Chinese economy heads for soft landing in 2012

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World Bank chief economist Justin Lin [File photo]

China's economy can achieve a soft landing in 2012 despite a global economic slowdown, World Bank chief economist Justin Lin said Wednesday.

China's massive foreign exchange reserves will help the world's second-largest economy shrug off external pressures and maintain a growth rate above 8 percent this year, Lin said at a press conference on the global economic outlook.

As official data show that the government's fiscal deficit is equivalent to about 25 percent of its gross domestic product, China has "lots of room" for a stimulative fiscal policy to stabilize its economy and maintain rapid growth, due to its low debt levels, Lin said.

According to data from the National Bureau of Statistics on Tuesday, China's GDP rose 9.2 percent year-on-year in 2011 to reach 47.16 trillion yuan (7.26 trillion U.S. dollars), with a projected fiscal deficit of 900 billion yuan.

To stimulate its domestic demand, China can rely on either investment or consumption, although the key will be to increase incomes, said Lin, who is also the World Bank's senior vice president for development economics.

"Judging from official data, the proportion of consumption in China's GDP is relatively low and still has room for improvement," Lin said, adding that China should learn a lesson from overspending in Europe and the United States.

In its "Global Economic Prospects 2012" report, the World Bank projected China's economy to expand 8.4 percent in 2012 and 8.3 percent in 2013, warning developing countries to prepare for further downside risks, as eurozone debt problems and weakening growth in several emerging economies are dimming global growth prospects.

Global growth will be around 2.5 percent and 3.1 percent for 2012 and 2013, respectively, according to the World Bank report.

"Developing countries need to evaluate their vulnerabilities and prepare for further shocks while there is still time," Lin said.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008 and 2009. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply, Lin said.

To prepare for that possibility, Hans Timmer, director of development prospects at the World Bank, said developing countries should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure and stress-test domestic banks.

After expanding by 9.7 percent in 2010, the regional GDP in the East Asia and Pacific region grew an estimated 8.2 percent in 2011, but growth is projected to ease to 7.8 percent for both 2012 and 2013, according to the World Bank report.