With the help of massive government stimulus action, China is now leading the world economy out of recession, according to a new OECD report. Already the world’s second largest economy, China could well overtake the United States to become the leading producer of manufactured goods in the next five to seven years, it says.

The OECD’s latest Economic Survey of China says it will be important to ensure that government saving, now falling in the wake of the crisis, does not revert to its previous, excessively high levels. Public spending should be stepped up to support much needed social reforms in areas such as education, welfare assistance, pensions and health.

China can afford the extra spending as its public finances remain strong. Gross government debt amounted to only 21% of GDP in 2008. The stimulus measures, which nevertheless dwarfed those of other countries, are expected to increase this debt ratio by only 3% of GDP in 2010.

By contrast, gross public debt in OECD countries is projected to almost reach their total GDP this year and even exceed it in 2011. 

Speaking at the launch of the survey in Beijing, OECD Chief Economist and Deputy Secretary General Pier Carlo Padoan said: “The Chinese government’s swift and vigorous action to support its economy has contained the impact of the global recession.”

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