China 'boosts East Asian growth'

The World Bank has upped its 2009 growth forecast for China from 7.2% to 8.4%, but says the nation needs to encourage more consumer spending.

Manufacturing accounts for about 40% of China's economy

The Washington-based body also raised its projection of 2009 GDP growth in East Asia as a whole to 6.7% from 5.3%, thanks to China's strong growth.

But it said growth in the region could be just 1% if China was excluded.

And it said China, boosted by a recent stimulus plan, must move away from an industry and investment-based economy.

"The economic rebound in East Asia and the Pacific has been surprisingly swift and very welcome, but take China out of the equation and the regional picture is less rosy," the bank said in a report.

"The rebound has yet to become a recovery."

Stimulus package

At the end of 2008, the Chinese government announced a 4 trillion yuan ($586bn; £355bn) stimulus plan involving increased spending on infrastructure to boost the domestic economy.

In China stimulus spending has gone mostly to building roads and other public works projects.

It's a good time to concentrate and focus effort on rebalancing the economy and getting more growth out of the domestic economy Louis Kuijs, World Bank China economist

Earlier this week, data showed China's manufacturing sector had grown in October at its fastest rate in 18 months.

But the World Bank warned that manufacturing industries would be under pressure next year as the impact of the stimulus faded away.

It also said China could no longer rely on exports and investment to drive growth and had to encourage its own consumers to increase spending.

"We think that now that the government has basically succeeded in dampening the impact of the global crisis, it's a good time to concentrate and focus effort on rebalancing the economy and getting more growth out of the domestic economy," said Louis Kuijs, the bank's chief China economist.

"This calls for more emphasis on consumption and services and less emphasis on investment and industry."

Losing momentum

China's rebound has helped other Asian economies as its consumers and factories buy imports.

But the bank said that growth in the region outside of China would be slower on average this year than in South Asia, the Middle East and North Africa.

Indonesia and Vietnam were doing well but output was shrinking in Cambodia, Malaysia and Thailand and static in Mongolia, the bank said.

And it added that in Singapore and Taiwan industrial production was 15% below the pre-crisis levels of 18 months ago.

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US interest rates left unchanged

The Federal Reserve has kept US interest rates on hold at between 0% and 0.25%, as had been widely expected.

The Fed has kept rates on hold to help the continuing recovery

Despite the US economy growing 3.5% in July to September - its first expansion since June 2008 - rates were left unchanged to further aid the recovery.

The Fed reiterated its view that rates would need to stay at the historic low for an "extended period".

While economic activity had "continued to pick up", it said high unemployment remained a concern.

The most recent official jobless rate totalled 9.8% in September, a 26-year high.

Recovering car sales

Analysts have also cautioned that the economic expansion between July and September was greatly helped by President Obama's $787bn (£480bn) stimulus package, with some fearing that growth will slow markedly when this impetus comes to an end.

One of the most successful parts of the stimulus spending was the $3bn "cash for clunkers" car scrappage scheme, which gave people who traded in old cars $3,500 towards the cost of a new vehicle.

This initiative operated in July and August, giving US car sales a major boost in both months.

Car sales subsequently fell sharply in September after the scheme had concluded.

However, both General Motors and Ford reported earlier this week that their domestic sales rose again in October, suggesting that the recovery in the US car market has now resumed.

US interest rates were cut to the current level of between 0% and 0.25% in December last year, where they have remained ever since.

Before then rates had fallen steadily from a high of 5.25% in September 2007.

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