'E. Asia will lead global growth'

Updated: 2013-10-08 10:26

By Chen Weihua in Washington (China Daily)

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 'E. Asia will lead global growth'

Chinese President Xi Jinping joins APEC leaders to say "happy birthday" to Russian President Vladimir Putin on the Indonesian resort island of Bali on Monday, with Indonesian President Susilo Bambang Yudhoyono playing Happy Birthday to You on a guitar. Abror Rizki / Agence France-Presse

As leaders of the 21 Asia-Pacific Economic Cooperation (APEC) economies meet in Bali, Indonesia to look for ways towards sustained economic growth, a World Bank report on Monday down-graded the growth prospects for East Asia, even though it said the region would continue to lead global growth.

East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand, the report said. It also pointed to a softening growth in large middle-income nations such as Indonesia, Malaysia and Thailand due to lower investment, lower global commodity prices and lower-than-expected growth in exports.

The bank forecasts the growth for developing countries in the region to be 7.1 percent in 2013 and 7.2 percent in 2014, both slightly downward from its projections made in April. This growth rate, however, still leads other regions.

"East Asia Pacific continues to be the engine driving the global economy, contributing 40 percent of the world's GDP growth, more than any other region," said World Bank East Asia and Pacific Regional Vice-President Axel van Trotsenburg.

"With overall global growth accelerating, now is the time for developing economies to make structural and policy reforms to sustain growth, reduce poverty and improve the lives of the poor and vulnerable," he said.

The World Bank said growth in China is expected to meet the official indicative target of 7.5 percent this year, citing an improving short-term outlook as industrial production data point to further strengthening of output in the third quarter of this year.

The report puts China's growth in 2014 at 7.7 percent, but warned that risks remain related to its economic restructuring. "A greater-than-expected slowdown of investment could have an adverse effect on the region, especially on suppliers of capital goods and industrial raw materials to China," it said.

Excluding China, the region is expected to grow at 5.2 percent in 2013 and 5.3 percent in 2014, according to the report.

The bank said in the long run, as higher global interest rates are likely to affect investment, accelerating growth and poverty reduction depends critically on advancing structural reforms.

"Structural reforms that will give people the opportunity to share in the gains of progress hold the key to future growth," said the bank's East Asia and Pacific chief economist Bert Hofman.

On the same day of the release of the World Bank report, a study by several Brookings Institution researchers and the Financial Times, using their so-called Tracking Indexes for the Global Economic Recovery (TIGER), showed that China's growth is beginning to look more secure, and cited indicators from industrial production to imports and exports that show renewed strength.

Eswar Prasad, a senior fellow at the Brookings who led the study, attributed the renewed strength to the fact that China has enough policy space to deal with short-term economic shocks and sufficient momentum to maintain growth in the 7-to-8 percent range for the next few years.

"The biggest question is whether that growth is balanced and sustainable, not just from the economic perspective, but also from the perspectives of social stability and the environment," Prasad, a former International Monetary Fund chief in China, told China Daily on Monday.

Prasad believes it's important for political leaders to refocus on fundamental reforms that are much needed when their economies have obtained some breathing room.

"The major priority is for China to reform its financial markets so they allocate capital more efficiently and allow the economy to maintain a high rate of productivity growth, which will become increasingly important as labor force growth slows down," he said.

IMF Managing Director Christine Lagarde said last Thursday that China needs to keep moving to a growth path based less on credit and more on higher productivity, higher incomes and higher consumption.

"That means liberalizing interest rates, that means ramping up financial sector oversight, opening up protected sectors to private initiatives, and further strengthening the social safety net," Lagarde said ahead of the IMF/World Bank annual meeting in Washington on Oct 11-13.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics and an expert on the Chinese economy, also expressed confidence that the Chinese economy will continue to grow in the 7-to-8 percent range for a number of years and not slide to 3-to-4 percent as some have suggested.

But he also pointed to the urgent need for economic rebalancing towards more domestic consumption and less investment.

Lardy believes interest rate liberalization - a fiscal policy that taxes more State-owned enterprises and substantially increases government spending on the social safety net - should be at the top of the agenda for Chinese leaders, who are meeting in November for the third plenary of the 18th Party Congress to roll out an economic reform agenda.

On Monday, Chinese President Xi Jinping told leaders of the APEC economies that the key to long-term development lies in reform and innovation. He emphasized a changing economic development model, restructuring the economy, pushing forward reform and innovation, releasing the potential of domestic consumption and injecting vitality into the market.

Chinese leaders have decided to accept a relatively slower economic growth in order to achieve economic restructuring and move up the global value chain.

In a meeting with APEC business leaders on Monday, Xi expressed his confidence in a healthy and sustained growth of China's economy and dismissed concerns of a hard landing.


(China Daily USA 10/08/2013 page1)