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 At its thrice-yearly review of the Chinese economy, the World Bank
warned China against carrying its "ambitious" 2014 economic growth
target of 7.5 percent into next year, saying that such a move would
detract from the government's reform plans.
After 30 years of breakneck, double-digit economic expansion that
lifted millions of Chinese from abject poverty but also polluted the
nation's air, land and waterways, China wants to retool its economy
to generate slower but better-quality growth.
But the quest to let market forces supplant state planning in
running the world's second-biggest economy would require China to
live with less frenzied economic growth rates and income rises, a
point stressed by the World Bank.
"Our policy message is the focus should be on reforms rather than
meeting specific growth targets," Karlis Smits, a senior economist
at the World Bank office in Beijing, told reporters at a media
briefing.
"In our view, an indicative target of around 7 percent for 2015
would meet ... the kind of indicative growth that is needed to
maintain stability in the labor market," he said.
The bank's message on employment would appeal to its audience in
Beijing, where Communist Party leaders who are wary of social unrest
have said that having a healthy job market is a top policy priority.
Hurt by softening domestic demand as China's property market sags
and investment growth wanes, the Chinese economy has had a rough
ride this year, even though the government and the central bank have
rolled out a series of support measures to avert an even sharper
slowdown.
The economy grew at its slowest pace since the global financial
crisis in the September quarter and is expected by analysts to miss
China's official growth target for the first time in 15 years.
The World Bank and other analysts expect the economy to expand by
7.4 percent this year, the slackest in 24 years, and a hair's
breadth from the 7.5 percent target.
And the World Bank made clear that it would not welcome a similar
growth target from China next year.
"A prevalent concern is that a policy focused on meeting an
ambitious growth target, similar to one set for 2014, would require
macroeconomic policies to remain oriented to support domestic demand
rather than on reforms," it said in a report.
The World Bank's comments echoed those of the International Monetary
Fund, which said in July that Beijing should set a growth target of
6.5-7 percent for 2015 and refrain from stimulus measures unless the
economy threatens to slow sharply from that level.
Beijing is not expected to announce its 2015 target until next
March.
MORE PROPERTY WEAKNESS
On China's slowing housing market, judged by many economists to be
the biggest risk to the economy, the World Bank predicted that
property prices could fall further in coming months due to an
over-supply of homes.
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In China's biggest cities - Beijing, Shanghai, Guangzhou and
Shenzhen - home inventory levels have more than doubled since the
start of 2013, the bank said. For every square meter of homes sold
in those cities, there are 13 square meters of unsold property.
The ratio of housing inventory to sales was even higher in smaller,
"second-tier", cities at around 17, though off a peak of about 20
seen earlier this year, the World Bank said.
"Excess inventory will depress housing prices over the next few
quarters," the bank said, adding that any policy response is
constrained by the fact that China's housing market needs to undergo
some structural adjustment that is not temporary.
Smits alluded to speculation and lack of other investment avenues
driving excess investment in certain cities in the past. However,
housing starts shifted in the first half of the year to correspond
to areas of highest population growth, indicating market forces are
taking hold.
While some analysts have argued that only by advancing reforms can
China power its future economy, the World Bank cautioned that any
growth impetus derived from reforms would not be as potent as those
in the past.
"'Second generation' reforms are likely to have a smaller impact on
growth than the 'first generation' reforms implemented over the last
few decades," the World Bank said.
A calculation made by the World Bank and the Development Research
Center - a think-tank linked to the Chinese cabinet - showed that
reforms would increase China's potential growth by about 0.8
percentage points in the first year, the bank said.
Spread over five years, reforms would raise China's growth potential
by a total of 3.5 percentage points, it said.
"Implementing such a coordinated reform plan can accelerate China’s
economic growth potential, but it will not reverse a moderation of
growth over the next decade," the bank said.
(This version of the story was refiled to fix typo in sixth
paragraph from the bottom)
(Reporting by Jake Spring; Writing by Koh Gui Qing; Editing by Kim
Coghill)
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