  Inflation in China is rising, but the World Bank says it is unlikely to escalate.

But the World Bank says China needs to lift interest rates further as it faces a strong inflow of international capital, which could add to inflation. The central bank raised interest rates last month, for the first time in nearly three years.  

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