The WSJ reports, "China's economy is expected to record slower growth over the medium term, the World Bank said on Friday, but Beijing has the ability to roll out economic support measures to meet its official target of about 7.5% this year.
The bank said in its China Economic Update, a regular report on the state of the economy, that the prospect of growth falling below the target would likely trigger accommodative fiscal and monetary policies.
It said, however, that such support measures run the risk of "perpetuating a traditional growth model that relies on government-led investment fueled by credit expansion." It said these growth-oriented policies might result in China failing to push through structural reforms needed for more sustainable development.
China unveiled a program of broad reforms in November aimed at reducing its reliance on investment and exports and expanding the role of consumption. The reforms promised to give a "decisive" role to the market in determining prices of scarce resources and limit government intervention in the economy.
The World Bank maintained its forecast made earlier this year that China's growth will slow to 7.6% in 2014 and 7.5% in 2015, down from 7.7% in 2013.
It added, however, that economic activity—including industrial production—has shown signs of a pickup in recent weeks. It said it expects a recent acceleration to continue into the next two quarters as a result of robust consumption, a recovery of external demand and further growth support measures.
The World Bank also said that risks to an orderly and gradual adjustment remain. The main channels of a possible disorderly unwinding are related to local-government financing, which could trigger a sharp slowdown in investment growth, and from the sluggish real estate.
China needs to address the rapid accumulation of local government debt as well as the buildup of credit in the economy overall, according to the World Bank, adding this will require fiscal and financial reforms. "Even though aggregate credit growth has started to decelerate, the economy is highly leveraged," the World Bank said.
Outstanding bank loans reached 135% of GDP in 2013, up from 105% in 2007, the World Bank said. It added that the debt run-up is even starker using China 's broadest credit measure—the total stock of aggregate financing—which was more than three times GDP in 2013, up from 124% in 2007. Corporate debt to GDP is now at about 125%, among the highest in Asia.
"The rebalancing will be uneven reflecting tensions between structural trends and near-term demand management measures," Chorching Goh, lead economist for China at the World Bank, said in a statement released with the report.
Source: The WSJ
