World Bank: China growth to slow, cuts forecast

China's growth will slow to 7.5 percent next year _ the lowest rate since 1990 _ as the global financial crisis takes a greater toll on the world's fourth-largest economy, the World Bank said Tuesday.

The multilateral lender cut its forecast for 2009 growth from 9.2 percent but said Beijing's multibillion-dollar stimulus plan will help smooth the sharp edges of steep declines in global and domestic demand. It expects 9.4 percent growth this year.

China's downturn _ signs of which emerged in the third quarter _ will worsen in the first half of 2009 as exports weaken, World Bank economist Louis Kuijs said as the bank issued a quarterly economic report.

The country has been relatively unaffected by the global crisis so far because its banks are healthy and exports are strong but "we will see that impact intensify in 2009," Kuijs said.

Conditions should improve later in 2009 but any firm forecast was difficult amid the global turmoil, he said.

Beijing's stimulus plan announced Nov. 9 should help to shield China from the global downturn by buoying growth and employment, said the World Bank's China representative, David Dollar. The $586 billion plan calls for injecting money into the economy through spending on construction, tax cuts and aid to the poor and farmers.

"We are confident that China has the tools to keep its growth rate at a healthy level and most importantly to create about the number of jobs it needs," Dollar said.

Beijing announced the stimulus after China's growth slowed to 9 percent in the latest quarter from 11.9 percent last year. The unexpectedly sharp downturn alarmed communist leaders, who worry about job losses _ especially in export industries, which have been hit hard by weak global demand _ and possible unrest.

If China's growth next year falls to the World Bank's projected 7.5 percent, it would be the weakest since 1990's 3.8 percent rate and just below the 7.6 percent reported in 1999.

The World Bank forecast is in line with projections by investment banks, which have cut their China outlook several times as global conditions worsened.

Kuijs said Beijing has room to cut interest rates further and needs to take additional steps to stimulate growth as spending by consumers and companies weakens.

"We feel that confidence and fundamentals for the private sector have weakened quite a bit over the past half-year. We are less optimistic about private sector consumption than we were a half-year ago," he said.

Weaker export prospects and a sharp downturn in real estate sales have made private companies reluctant to expand and hire new workers, Kuijs said.

Dollar and Kuijs said Beijing's promise of more spending on social programs and aid to the poor countryside should help to boost growth. The stimulus is meant to boost consumer spending, but analysts say the key to doing that will be to ease the financial worries of Chinese families, which save heavily to pay for health, schooling and retirement.

"Our view is that additional money put into rural health and education and rural minimum income support program would be effective fiscal stimulus and would help to improve the quality of life in the countryside," Dollar said.

He also said Beijing is talking with the World Bank about providing financing for loans to other developing countries.

Dollar said the talks were at an early stage and he could not give any other details.

"The World Bank group is talking to China about ways in which it could contribute some additional financing to the World Bank group that would help developing countries. But that's at an early stage," he said. "It would involve China directly or indirectly lending money to other developing countries."

British Prime Minister Gordon Brown and other leaders have appealed to Beijing to use part of its $1.9 trillion in reserves to help expand a loan fund for countries hurt by the financial crisis. China has promised to cooperate with international efforts but has yet to say whether it will offer financial help.

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