While China's economy is still booming compared with other world economies, the World Bank has once again cut China's growth forecast to 8.2 percent. Calling on China to act quickly, the World Bank added that a slowing Chinese economy will be a burden to emerging East Asian economies, and warned that a deteriorating European debt crisis could inflict even greater damage on China.
In its biannual East Asia and Pacific economic update, the World Bank noted that developing East Asia grew 8.2 percent in 2011, a decline from the nearly 10 percent growth recorded in 2010.
Related News: Eurozone Poses Greatest Risk to Global Economy: OECD
Attributing the decline to lower-than-expected growth in manufacturing reports and supply disruptions in the wake of the Japan earthquake and tsunami and severe flooding in several South East Asian countries, the Bank said the region remained impressive on a global scale.
In its outlook for 2012, the World Bank expects East Asia to remain the strongest performer among developing regions, growing at 7.6 percent, with slower expansion in China pulling down much of the regional aggregate.
Related News: China Promises to Make Growth a Bigger Priority
Related News: China FDI Falls For the Sixth Consecutive Month
Commenting on the report, Capturing New Sources of Growth, Bert Hoftman, World Bank Chief Economist for the East Asia and Pacific region said:
Most East Asian economies are well positioned to weather renewed volatility. Domestic demand has proven resilient to shocks. Many countries run current account surpluses and hold high levels of international reserves. Banking systems are generally well-capitalised. Still, risks emanating from Europe have the potential to affect the region through links in trade and finance.
The EU, along with the US and Japan, accounts for more than 40 percent of the region's exports, and European banks provide one-third of trade and project finance in Asia.
In particular, the World Bank urged East Asian economies to be less export-dependent and to grow their domestic markets to maintain high growth.
China, the centre of Asia's production networks and which accounted for two-thirds of the region's $592 billion shipments to Europe in 2011, will be the first to suffer from an export slump before passing the effects on to others in Asia, it added.
Emphasizing the need for further rebalancing, Bryce Quillin, World Bank economist and lead author of the report said:
Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures. With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need to focus on accelerating the preparation of infrastructure projects.
Related Story: How China Can Rebalance Its Economy: Michael Pettis
Related Story: The World Bank, Debt, and The Middle Kingdom's Middle-Income Trap: Michael Pettis
Related Story: The Asian Argument For Austerity: Stephen Roach
elated Story: Enter The Dragon Year - How Will Asia Fare? : Haruhiko Kuroda