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World Bank lowers China GDP forecast

By Zhao Qian (Global Times)

08:36, May 25, 2012

The World Bank Wednesday cut its GDP growth forecast for the country in 2012 to 8.2 percent, and urged the government to adjust monetary policies, including easing liquidity, to propel growth.

Analysts who made similar predictions said a soft landing of the country's economy could be achieved, but suggested divergent measures to sustain stable growth.

Slow growth in the eurozone and a sluggish US recovery limited the country's net exports, and tighter monetary policies aimed at containing inflation also dampened growth in its investment, the World Bank said in a report, cutting down its growth forecast from its previous prediction of 8.4 percent made in January.

"China's near-term policy challenge is to sustain growth through a soft landing. Reserve requirements could be tweaked further to ease the availability of credit, and ongoing administrative efforts, which had been helpful in cooling the property market, would preferably be phased out," the report said.

Wang Jun, a deputy director of the Consulting Research Department at the China Center for International Economic Exchanges, a government think tank, told the Global Times that in the near term, domestic liquidity is sufficient following the recent reserve requirement ratio cut by the central bank.

"Domestic credit demand is relatively weak so far, but releasing more liquidity in the future is necessary," Wang said.

The People's Bank of China lowered the reserve requirement ratio by 50 basis points on May 18, the third cut since November 2011. After the cut, it was estimated that 500 billion yuan ($79 billion) would be released to pump up bank lending, which would be an important step to stimulate the economy.

Regarding the World Bank's suggestion of easing restrictions on the property market, Wang cautioned that the cancellation of current administrative efforts could lead to a dramatic rebound in home prices.

There are few signs to show that home prices have seen an obvious decline. In April, 43 out of the 70 major cities tracked by the National Bureau of Statistics witnessed slight property-price drops, but 24 cities still remained unchanged.

Lu Zhengwei, chief economist with the Shanghai-based Industrial Bank, told the Global Times that a slight adjustment to property macro-controls is acceptable, but "a sudden brake may cause serious problems."

"In the next 10 years, most East Asian countries, including China, need to prevent a rapid climb in property prices to avoid a bubble," Lu said.

Meanwhile, both analysts predicted China's economic growth rate would be similar to the World Bank's figure, mainly attributing it to sluggish exports.

Lu said a further depreciation of the yuan would be a possible way to stimulate China's exports.

"The yuan is over-valued currently, which directly leads to a decline in exports," Lu said, citing proof that the imports to the US and Japan from other countries increased recently, but that imports from China had dropped.

Both the experts and the World Bank considered fiscal measures, including targeted tax cuts, social welfare spending and other social expenditures, are necessary to let the country's economy enter a soft landing.

China set its GDP growth target at 7.5 percent this year, down from the 8 percent goal in 2011.

"The government lowering its growth target showed its resolution in shifting the focus from economic growth rate to development quality," Wang said.

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