World Bank tells China to increase its spending

Business Asia, July 5, 1999

China must boost consumer spending and domestic demand while restructuring its financial system and state-owned assets to ensure sustained economic growth, a World Bank report has found.

The recent World Bank economic assessment said China's economy could grow as much as 7 per cent this year if consumers begin spending again in response to a government stimulus program.

If the government actions do not help, more spending may be needed, the report said.

"Lower growth, the greater risk in China at this time, could cripple job creation and exacerbate financial problems embedded in the corporate sector," it said.

"Increasing household demand is essential to growth recovery and to successfully transforming China into a demand-driven economy."

For the past year, China has been trying to channel extra investment funds through state-owned companies to prevent the economy from slowing.

China's economy expanded 7.8 per cent last year, the slowest level since 1990.

Investment and consumption indicators showed slowing growth rates in May as government efforts to spur business activity had a diminishing impact.

Retail sales, the main indicator of consumption in the economy, increased 5.3 per cent in May compared to a year ago, but was down from April's increase.