World Bank says domestic demand key to China's economic growth

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03:31

The World Bank released its May 2019 edition of China Economic Update with the theme "managing higher uncertainty" on Friday. The report stated that China's economic growth has so far remained resilient in the face of global uncertainty, projecting the Chinese economy to grow at 6.2 percent in 2019 and 6.1 percent in 2020.

John Litwack, the lead economist for China from World Bank, noted that China's economic growth was stronger than expected and a surprise for them, remarking on the importance of stimulating domestic demand.

The economist acknowledged that the bank was concerned that China's growth might be lower in the first quarter this year, as the external environment became quite challenging since the fourth quarter in 2018.

John Litwack, the lead economist for China from the World Bank. /CGTN Photo

However, the economic performance in the first quarter surprised them. "In January and February, it looks like it might be, but in March we saw a big pickup," Litwack said. China's GDP growth was 6.4 percent year on year both in the fourth quarter of 2018 and the first quarter of 2019.

The bank also emphasized that China's economy would need to rely increasingly on domestic demand amid less favorable external conditions.

"China is quickly becoming the largest market in the world, not only now, but over the medium term, China is going to sustain relatively rapid growth and domestic demand will lead the growth," Litwack said, further elaborating that there's not much room for China to increase the share of export in the world, and the world economy would not grow as fast as the Chinese economy.

Meanwhile, if China relies more on domestic demand, more government support might be needed, according Elitza Mileva, a senior economist of the World Bank.

Mileva noted that higher spending on health, education, and social protection could help boost demand and improve the quality of services, if combined with reforms to increase efficiency.

Elitza Mileva, senior economist of the World Bank. /CGTN Photo

The report also noted that the authority has fiscal space to further increase spending with introduction of fiscal stimulus emphasizing tax incentives. And it claimed that the additional stimulus could come from directly at the central level or through additional fiscal transfers to the provinces.

"The government could introduce public capital spending as it did in the past," Mileva advised, adding that central government has a lot of space to increase borrowing and spending and it's important for them to provide both financing and mandates to local governments.

Moreover, one of China's top priorities is supporting the real economy. Litwack spoke highly of China's efforts and achievements concerning injecting more liquidity to small- and medium-sized enterprises (SMEs) over the past years.

"SMEs generally have a hard time getting credit in most economies, given they don't have a lot of collaterals and it's always (been) higher risks to lend to SMEs, we know China's been promoting this, which is good. Over the years, a lot of improvement has been seen, now commercial banks are actually re-orienting the funding to these firms," Litwack told CGTN.