Structural Challenges Loom Ahead

World Bank President Robert Zoellick, accompanied by Deputy Finance Minister Li Yong, examines the rice crop on Sunday at a farm in Jiamusi, Heilongjiang province. [China Daily]

The global economy is entering "a danger zone" this autumn and China should hasten the transformation of its economy from being export driven to consumption-led, Robert Zoellick, president of the World Bank, said.

But this is not an easy task, he warned.

"The bigger challenge for China in the autumn is if events (in the global economy) lead to a deeper downturn that affects demand for China's exports," Zoellick said during a visit to Heilongjiang Province on Sunday.

"China needs to be thinking about the structural basis for future growth."

Global economic indicators make for bleak reading. A monthly report by the European Commission showed that business and consumer confidence in the euro zone for August slid to its lowest level since May 2010.

A report by the White House also predicted that US GDP growth will remain between 1.7 percent and 2.1 percent in 2011. Earlier predictions had put it at 2.7 percent. The report also said that the unemployment rate would stand at 8.8 percent to 9.1 percent this year.

"The world economy is entering a new danger zone this autumn," Zoellick said at a conference on Saturday in Beijing. "China's structural challenges occur in the current international context of slowing growth and weakening confidence."

Zoellick started a five-day visit on Sept 1, his fifth since he assumed office in July 2007. The main reason for the visit is to discuss key medium-term challenges with government officials.

Given the gloomy prospects for developed economies, many economists lowered expectations for China's growth this year.

UBS, a global financial services firm, reduced its 2011 forecast for China's GDP growth to 9 percent from 9.3 per cent, and from 9 percent to 8.3 percent in 2012. It said that the expected drop in developing market growth will hurt China's exports and related investment".

"I think it's a good sign that the 12th Five-Year Plan (2011-2015) has recognized the need to shift the nation's growth model," Zoellick said.

But he said that the challenge facing China is daunting. "Because if you've grown successfully, which China has, it's very tempting for officials and businesses to say, 'let's just keep doing what we've been doing'."

As China is committed to increasing domestic consumption, import growth is expected to outpace exports for the rest of the year, a recent report by UBS said.

Statistics from China's Federation of Logistics and Purchasing showed that the country's purchasing managers' index gained 0.2 points in August to reach 50.9. This reversed a four-month decline and, according to economists, indicated a soft landing for the economy.

The World Bank and the Development Research Center of the State Council are working together on identifying and analyzing China's medium-term development challenges by 2030, with the report due to come out at the end of this year.

As part of the research, the World Bank pointed out that China is well-positioned to join the ranks of the world's high-income countries.

"The challenge was the so-called mid-income trap, which is when countries reach levels of income about US$3,000 to US$6,000 per capita, their productivity rate tends to slow, their growth rate tends to slow," Zoellick said.

In an article released last Thursday, Premier Wen Jiabao said reining in soaring consumer prices was China's top priority, as it had been for most of this year, and that China's "macro-control and adjustment direction cannot be changed".

The consumer price index, a major gauge of inflation, hit a three-year high in July of 6.5 percent on higher pork prices. The UBS report predicted it would be moderate in August and fall further in the autumn.

"Premier Wen mentioned it is a primary concern, I think it can be dealt with," Zoellick said.

"When you have inflation there are different tools. One is if China appreciated its currency more, that would make foreign goods cheaper in China. Another is the expansion of credit. A third dimension is to remove supply barriers."

There are growing concerns over grain production as the rate of urbanization intensifies.

Vice-Premier Hui Liangyu on Sunday called for favorable policies on grain and agricultural production to stabilize prices.

Zoellick disagreed that growing urbanization, in itself, harms food production. "The challenge is to have smart urbanization," he said.

"China is moving with technology so that each farmer can be more productive China can boost output without necessarily using more land."