The World Bank boosted its growth forecast for China and said rising inflation should level off but warned Beijing needs to make the economy less reliant on trade to sustain its expansion.
In a quarterly update released Wednesday, the bank said China's politically contentious trade surplus is likely to swell further in 2011, though it cautioned that weak global demand means Beijing shouldn't rely so heavily on exports.
The bank raised its 2010 growth outlook from 9.5 percent to 10 percent and its growth outlook for next year from 8.5 percent to 8.7 percent. Growth eased in the third quarter to 9.6 percent from 10.3 percent the previous quarter as Beijing tried to steer it to a more manageable level.
"Growth is likely to moderate somewhat more in 2011 and the medium term to a still robust pace," the bank said.
Despite a largely upbeat outlook, the bank said Beijing needs to do more to boost domestic demand and cut reliance on exports and investment. Communist leaders have announced that goal repeatedly but private sector analysts say they have done little to shift emphasis to consumer spending and service industries instead of manufacturing and construction.
"The need to rebalance to more domestic demand-led, service sector-oriented growth seems stronger now than five years ago, in part because the international environment is less favorable," the bank said. "Rebalancing will not happen by itself -- it will require significant policy adjustment."
The bank recommended action on an array of fronts including opening up more industries to private business, changing the way energy prices are set to encourage more efficient industry and nurturing private-sector research and development.
The bank's outlook reflected China's unusual status among major economies. It rebounded quickly from the global crisis after huge stimulus spending and bank lending and now faces the challenge of cooling inflation and restoring normal conditions while Washington and other governments are still trying to shore up growth.
The World Bank said inflation that has risen steadily this year should level off but Beijing might face a new upsurge in housing prices that the government reined in earlier this year with lending curbs and other controls. It forecast consumer inflation at 3 percent this year and 3.3 percent in 2011.
"Inflation may remain above the 3 percent (government) target for a while, although the food price increases should eventually decelerate," the World Bank said. It added: "It will be difficult to contain housing prices for long."
China's trade surplus also is likely to rebound in 2011 after narrowing temporarily this year, the bank said. The multibillion-dollar surplus has strained relations with Washington and other trading partners and prompted some U.S. lawmakers to demand sanctions over currency controls blamed for widening the trade gap.
"On current policies and trends, the trade surplus is likely to continue to rise in 2011," the bank said.
