World Bank pares growth forecasts for China, East Asia

The World Bank today pared its 2013 and 2014 economic growth forecasts for China and much of developing East Asia, citing slower growth in the world's most populous nation and weaker commodity prices that hurt exports and investments in countries such as Indonesia.

"Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand," the World Bank said in its latest East Asia Pacific Economic Update report.

"Growth in larger middle-income countries including Indonesia, Malaysia, and Thailand is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports," it added.

According to the Washington-based development bank, developing East Asia would expand 7.1 per cent this year and 7.2 per cent in 2014, lower from its April estimate of 7.8 per cent and 7.6 per cent, respectively.

The World Bank said that China's massive, investment-heavy stimulus programme supported by credit expansion had run its course, and policymakers needed to focus on containing the expanding credit growth and tightening financial supervision.

Local government debt, it added, was a concern, given the complexity and opacity of municipal finances, adding they needed to be reformed "with clear rules on borrowing, on allowed sources of borrowing, on debt resolution, and on the disclosure of comprehensive financial accounts by local governments".

China's slowdown came as a reflection of the government's efforts to shift from an export-oriented economy to one that focused on domestic demand.

The growth in larger middle income countries, including Indonesia, Malaysia, and Thailand, was also softening in the backdrop of lower investment, lower global commodity prices and lower-than-expected growth of exports, according to the bank.

The lender said, risks remained related to the restructuring of the Chinese economy.

According to the bank, a bigger-than-expected slowdown in investment could have an adverse effect on the region, especially on suppliers of capital goods and industrial raw materials to China.

"As the recovery picks up in the US, Japan and the Eurozone, with growth accelerating in the second quarter of 2013, developing countries in East Asia stand to benefit because of their high trade shares in the economy," the report said.