World Bank has grim China predictions

The World Bank has revised its growth forecast for China downward, predicting a growth rate of 4.4% for the year 2024, down from the 4.8% it expected earlier in April. The bank attributes this adjustment to the ongoing weakness in China’s property sector, which has been a cause for concern due to various challenges it has been facing. The property sector is a significant component of China’s economy.

Additionally, the World Bank has warned that not only China but also other developing economies in East Asia may experience slower growth rates, approaching levels not seen since the late 1960s, excluding exceptional events like the COVID-19 pandemic, Asian financial crisis, or global oil shocks. The bank has cut its 2024 GDP growth forecast for developing economies in East Asia and the Pacific, which includes China, from 5% to 4.5%.

The reasons cited for these concerns include external factors like a sluggish global economy, high interest rates, and trade protectionism. Manuela Ferro, Vice President of East Asia and Pacific at the World Bank, emphasised the need for reforms to maintain industrial competitiveness, diversify trading partners, and unlock the potential of the services sector to sustain growth.

President Xi Jinping acknowledged challenges in his speech on China’s National Day, mentioning that the road ahead would not be smooth. This includes challenges like the domestic economic recovery from strict COVID-19 policies and global economic uncertainties triggered by geopolitical events such as Russia’s invasion of Ukraine.

The property sector also poses significant pressure on China’s economy. The troubled Chinese real estate giant, Evergrande Group, is facing regulatory intervention, and there are concerns that it may be split up or liquidated. Given the real estate industry’s substantial contribution to China’s economy, this situation has the potential to impact the overall economic landscape.

Various financial experts and institutions have expressed concerns about China’s economic growth rate for this year and the next, with many predicting it will fall below expected targets. These concerns are driven by factors such as a deteriorating property market, weak exports, and wavering confidence in private enterprises.

Some analysts, like Ming Xia, a political science professor at the City University of New York, have criticised President Xi Jinping for not fully addressing the seriousness of the economic challenges and for not implementing measures to boost private enterprise confidence or attract foreign investors in the short term. Xia also suggests that Xi’s approach may reflect a desire to return to a more state-controlled economic model, which differs from the economic reforms and openness promoted by former Chinese leader Deng Xiaoping in the 1970s.