Jun. 18 – In its China Quarterly Update, the World Bank changed its economic growth forecast for China from 6.5 percent to 7.2 percent on account of its stimulus package fueling an investment boom.

While China’s economy has continued to feel the brunt of the global crisis, very expansionary fiscal and monetary policies have kept the economy growing respectably, according to a World Bank statement.

The agency warned though that it was still not sure if a sure recovery was on the way although Beijing’s plan to offset plunging exports by investing on public works seem to be working to support economic growth.

A look at the growth shows that government-influenced investment has risen while market-based investment has slowed. According to the report, consumption has held up well as well as imports although exports have continued to drag growth.

“Growth in China should remain respectable this year and next, although it is too early to say a robust sustained recovery is on the way,” said Ardo Hansson, Lead Economist for China, said in a statement. “Government influenced investment will strongly support growth in 2009. However, there are limits to how much and how long China’s growth can diverge from global growth based on government influenced spending.”

The report said that China needs to shift to a consumption-led, service sector-oriented, and labor-intensive growth requires policy. It recommended the following policy changes: (i) help channel resources to sectors that will grow in the new setting, instead of to sectors that have traditionally been favored and done well; and (ii) support thriving domestic markets and successful, permanent urbanization.

It further said that policy changes should include improvements in China’s public finance system and social safety net.

For the first quarter of the year, the Chinese economy expanded by 6.1 percent, by all accounts still a robust growth compared to other countries although it still far from the government’s goal of 8 percent by the end of the and even farther from 2007′s growth rate of 13 percent.

A copy of the full report can be found here.