China spending focus key to prospects - World Bank

Mon Apr 20, 2009 10:51pm BST
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WASHINGTON, April 20 (Reuters) - Long-term Chinese economic growth prospects depend on recovery of private investment, the focus of public spending and the details of infrastructure projects, the World Bank's China director said on Monday.

Beijing-based economist David Dollar said China's reaction to the global economic downturn last year -- a 4 trillion yuan stimulus package -- was swift and helped support growth of 6.1 percent in the first quarter of 2009.

But he told a forum in Washington that China must prepare for a fundamental shift in the world economy with the global recession, not a "short-term blip" after which it could then rely on exports to drive fast economic growth.

"What was missing in the first quarter was private investment" by multinational firms and small and medium Chinese companies, said Dollar. He said private investment was negative in the first the months of this year.

"If that drags on for years, then it's very hard to see how we're going to get continued growth in China," he said.

China's service sector is far less competitive than its industrial sector and would be an ideal target for investment.

A second indicator of future prospects was the composition of the government stimulus packages, following last year's spending that focused on infrastructure, said Dollar.

"There's a role for more government spending on social services in China and on the safety net," he said, and suggested spending on health and education as productive avenues for public investment.

The third factor that would determine growth prospects would be whether China's public investment focused less on traditional infrastructure like roads, power and ports, in which Beijing invested heavily in the past decade.  Continued...

 
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