World Bank says China on right track in avoiding financial crisis

Apr 13, 1998 02:00 AM

China may have avoided the worst of the Asian financial crisis, but it needs to boost demand and carry out wide-ranging reforms if it is to remain immune, World Bank officials said.
The World Bank has pledged to help support China's growth-inducing economic policies and counsel Beijing on how to make banks and other institutions sound enough to prevent a similar financial crisis.
Jean-Michel Severino, World Bank vice president for East Asia and the Pacific, said the bank strongly supported China's plans to slash government bureaucracy by half and increase domestic investment by up to 15 % this year to help stimulate economic growth.
Severino cited plans to encourage private home ownership and invest in road-building and other infrastructure projects as useful steps toward stimulating consumption. "The government is going in exactly the right direction," he said. "We are very encouraged by what is happening here."
Severino said that his own data did not show any appreciable impact from the crisis on China's exports and foreign investment. But he was reluctant to speculate on the prospects for attaining the government's economic growth target of 8 % this year.
Economists consider that level the minimum required to create jobs for millions of workers being laid off due to reforms in the state sector.
"The financial crisis may be stabilising, but the economic crisis is still there," Severino said. "I would not bet my life on any number.... The bottom line is we are in a very unstable situation."
The World Bank has spent $ 29 billion in China to date and has pledged $ 2.5 bn in loans to China this year to support capital spending and various infrastructure and poverty fighting programs.
Severino said Beijing should draw lessons from the experiences of its neighbours and put more resources into education and technology development to enhance competitiveness.
He also said China should make financial institutions more autonomous to prevent corruption and political meddling in investment decisions and ensure that the pace of liberalisation does not outstrip the ability of regulators to police financial markets.
In a report published late last year, the World Bank called the financial sector "the soft underbelly of China's reforms" and estimated that 20 % of the assets of the four main commercial banks were non-performing, giving them negative net worth.
Yukon Huang, director of the World Bank's programs in China, said that China's ambition to build large conglomerates capable of competing in the world economy can only succeed if the right management decisions are made.
The World Bank is sponsoring seminars in China to share expertise on such issues, he said.
Huang said the bank was also considering ways to blunt the social impact of reforms of the government and state enterprises, such as the loss of jobs, pensions and health care traditionally provided by state companies and farms. "Urban poverty is going to be an increasingly important issue for China.We have to think of ways to address that concern," Huang said.

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