Washington: Accustomed to a sustained high growth rate for over 30 years, a major challenge faced by China is to learn to live with a growth rate of around 7 percent, the World Bank has said on the world's second largest economy.
"China's challenge is learning to live with a growth rate of around 7 percent. 7 percent growth for a country that has grown so well over a 30-year period is actually very good performance," Kaushik Basu, World Bank Chief Economist and Senior Vice President, told reporters here yesterday.
He was speaking during a programme in which the bank released the latest issue "Global Outlook: Disappointments, Divergences, and Expectations Global Economic Prospects," which said that China is undergoing a carefully managed slowdown.
"China is still growing at a robust pace but continues on a path of gradual deceleration," said the report, which has estimated a Chinese growth rate of 7.4 percent and forecasted 7.1 percent in 2015, which drops further to 7 percent in 2016 and 6.9 percent in 2017.
"In 2012 and 2013, China maintained a growth rate of 7.7 percent. China's other challenge comes from the fact that it is on the threshold of a structural change and it faces a little bit of what can be called a middle-income country hurdle when ones structure is changing from a huge amount of investment".
"It has to orient itself to a greater consumption economy, from mass production of goods at very cheap labour, it has to move on to the higher end of the production spectrum," Basu said in response to a question.
"So, these are the challenges that China has to face now. But frankly, China has so many strengths in its economy and with a little bit of determination the policymakers should be able to navigate these challenges and? a comfortable seven percent growth which is actually just very good for China, very good for the world," he said.
"I don't know how you can grow much faster than 7 percent in today's world, but China has done it in the past, and we could try to create some help and advice and get that also growing faster," he added.
Director of Development Prospects at the World Bank Ayhan Kose said that growth has been slowing in an orderly fashion in China.
"Authorities announced their comprehensive reform program, and they have been able to undertake measures to calibrate the growth to meet their growth target". He said.
"Authorities have already announced measures and they set up pilot programs to execute those measures," he added.
The report noted that although a low-probability risk given significant policy buffers, the slowdown in China could turn into a disorderly unwinding of financial vulnerabilities with considerable implications for the global economy.
According to the Bank, China has adopted measures aimed at containing financial vulnerabilities and unwinding excess capacity (including in construction, shipping, and renewable energy sectors) and at the same time, stemming a slowdown.
Actions to rein in credit growth have slowed the real estate market and investment while dampening growth, especially in early 2014. To reach its growth target, the government subsequently implemented a series of targeted stimulus measures, the Bank said.
These included support for new public infrastructure and housing projects, tax relief to small and medium-sized enterprises, and targeted cuts in the banks? required reserves, it added.
In addition, benchmark deposit and lending rates were cut in November 2014 for the first time since 2012. As the authorities have balanced the competing goals of reducing vulnerabilities with supporting growth, the medium-term growth outlook has been revised down wards.
"For 2015, soft oil prices are expected to boost activity and reduce the need for additional policy stimulus. Growth is expected to slow below seven percent by 2017 from 7.4 percent in 2014, broadly in line with the objectives of the current five-year plan," the bank said.
"Reflecting excess capacity, weakening domestic demand, and reduced import costs, inflation is expected to remain below the central bank's indicative ceiling of 3 percent," it added.
