From South China Morning Post

World Bank’s chief economist says mainland GDP growth of 7 per cent would be acceptable

Maintaining even a 7 per cent growth rate in the next few years would be a “creditable performance” for the mainland although the government needs to stay vigilant about the fast debt build-up, says World Bank chief economist and senior vice-president Kaushik Basu.

Basu’s comments come amid calls for Beijing to lower and even cancel its annual growth target starting next year to curb the financial risks related to over-investment.

In an interview with the South China Morning Post, Basu also played down concerns about the impact of the Federal Reserve’s tapering of its quantitative easing policy on the rest of the world.

“The negative shock [of tapering] will in part be countered by the good news of improvements in the US economy, which remains the biggest driver of global growth,” he said.

The best way for the mainland and other emerging economies to counter negative impact would be to focus on structural reform rather than on fiscal and monetary interventions, he added. “Improving the ethos of doing business, such as the ease of starting a business and having a transparent legal system, is crucial. It is also important to nurture innovation and creativity,” he said.

The mainland economy has been losing steam after a decade of double-digit growth. Economists say Beijing’s economic growth target at “about 7.5 per cent” may be missed this year. The World Bank predicts growth will slow to “just above 7 per cent” per annum over 2015-17.

Mounting debt might pose risks for the economy, Basu said. “In other developing economies, such a build-up has often led to sharp corrections,” he said. This is unlikely to happen on the mainland as the government had deep resources, but such risks should not be ignored, he added.

Standard Chartered Bank says the mainland’s total debt likely hit 251 per cent of gross domestic product at the end of June, with interest payments rising about 50 per cent since the mid-2000s.

The BRICS bank that China, Russia, Brazil, India and South Africa planned to establish with an initial capital of US$50 billion would have “a huge potential because the demand for global finance has grown in leaps and bounds”, said Basu.

“What is interesting is that India and China have complementary needs and strengths, instead of acting as substitutes,” said the former adviser to the Indian government. “This is what makes the bank an exciting venture and the World Bank welcomes its arrival.”

IMAGE: China may counter the impact of US tapering through structural reforms, such as making it easier to start a business. Photo: AFP

For more on this story go to: http://www.scmp.com/business/economy/article/1594842/world-bank-official-urges-china-be-vigilant-over-rising-debt-levels