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China's economy to surge next year, World Bank predicts

A worker carries furniture into an under-construction fashion boutique selling various luxury branded handbags at a shopping mall in Beijing Tuesday, Dec. 18, 2012.

Andy Wong/AP

China's economy slowed to its slowest pace this year since 1999, the World Bank has said today in its latest regional forecast, but is still expected to help the wider region drive nearly 40 per cent of the world's growth next year.

"The slowdown in China appears now to have bottomed out," the World Bank wrote in its twice-annual East Asia and Pacific economic report, becoming the latest to join an increasingly bullish view of China's economic health for next year. "The most recent data suggest that, despite further weakening in the external environment, China's growth rate will continue to recover in the remainder of the year and into next year."

World Bank economists expect China's GDP growth will end on an average 7.9 per cent, which still exceeds an official government target of 7.5 per cent.

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However next year China's GDP is forecast to grow 8.3 per cent, they said, based largely on investment-driven growth and fiscal stimulus.

The credit, other analysts say, is largely to the recovery in China's all-important housing market, which drives demand for everything from raw materials and electricity used in constructing new developments, to the furnishings and appliances used inside.

"If you think about the trajectory of the economy this year, we had three quarters of economic slowdown and a fairly sharp slowdown by Chinese standards, and by fourth quarter things started to stabilize and rebound a little bit. So next year is unlikely to show the same pattern," said Andrew Batson, director of research at Beijing's GK Dragonomics.

"The big change that has happened in the last five or six months is the housing market has stopped collapsing and housing prices are starting to rise again."

The World Bank's economists still warn of risks from delays to euro zone reforms, the U.S.'s "fiscal cliff" and a decline in China's investment growth. Monetary expansion in the United States, Japan and the euro zone could also trigger asset bubbles and excessive credit growth in the Asia-Pacific region, they wrote, by flooding the region with capital.

The report comes just after China's annual Economic Work Conference, setting economic policy for the next year. The first for incoming President Xi Jinping and incoming Premier Li Keqiang, who have already signalled further economic reforms on the horizon for the world's second-largest economy, it wrapped up Sunday with a general statement pledging the "enhancing quality and efficiency of economic growth," according to state media.

"They've done a great job of raising expectations," Mr. Batson said. "Everyone is going to expect a lot from them next year."

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