World Bank urges East Asia to invest

BEIJING - East Asian economies could see growth derailed if they fail to boost investment and cope with widening wealth gaps and pollution a decade after the 1997 financial crisis, the World Bank said yesterday.

East Asia's developing countries are richer and have a bigger share of the world economy than in 1997, when a crisis sparked by a plunge in the Thai baht dragged the region into recession, the bank said in a report.

Before the crisis, half the region's people lived on less than $2 a day. That rate has dropped to 29 percent, it said.

But many countries suffer from weak investment in industry and infrastructure and from a growing rich-poor gap, the report said.

"Even as the region celebrates recovery, new challenges loom, which could slow or even derail growth if not properly handled," the bank said in the report, "East Asia and Pacific Update."

China is expected to grow 10 percent this year, but it faces a widening wealth gap and rising pollution while also managing the financial strains from a soaring trade surplus, the bank said. It noted that China has 20 of the world's 30 most-polluted cities.

In other Asian economies, "growth has actually been somewhat less than in the pre-crisis trends," Milan Brahmbhatt, the bank's chief Asia economist, said at a news conference. "Investment has been somewhat weak and erratic. The reasons for this weak investment are not well-understood."

Thailand, epicenter of the 1997-98 crisis, posted 5 percent growth last year, the bank said. That was down from an average annual expansion of 8 percent reported from 1985 to 1995.

Economies also face wrenching changes because of growing Chinese dominance in manufacturing, said the Washington-based bank, which lends money for development projects and alleviating poverty.

The bank said growth in East Asia should slow modestly to 7.3 percent this year from 8.1 percent in 2006 because of the looming downturn in the U.S. economy and slowing export growth.

The report covered what the bank calls Emerging East Asia, which includes China, Indonesia, Malaysia, the Philippines, Thailand and Vietnam, as well as Hong Kong, South Korea, Singapore and Taiwan.

The World Bank urged a range of changes to help poorer Asian countries move up to higher incomes. They included boosting investment by eliminating unnecessary restrictions, expanding capital markets, and liberalizing trade in services.

The region needs to invest $200 billion annually in improving infrastructure over the next five years, the bank said.