The World Bank gave an upbeat forecast on China''s economy on Thursday, raising its growth forecast this year to 9.3 percent from 9 percent, citing stronger-than-expected consumer spending - which it predicted would shrink China''s huge trade surplus.
It was the third time this year the World Bank has bumped up its growth projection for China, following predictions of 9 percent in August and 8.3 percent in April.
"China''s economic growth in the third quarter of 2005 has been higher than expected, at least in part due to more rapid domestic demand," the bank''s report said.
Last month, the Chinese government said the economy expanded by 9.4 percent in the first nine months of 2005 compared to the same period last year.
China''s blistering growth will likely continue next year, the bank projected, raising its growth forecast for 2006 to 8.7 percent, up nearly a full percentage point from its earlier target of 7.9 percent.
The bank said inflation should stay low, though it gave no target. China reported last month that consumer prices rose 2 percent during the first nine months of the year, down from 4.1 percent during the same period a year ago.
Increased spending by Chinese consumers should help rein in China''s politically volatile current account surplus - the broadest measure of trade that includes merchandise and investment flows, the bank said, without giving specific figures.
The government said this week that China''s current account surplus totaled $67 billion in the first half of this year, up nine times from the $7.5 billion reported in the same period of 2004.
Surging Chinese exports have inflated the U.S.-China trade gap, which hit a record $162 billion last year, sparking criticism in Washington, with some politicians blaming the gap on an undervalued yuan, the Chinese currency.
The Bush administration, however, has taken a broader approach toward China on economic matters recently, rather than focusing on exchange rates.
During a trip to China last month, U.S. Treasury Secretary John Snow urged Beijing to implement financial reforms aimed at improving investment opportunities and boosting consumer spending as ways to reduce China''s trade surplus.
In its report, the 184-nation World Bank, whose stated mission is to fight poverty and promote economic development, echoed Chinese government warnings against allowing faster growth in credit.
Chinese leaders say excessive investment in unneeded factories, shopping malls and other assets could fuel inflation or cause financial problems for banks if borrowers default.
The government has tried, so far with only limited success, to rein in investment by tightening lending standards and ordering local authorities to block unneeded building projects.
"Indeed, investment is likely to continue to grow faster than consumption into 2006, and new policy measures may be required to dampen investment," the report said.
http://www.forbes.com/technology/feeds/ap/2005/11/03/ap2315264.html
