China supply levels are in line with demand needs, noted a report released on Tuesday, however policymakers remain concerned over its short term macro imbalance which results from its swelling trade surplus which skyrocketed to$24 billion in October and has urged reforms to be implemented.
Exports continue to outgrow imports by a large margin which is slowing domestic demand by raising contributions of trade to GDP growth, noted the World Bankâ€™s China Quarterly Update.
Chinaâ€™s GDP growth slowed from 11.3 percent in the second quarter to 10.4 percent in the third quarter after tightening measures were implanted to reduce investment growth. Such reforms previously taken include reducing VAT refunds and implementing export taxes on energy products.
â€œThe lower investment growth that the authorities aim for, which is desirable for efficiency reasons, could aggravate the external imbalance if achieved without more consumption growth,â€ says Bert Hofman, lead economist for China of the World Bank.
The biggest challenge for China it to rebalance its economy, the report stated.
â€œThe concerns about high investment growth and the pattern of growth have to be addressed by structural reforms,â€ says Louis Kuijs, Senior Economist on China and main author of the Quarterly.
Kuijs suggested that China make structural reforms to its pricing methods for energy, resources and land. China should increase its interest rates, limit retained earnings by better corporate governance and an SOE dividend policy, and should better moderate its local government incentives, he added.