The World Bank issued its quarterly update on the Chinese economy. The organization said that because the world’s most populous nation had GDP growth of 8.7% during the worst of the recession, the People’s Republic was likely to show an increase of 9.5% this year. That World Bank’s last forecast was for 9%. growth.
“We project 9.5 percent GDP growth for this year, with a shift in the composition,” said Ardo Hansson, Lead Economist for China at the World Bank. “Government-led investment is bound to decelerate. 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.”
But, the World Bank’s comments on inflation were barely a foot note to the report. The organization thinks inflation will be relative tame because of factory overcapacity.
The report puts little emphasis on the real estate and equity bubbles that have formed on the mainland. These are likely the result of the huge amount of liquidity that China put into its markets with a $585 billion stimulus package in 2009. The problem is that, even as the nation’s banks tighten lending rules at the behest of the central government, the cash that is already in the system cannot be taken back out again.
China, awash in capital, will have healthy growth this year, but capital availability may be the country’s undoing.
Douglas A. McIntyre
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