WB expects 7.1% GDP expansion

Latest China snapshot says progress made in structural adjustments toward 'new normal'

The World Bank's latest economic update on China has predicted a slowdown in the country's GDP growth to 7.1 percent in 2015, and 6.9 percent by 2017, but underlines Beijing is making progress with its structural adjustments.

"Slower but more balanced and sustainable growth" would be the "new normal" for the country's economic growth, led by the government's policies to decelerate credit growth, contain shadow banking and limit borrowing by local governments, said its China Economic Update, released on Wednesday.

Karlis Smits, its senior economist (China), said that in the short run, the slowdown in China's economic growth means the government is "making inroads with structural adjustments and policy efforts to address financial vulnerabilities.

"Over the medium term, these efforts are helping China gradually shift its growth model from manufacturing to services, from investment to consumption and from exports to domestic spending," he said.

China's GDP growth edged down to 7 percent in the first quarter from 7.4 percent in the fourth quarter last year. The second-quarter indicators will be released by the National Bureau of Statistics on July 15.

The bank also suggested better allocating credit in the country through deepened financial reforms will enable the financial system to support main sectors that can maintain reasonable growth.

"A macro-prudential framework needs to be established at once," said the World Bank report. The framework could be a formal "financial stability committee" supported by a secretariat, which should have a clear mandate to provide continuous monitoring of systemic risk and immediate policy responses.

The update also suggested the committee should comprise the governor of the People's Bank of China, the chairmen of the regulatory commissions of securities, banks and insurance companies, the minister of finance and the head of the State Administration of Foreign Exchange.

Separately on Thursday, Fitch Ratings' latest Global Economic Outlook report said it expects China's GDP growth for 2015 to slow to 6.8 percent, and 6.5 percent in 2016.

"Policy efforts to reduce shadow financing, reform local government borrowing and curb over-investment in real estate will continue to weigh on the economy and contribute to the gradual trending down in growth," it said.

The ratings agency even predicts the world's second-largest economy may have a steady reduction in growth to 6 percent by 2017, down from a 9.3 percent average from 2005 to 2014, saying the excessive supply in the real estate sector is a key source of risk.