East Asia's 2008 growth 'robust'

Domestic demand in China is seen as the driver behind regional growth

East Asia is set for robust growth in 2008 as domestic demand helps offset global finanical problems and high crude oil prices, the World Bank says.

China's economy will grow by 10.8% this year, down from 11.3% in 2007, the bank said. East Asia, minus Japan, is seen growing 8.2% in 2008 from 8.4% in 2007.

The bank allayed fears that China, the region's biggest economy, could be hard hit by recent financial market turmoil.

According to the World Bank, any fallout would be limited.

'High volatility'

China holds about $260bn in US mortgage-backed securities, largely as part of its reserves and stakes in foreign commercial banks.

But while many major international banks have seen large writedowns in the wake of rising defaults among the sub-prime mortgage market, the majority of China's US mortgage-backed securities were underwritten by US government agencies such as Fannie Mae.

This has made them less risky and allowed them to keep their value.

Milan Brahmbhatt, the World Bank's regional economist, said that while profits at Chinese banks have been growing very quickly, the credit market problems "will not have a huge impact on either profitability or on balance sheets".

Instead, the main impact on Asia of the US sub-prime crisis has been a growth in uncertainty, the World Bank said in its six monthly regional assessment.

"Frequent and large reassessments of risk and high volatility in asset prices are likely to remain a part of the scene for some time," it explained said.

Analysts said that this may lead to a investors being less willing to buy emerging market assets.

US impact

At the same time, the bank also played down the impact on East Asia of a slowdown in US economic growth.

"If one looks over the history, it's quite striking that the correlation between US recessions and Chinese economic growth is very little," the World Bank said.

When East Asia suffered from the US recession of 2001, it was mainly caused by a dramatic shrinking of global demand for goods, including electronic items.

However, the bank does not foresee a repetition of that scenario in 2008.

One point of concern highlighted by the World Bank was that while growth in the region can been seen to be reducing poverty, the gap between rich and poor has become more extreme, Mr Brahmbhatt said.