Quality, sustainable growth the priority

Sri Mulyani Indrawati, managing director and chief operating officer of the World Bank

World Bank official warns against over-reliance on economic solutions

A growth rate of above 7 percent should be high enough for an economy the size of China, but what matters most is that the quality of growth is maintained, a leading World Bank official said on Tuesday.

Reacting to China's gross domestic product growth slowing to 7.3 percent in the third quarter of the year from a year earlier, the World Bank's Managing Director Sri Mulyani Indrawati warned that over-reliance on the macro policy was "something that needs to be avoided, especially in the long run".

The quarterly GDP result, the lowest growth figure since the first quarter of 2009, has left some questioning whether or not the authorities should step in with major stimulus measures, such as possible interest rate cuts.

Speaking in Beijing ahead of the upcoming APEC Finance Ministers' Meeting being held in Beijing this week, Indrawati said that China had already done an excellent job of minimizing the effects of the global financial crisis by providing sensible monetary or fiscal stimulus.

But she underlined in the long term further measures might raise questions over growth sustainability and the ability to manage the future consequences of any expansion in stimulus policies.

"The shift in the growth model will definitely have a short-term impact on the Chinese economy as well as the global economic performance, which already remains disappointing," she said.

The former Indonesian finance minister said that maintaining growth of 7 percent to 7.5 percent is actually still high compared with most other major markets and will raise questions about what kind of growth it is and whether it is sustainable and improving in quality.

When talking about quality growth, that can be measured in various ways, she said. For example, will that growth further pollute the country's air and water, and will it be achieved with more efficient use of energy?

She suggested that China's social and economic policies should focus on areas such as land liberalization and capital reforms, for example.

She also said she fully understood the challenges facing the country as it adjusts its economic model from one heavily reliant on investment and exports to one more driven by productivity, innovation and consumption.

Chinese leaders have recently stated they have greater tolerance toward slower economic growth and that progress slightly lower than 7.5 percent is acceptable.

"The leaders have recognized that changing the country's growth model will require a lot of reforms in the short term that will have the effect of slower economic performance; but at the same time it will also be necessary (for them) to create more sustainable and inclusive growth," she said, adding that balancing those two will be critical－a combination of maintaining the ambitions for reform, along with the necessity of ensuring strong economic performance.

The APEC finance ministers' meeting is being held at a time of weaker-than-expected global economic growth, suggesting many national policymakers had underestimated the strength of the economic headwinds swirling around the world.

Indrawati said that policy reforms and stronger global commitment to solving the current economic issues should be put in place to ensure growth remains not only sustainable but robust.

China's leaders have voiced their regular support recently for public-private partnerships as a means of encouraging the country's private sector to support essential national infrastructure projects.

Indrawati said that in order to maintain continued economic performance, the country will need increased participation by the private sector, particularly in infrastructure development, and that public-private partnerships offered a good platform for inviting more non-government participation.

She warned, however, that successfully run public-private partnership projects can be challenging, and that it is critical the necessary legal frameworks and transparency are put in place to ensure partnerships consider all the risks involved.