China economy: World Bank bullish

China's economy is projected to grow 9.5 percent on an annual basis this year, the World Bank said yesterday, in a huge vote of confidence for the nation's fiscal policies.

It expects a shift in composition from government-led investment to a mixture of solid consumption, recovered exports and stable private spending.

The Washington-based bank upgraded the forecast from the 9 percent it predicted in January.

"Despite the global recession, China's economy grew 8.7 percent in 2009, and the growth momentum continued in the first months of 2010," said the World Bank's latest China Quarterly Update.

"The massive investment-led stimulus was the key in driving the economy last year.

"But real estate investment gained prominence more recently and household consumption growth has held up very well."

These factors laid the grounds for the bank to give the optimistic 9.5-percent prediction, well above the Chinese central government's target of 8 percent and the United Nations' prediction of 8.8 percent.

Ardo Hansson, the bank's lead economist for China, said government-led investment was bound to slow down this year.

"But exports are likely to continue to recover amidst a pick-up in the global economy, real estate activity is likely to grow strongly this year and consumption should remain solid," Hansson said.

China overtook Germany as the world's largest exporter last year.

In the first two months of 2010, China's overseas shipments jumped 31.4 percent year on year to US$204 billion, while imports surged 63.6 percent to US$182.3 billion, reflecting a strong rebound in global demand for Chinese goods.

The risk of inflation that has triggered concern among analysts recently due to fast-accelerating consumer and producer prices, is not a big threat in the view of the bank.

It said the consumer price index, a major gauge of inflation, was on course to be "significant" in 2010 after being negative last year.

However, with global price pressures likely to subdue, China's inflation was unlikely to reach high rates in 2010.

The bank suggested China's macroeconomic policy stance would have to be tighter this year. "Given the remaining uncertainty about the world economy, it is important to keep policies flexible," it said.

"Inflationary expectations can be contained by a tighter monetary stance and a stronger exchange rate, while monetary policy also has a key role to play in containing the risks of asset price inflation."

The bank also noted that ensuring economic and financial stability included minimizing the risks of a property bubble and avoiding strains on local government finances.

"With regard to the property market, stability calls for an appropriate macro stance and improving the functioning of markets," it said.

"Concerns about affordability of housing for lower-income people would be best addressed by a long-term government support framework," the bank said.

When the annual parliamentary session of the National People's Congress closed on Sunday, Premier Wen Jiabao said China would make more efforts to keep economic policies flexible while closely watching domestic and global changes.

Wen said the government would "properly handle the balancing act between maintaining economic growth, adjusting the economic development model and managing inflationary expectations this year."