China rebalancing presents new prospects for developing countries — WB

MANILA, Philippines — Developing countries in East Asia and the Pacific could take advantage of increased demand for finished goods in China as it continues to rebalance its economy toward a consumption-led growth path, a top-ranking economist of the World Bank said.

In a briefing for its East Asia Economic Update yesterday, World Bank acting chief economist for East Asia and Pacific Andrew Mason said policy makers should closely monitor China’s gradual shift from an investment-led economy to a consumer economy as global firms may already be repositioning their investments in the region.

As the rebalancing of the world’s second largest economy will take time, countries in the region can undertake reforms that will strengthen their export competitiveness to respond to China’s changing demand.

“At this point, it would be important for policy makers to be attentive to China as it rebalances its economy as the shift will present new opportunities and challenges. China’s rebalancing will alter the structure of its demand for intermediate goods and finished consumer products. It will also potentially alter the structure of investments in the region and countries’ positions in global regional value chains. Undertaking reforms that strengthen their competitiveness will enable countries to make the most of emerging opportunities,” Mason said.

For the longest time, the Chinese economy has been powered by investments in a production-oriented economy that necessitated greater demand for semi-finished goods used as inputs for production.

“What this implies over time – and it has implications for other countries in the region – is that it will decrease its demand for intermediate inputs and increase its demand for final consumption goods,” Mason said.

With the exclusion of China, economic growth in the region is expected to be stable at 5.2 percent for this year throughout the next, the same pace as in 2018.

Including China, growth in East Asia and the Pacific is expected to slow down to six percent this year and the next, from 6.3 percent in 2018.

Growth of the Chinese economy is expected to slow down to 6.2 percent this year until next year from 6.6 percent in 2018. 

Mason said that despite the expected slowdown in China’s economic growth as a result of the policy-guided slowdown, growth prospects in the region are “positive” as is still expected to be the best performing region in the world.

While subdued, growth in the region’s larger economies – Indonesia, Malaysia, Thailand, Vietnam and the Philippines – are expected to get a boost from strong consumption.

In 2018, the region’s economies weathered the volatility in the financial markets because of strong fundamentals, diversified sources of economic growth, flexible exchange rates and strong domestic demand.