China is Set to Deal With World Economic Slowdown

A slowdown would even help China rebalance its economy, World Bank says.

China is well placed to deal with a slowdown in the world economy and its conservative investment strategy has helped limit the impact of the U.S. subprime crisis, the World Bank said Sept. 12. Strong fiscal and trade positions will allow China the room to adjust its policies and respond to a slowdown in the world economy despite an unavoidable weakening in Chinese exports, the World Bank said in its latest quarterly update on China's economy.

"China has a very strong macroeconomic position when you think about fiscal position, external position," senior China economist Louis Kuijs said. "That means that China would have the room to adjust macroeconomic policies if there is a slowdown in the world economy." He said a moderate slowdown could even help China rebalance its economy, which roared ahead at a breakneck 11.9% in the second quarter, with a surging trade surplus and high inflation two of the major concerns for Beijing.

It is also unlikely that China will suffer too much pain from the troubled U.S. subprime mortgage market, where massive defaults have triggered a wider credit market crisis and roiled global financial markets, the bank said. "The (impact) on China from a credit tightening which we have seen in some of the other emerging markets (is) all fairly limited," said Bert Hofman, the World Bank's lead economist for China. That is because China's rather conservative investment strategy has prevented major capital outflow, he added, noting that the central bank has denied any subprime exposure in the $1.3 trillion foreign exchange reserves.

The World Bank forecast that China's economy would grow by 11.3% for all of 2007.

Copyright Agence France-Presse, 2007

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