WORLD BANK: China’s Growth Will Moderate Gradually But Domestic Consumption Will Be Robust

A sightseeing ship on the Huangpu River against the night skyline of Pudongs Lujiazui Financial District in Shanghai. Feng Li/Getty Images

China’s growth will moderate over the medium term as the economy continues to rebalance gradually, according to the World Bank’s China Economic Update released today.

Growth is now forecast to slow to 7.6% in 2014 and 7.5% in 2015 from 7.7% in 2013 .

“The rebalancing will be uneven, reflecting tensions between structural trends and near term demand management measures,” says Chorching Goh, Lead Economist for China.

The slowdown in the first quarter reflected a combination of dissipating effects of earlier measures to support growth, a weak external environment, and tighter credit, especially for real estate.

However, economic activity, including industrial production, has shown signs of a pick-up in recent weeks.

The recent acceleration, which is likely to continue into the next two quarters, reflects robust consumption, a recovery of external demand, and new growth-supporting measures, including infrastructure investments and tax incentives for small- and medium-sized enterprises.

Moderation of growth rates from a decade of average annual growth of about 10% reflects a structural transformation of the country’s growth model.

A rebalancing of growth from investment to consumption and from industry to services continues, the World Bank says, but there are challenges and rebalancing is slow.

The China Economic Update, a regular assessment of China’s economy, identifies several risks to this gradual adjustment.

  • A disorderly deleveraging of local government debt could trigger a sharp slowdown in investment growth.
  • An abrupt change in the cost of, or access to, capital for such sectors as real estate could significantly reduce economic activity.
  • The recovery in exports may not materialise if growth in advanced countries weakens.

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