Beijing - The World Bank on Wednesday lowered its 2009 growth forecast for China's gross domestic product
(GDP) to 6.5 per cent, citing falling exports and investment and the downgrading of the bank's global growth forecast.

As impact of the global financial crisis has spread, "China's exports have been hit badly, affecting market-based investment and sentiment, notably in the manufacturing sector," the World Bank said in a quarterly report, in which it lowered its GDP forecast from a November estimate of 7.5 per cent.

But the bank's China-based economists said the world's most populous nation remained a "bright spot" for economic growth and that the slowdown was unlikely to affect social stability, a major concern of China's government.

"China is a relative bright spot in an otherwise gloomy global economy," said David Dollar, the World Bank's country director for China.

"Shifting China's output from exports to domestic needs helps to provide immediate stimulus while laying the foundation for more sustainable growth in the future," Dollar said.

The report said Chinese banks were "largely unscathed" by the global financial turmoil and the economy "still has plenty of space to implement forceful stimulus measures."

But it also warned that GDP growth of 6.5 per cent was "significantly lower than potential growth" with spare capacity "likely to lead to weaker market-based investment, less job growth and migration, downward pressure on prices, redirection of exports to the domestic market and import substitution in the coming years."

Dollar said that weaker global economic prospects made it even more important for China to promote domestic demand.

China's government still has room to spend more after the "welcome" allocation of funds for health, education and social welfare programmes, he said.

"Somewhat lower growth is not likely to jeopardize China's economy or social stability, especially not if the adverse consequences of the downturn for employment and people's livelihoods can be limited through the social safety net, preferably combined with education and training," said senior economist Louis Kuijs, the report's main author.

China's estimated GDP grew by 9 per cent last year but suffered a slowdown toward the end of the year, and some Western analysts have forecast growth as low as 5 per cent for 2009.

Premier Wen Jiabao last week said the government believed it could still achieve its 8-per-cent target for GDP growth by implementing a 4-trillion-yuan (586-billion-dollar) economic stimulus package, which was announced in November.

The package includes 1.18 trillion yuan in direct government investment for new projects in social welfare, technology, environment and infrastructure.

The government has also reserved further funds in case of a "protracted and very difficult" financial crisis, "which means that at any time, we can introduce new stimulus policies," Wen told reporters. (dpa)