Bank sees China growth on track, urges reform
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[June 06, 2014]
BEIJING (Reuters) - China
is likely to meet its economic growth target of 7.5
percent this year, the World Bank said on Friday, but
must persevere with fiscal and financial sector reforms
to deal with the root cause of its debt problems.
"The prospect of growth falling below the government target will
likely trigger accommodative fiscal and monetary policies," the
Washington-based development bank said in its latest assessment of
"These measures should help the authorities to reach the indicative
growth target of around 7.5 percent in 2014, but will likely add to
current imbalances and vulnerabilities."
The government unveiled a series of targeted measures after the
economy got off to a weak start this year, with official May
manufacturing and service sector surveys already showing an
The World Bank expected China's economy to grow 7.6 percent this
year on policy support and a recovery of global demand, while it
noted growth could slow to 7.5 percent in 2015.
The International Monetary Fund said on Thursday it expected China
to grow by around 7.5 percent this year and then slow to around 7
percent next year.
The World Bank said China's growth momentum could accelerate in the
second quarter of 2014, a more upbeat view than many private
A Reuters poll, however, found analysts expect annual GDP growth to
slow to 7.3 percent in the second quarter, with full-year growth of
7.3 percent in 2014, the weakest in 24 years and below the
government target of 7.5 percent.
Reform-minded leaders have ruled out any large stimulus campaign
with the country still nursing the hangover from the 4 trillion yuan
($640 billion) stimulus implemented during the global financial
crisis in 2008-09, which piled up local debt.
The new leadership has shown greater tolerance for slower growth as
it attempts to steer the economy towards domestic consumption and
away from the traditional engines of exports and investment.
"A rebalancing of growth from investment to consumption and from
industry to services continues, but there are challenges and
rebalancing is slow," the World Bank said.
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Still, the World Bank saw downside risks to its 2014 China growth
projection, as an abrupt deleveraging of local government debt and a
sharp slowdown in the real estate sector could weigh on economic
"We keep the baseline as it is, but we also stress that there are
significant downside risks to that projection," Karlis Smits, senior
economist at the bank, told a briefing.
He said there are signs that the government may set a lower growth
target for next year to help reduce imbalances in the economy, but
did not elaborate.
The government aims for average annual economic growth of 7 percent
under its 12th five-year plan that covers 2011-2015.
The World Bank urged China to speed up fiscal and financial sector
reforms to deal with the root cause of its debt problems.
"Delays in implementing coherent reforms could perpetuate resource
misallocation, undermine the health of the banking system, threaten
the debt sustainability of local governments, and increase the
fiscal costs of reforms," it said.
(Reporting by Kevin Yao; Editing by Eric Meijer & Shri Navaratnam)
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