China’s growth will moderate over the medium term as the economy continues to rebalance gradually. Growth is expected to slow to 7.6 percent in 2014, and 7.5 percent in 2015, from 7.7 percent in 2013, according to the World Bank’s China Economic Update released today.
“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.
The China Economic Update, a regular assessment of China’s economy, identifies several risks to this gradual adjustment. First, a disorderly deleveraging of local government debt could trigger a sharp slowdown in investment growth. Second, an abrupt change in the cost of, or access to, capital for such sectors as real estate could significantly reduce economic activity. Finally, the recovery in exports may not materialize if growth in advanced countries weakens.