Bank cuts China growth forecast

The revised forecast would see China’s economic growth at its slowest pace since 1990, as demand for exports weakens in the first half of 2009.

So far China has been relatively unaffected by the global crisis because its banks are healthy and exports have remained strong, but Louis Kuijis, a World Bank economist, said that impact would “intensify” in 2009.

Turmoil

China has become known as the world’s factory in recent years [GALLO/GETTY]

Conditions should improve later in the coming year, but any firm forecast was difficult amid the global turmoil, he said.

“We are seeing a weak external sector, we’re seeing a rather weak private sector demand in general, but we are seeing a government that steps in and that is trying to do everything it can to keep growth at a decent rate,” he said.

The bank’s forecast figure also falls below the key 8 per cent level that conventional wisdom suggests is needed to absorb newcomers to the workforce.

But David Dollar, the World Bank’s country director for China, said that at the forecast rate of growth, he expected China would continue to create enough jobs and the labour market would remain “pretty tight”.

Stimulus

Dollar said that a $586bn economic stimulus package announced earlier this month should help to shield China from the global downturn by buoying growth and employment.

The stimulus plan calls for injecting money into the economy through spending on construction, tax cuts and aid to the poor and farmers.

“We are confident that China has the tools to keep its growth rate at a healthy level and most importantly to create about the number of jobs it needs,” Dollar said.

The Chinese government announced the stimulus after growth slowed to 9 per cent in the latest quarter from 11.9 per cent last year.

The unexpectedly sharp downturn set alarm bells ringing for China’s leaders who worry that excessive and unchecked job losses could trigger possible unrest.