World Bank raises China growth forecast

Multilateral creditor says greater policy detail is needed to reinforce the confidence of families and companies

The World Bank raised its short-term economic forecasts for China, while repeating calls for President Xi Jinping to pursue deep reforms to address low confidence and structural problems in the world’s second-largest economy.

The multilateral lender said on Thursday it had revised its forecast for China’s GDP growth next year by 0.4 percentage points to 4.5%, reflecting a series of policy easing measures announced by Beijing over the past three years. months, as well as the strength of the country’s exports.

The World Bank also raised its full-year forecast by 0.1 percentage point to 4.9%, just below Beijing’s 2024 growth target of around 5 percent. The economy recorded growth of 4.8% in the first nine months of the year.

The lender also noted recent pledges by Xi’s economic planners to improve social welfare and consumption support and implement reforms to fiscal and taxation systems. But he said greater details were needed to reinforce the confidence of families and businesses.

“Conventional stimulus measures will not be enough to reinvigorate growth,” the World Bank said, reiterating its calls for deeper reforms to China’s education, healthcare, social welfare and pension protections, and household registration system. hukou.

China’s economic growth has slowed this year due to weak domestic demand and deep deflationary pressures, following a three-year slump in the property market that hit household wealth.

Xi had refocused economic focus on investment in manufacturing and high-tech industry, but there is growing concern that exports, which have helped sustain growth, will face a new threat of tariffs under Donald Trump, who will return as US president in next month.

The World Bank also released a new analysis of economic mobility in China for the period 2010 to 2021, which showed that more than half a billion people were potentially at risk of falling out of the middle class just a generation after rising out of poverty, according to their definitions.

The bank credited Beijing with the “dramatic success” of lifting 800 million people out of poverty over the past 40 years, and noted that during the period the low-income share of the population fell sharply, from 62.3% to 17%.

But it also found that 38.2% of China’s 1.4 billion people were in the “vulnerable middle class,” above its defined low-income threshold but not “free from the risk of falling below it.” The low-income level was defined as up to $6.85 per day using 2017 purchasing power parity calculations.

“No other region in the world has witnessed a faster increase in the share of the secure middle-class population than China,” the World Bank said. “However, a considerable majority of the population is still not economically secure.”

This vulnerable segment of the population was larger than the 32.1% considered “safe” in the middle class and the 17% who remain on low income in 2021, amid the Covid pandemic.

Bert Hofman, former country director for China at the Beijing-based World Bank and now at the National University of Singapore, wrote earlier this month that the Chinese economy’s lackluster performance post-Covid exposed accumulated weaknesses since the last major overhaul of the system. tax in 1994.

However, he noted some “hopeful signs” that reforms were underway, following statements from policymakers in the second half of 2024 that pointed to improving income distribution and social security.

“Fiscal reforms are now clearly linked to the Chinese Communist Party’s core objective of ‘high-quality growth,’ and the leadership recognizes that the reforms must result in a fiscal system that can provide efficiency, equity, and stability,” Hofman wrote in a forecast for 2025 for the Asia Society.

“A key question is whether reforms will go far enough to transform fiscal policy into a powerful tool for resource allocation, economic stability and income distribution.”

With information from the Financial Times*