Stimulus working in China, World Bank says

Bank boosts China growth forecast for 2009 to 7.2% from 6.5%
CNN) -- China can expect 7.2% growth in 2009, according to the World Bank, which says the country's fiscal policies in the face of a global financial slowdown have kept the Chinese economy "growing respectably."

The 7.2% projection for the nation's gross domestic product -- a basic measure of an economy's performance -- follows China's November announcement that it would inject $585 billion into its economy to offset declines in industrial and export growth.

"China can have the confidence to focus on forward-looking policies and structural reforms," said senior economist Louis Kuijs, the main author of the World Bank's China Quarterly Update, released on Thursday.

Government-influenced investment has soared, and housing sales and imports have recovered, but exports remain very weak, according to the update.

Though signs of stabilization have emerged, "global growth prospects remain subdued," and a lot of uncertainty remains, the World Bank said.

The bank forecast that exports are likely to grow significantly less in the coming decade than in the previous one.

China needs more domestic demand -- and therefore reforms that channel resources to growth sectors and support domestic markets and urbanization -- the World Bank said.

"Such reforms could be pursued all the more boldly and successfully if they are flanked by a well-functioning public finance system and social safety net," the update added.

It noted that longstanding problems, such as local governments having trouble matching funds, hampered fiscal initiatives.

The $585 billion in stimulus spending announced by China in November included the loosening of credit restrictions, tax cuts and massive infrastructure spending.

In March, the World Bank cut China's economic growth forecast for 2009 to 6.5%, down a full percentage point from its November projection.

In 2007, before the global economic slowdown, China's gross domestic product grew 13%.

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June 19, 2009 4:06 PM ET