World Bank sees slower rise in China economy

Updated: 2014-10-07 13:10

By Paul Welitzkin in New York(China Daily USA)

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The World Bank and the International Monetary Fund expect slightly slower growth in China the rest of this year and in 2015.

The World Bank said Monday that growth will ease slightly to 7.4 percent this year and 7.2 percent in 2015 as the Chinese government seeks to put the economy on a more sustainable path with policies addressing financial vulnerabilities and structural constraints.

The IMF is scheduled to release a report on Tuesday that also see slightly lower economic growth for the world's second-largest economy as the country continues to transition its economy and residential investment slows.

The World Bank report said as the Chinese government strikes a balance between containing risks and meeting growth targets, structural reforms in sectors previously reserved for state enterprises and services could help offset the impact of efforts to contain local government debt and curb shadow banking.

China's shadow-banking sector is a rapidly growing but opaque part of the nation's financial system. Ann Lee, a Chinese-American economic researcher born in Hong Kong and an adjunct professor at the New York University, said it is hard to determine how much of a challenge it poses to the nation's economy.

"I think there are some challenges with the shadow banking system," she told China Daily in an interview. "People are still unsure of the reach of shadow banking in China. But I do think the monetary authorities are ready to intervene if they need to shore up the economy."

Shadow banking in China is generally defined as non-banks offering financial services such as trust entities.

Lee also discounts any negative economic fallout from the protests in Hong Kong. "I don't think this will be a factor. It (the protests) is already starting to lose its momentum."

Lee said the revised economic growth estimates for China should not be a major factor in the world economy. "However, I do think that countries like Brazil that depend on the old China economic model will be most vulnerable to any serious slowdown," she added.

The World Bank also said that developing countries in East Asia will see slightly slower economic growth this year, but the pace of growth in the region, excluding China, will pick up next year as the recovery in high-income economies boosts demand for exports from the region.

"East Asia Pacific will continue to have the potential to grow at a higher rate and faster than other developing regions if policy makers implement an ambitious domestic reform agenda, which includes removing barriers to domestic investment, improving export competitiveness and rationalizing public spending,"Axel van Trotsenburg, World Bank East Asia and Pacific regional vice-president said.

While the region will benefit more than others from the recovery of the global economy, the impact will vary, according to the report. China, Malaysia, Vietnam and Cambodia are well positioned to increase their exports, reflecting their deepening integration into the global and regional value chains that have driven global trade in the last 20 years, the report added.

Possible risks include a weaker-than-expected recovery in global trade and any abrupt rise in global interest rates, the report said, noting that its baseline scenario was based on an orderly normalization of monetary policy in the United States. However, the report said that if China experiences a sharp slowdown, which it said is unlikely, it would hit commodity producers in the region especially hard - metal exporters in Mongolia, for example.

China's economy has struggled to recover from a soft start this year when growth slowed to its weakest in 18 months in the first quarter. Beijing has indicated it is prepared to accept slower growth as it tries to wean the economy away from dependence on investment and exports in favor of consumption. But a slowdown in the housing market has become an increasing drag on the broader economy, prompting governments at different levels to step up efforts to restore momentum.

Both reports come before the IMF and World Bank are scheduled to hold an annual meeting of their board of governors in Washington on Friday. The meeting brings together central bankers, ministers of finance and development, private-sector executives, and academics to discuss issues of global concern, including the world economic outlook, global financial stability, poverty eradication, jobs and growth, economic development and aid effectiveness.