World Bank Bullish on China, Reform Clock is Ticking
The World Bank has raised its 2024 growth forecast for China to 4.9%, a modest increase from its previous 4.8% projection. This cautiously optimistic revision comes as the world's second-largest economy faces significant domestic and international headwinds.
The World Bank projects a moderate cooling of growth to 4.5% in 2025, highlighting the need for structural reforms. Mara Warwick, the World Bank's country director for China, identified key priorities: "Addressing challenges in the property sector, strengthening social safety nets and improving local government finances will be essential to unlocking a sustained recovery."
In its most dramatic monetary policy shift in over a decade, Chinese authorities have adopted a "moderately loose" stance for 2025. This pivot has already yielded tangible results, with the People's Bank of China's (PBoC) signals of forthcoming interest rate and reserve requirement cuts driving 10-year government bond yields to unprecedented lows beneath 1.6%.
The economic outlook is further complicated by resurging US-China tensions, exemplified by yesterday’s confusion surrounding proposed US "universal" tariff policies. However, Beijing appears more strategically prepared this time, implementing a comprehensive approach combining retaliation, adaptation, and market diversification.
China has demonstrated its economic leverage by controlling exports of vital chipmaking minerals to the US and launching targeted antitrust investigations. Beyond these defensive measures, Beijing is actively expanding its global economic footprint, exploring preferential trade arrangements with alternative partners and investing in strategic infrastructure projects, including a major deep-water port development in Latin America.
On the currency front, the PBoC has markedly shifted its exchange rate management strategy. The central bank's latest MPC meeting notably omitted previous references to "exchange rate flexibility," instead introducing "three resolutes" focused on maintaining market stability and preventing excessive currency fluctuations. This explicit change in language suggests the central bank is taking a firmer stance against renminbi depreciation against the dollar.
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