Bloomberg News

ADB Cuts China Growth Estimate, Says Economy Must Rebalance

September 13, 2011

Sept. 14 (Bloomberg) -- The Asian Development Bank cut its estimate for China’s growth this year and said that failure to rebalance growth toward domestic consumption poses risks to the sustainability of the nation’s expansion.

The Manila-based lender said gross domestic product will increase 9.3 percent this year, down from an April estimate of 9.6 percent. China’s inflation forecast was raised to 5.3 percent from 4.6 percent. The revisions were given in the update to the Asian Development Outlook released today.

The world’s most populous nation has offered a bright spot in a global economy contending with a deepening debt crisis in Europe and the threat of renewed recession in the U.S. Risks for China include too much investment, too little consumption, widening income disparity and an aging population, the ADB said.

The government’s latest five-year economic plan “addresses many of these issues, but failure to continue reforming and rebalancing risks the sustainability of economic growth in the long term,” according to the report. “The immediate challenge is to implement the required policy adjustments at a time of political transition to a new generation of leaders” starting next year, it said.

The ruling Communist Party is set to convene a once-every five-years Congress late next year that will select new members of the Politburo Standing Committee, the nation’s highest decision-making body. The committee currently has nine male members including President Hu Jintao and Premier Wen Jiabao.

Risks to Outlook

In addition to cutting China’s growth forecast for this year, the ADB shaved its estimate for 2012 to 9.1 percent from 9.2 percent. The economy expanded 10.4 percent in 2010. “Uncertainty” over external demand and the “rapid” increase in local government debt are the main risks to the outlook, according to today’s report.

The bank raised its estimate for consumer-price gains this year because of higher-than-expected increases in food costs in the first half of the year. The inflation rate next year will drop to an average 4.2 percent, reflecting moderation in global prices of oil and commodities and continued “gradual” appreciation of the yuan which will lower imported inflation, the ADB said.

Wen has raised interest rates, curbed lending and imposed limits on home purchases to rein in property and consumer prices. Inflation has exceeded a 2011 target of about 4 percent, set in March, every month this year.

The government is likely to maintain tightening policies until consumer-price gains recede “significantly,” according to the report.

Stimulate Consumption

New policies this year including reductions in personal income tax, increases in minimum-wages and improvements in pension coverage should help to stimulate private consumption, the ADB said.

China’s working-age population will peak in 2015 and labor shortages will become more common, posing new difficulties for policy makers, according to today’s report. The country will have 440 million people aged over 60 by 2050, accounting for 31.4 percent of the population, compared with a world average of 21.9 percent, the bank said, citing estimates from the United Nations.

The aging population is particularly challenging for policy makers as the country’s real income level of around $4,000 per capita compares with $16,200 in South Korea and $14,900 in Japan when these countries had the same percentage of elderly, the bank said. A weak social safety net, with most old people depending on family support, exacerbates the situation, it said.

The government will need to develop a well-functioning finance sector to underpin pension reform and boost old-age support, according to the report. Currently only 15 percent of the working-age population has any sort of social security net and the pension system is “far from optimal,” the ADB said.

--Nerys Avery. Editors: Ken McCallum, Lily Nonomiya

To contact Bloomberg News staff for this story: Nerys Avery in Beijing at

To contact the editor responsible for this story: Paul Panckhurst at

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