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CHINA STIMULUS DELAYS ECONOMY RESTRUCTURING, ADB SAYS

Bloomberg, September 22, 2009

China’s stimulus spending and record bank lending are interrupting efforts to restructure the economy away from investment- and export-led growth toward private consumption, said the Asian Development Bank.

The investment and lending boom prompted the bank to raise its forecast for China’s economic growth this year to 8.2 percent from a previous estimate of 7 percent, in a report released today. It increased its 2010 forecast to 8.9 percent from 8 percent.

President Barack Obama and his Group of 20 counterparts, meeting in Pittsburgh this week, will discuss policies to reduce imbalances in global spending and consumption that helped to trigger the financial crisis. China’s 4 trillion yuan ($586 billion) stimulus package, aimed at countering a slump in exports, is making the world’s third-biggest economy more dependent on investment.

“Expansionary fiscal and monetary policies have softened the blow of the global slump,” the ADB said. The government’s challenge is to “swing attention back to the restructuring efforts after the economy is weaned off the fiscal stimulus.”

The Manila-based ADB makes loans to underdeveloped countries to promote social and economic growth.

Investment accounted for 6.2 percentage points of China’s 7.1 percent economic expansion in the first half, the ADB said. Consumption contributed 3.8 percentage points, and a decline in the trade surplus wiped off 2.9 percentage points.

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