ADB cuts China growth forecast

Asian Development Bank says more reforms are needed to boost consumption and raise growth

PUBLISHED : Wednesday, 02 October, 2013, 11:30am
UPDATED : Thursday, 03 October, 2013, 2:39am

Beijing should act faster to transform the mainland's economic growth pattern, boosting domestic consumption effectively and cutting its reliance on investment and exports, because growth is continuing to lag expectations, the Asian Development Bank (ADB) said yesterday.

The Manila-based lender again reduced its forecast for mainland economic growth this year - the second time in three months - citing slow investment growth due to a sudden pullback in credit and expectations of single-digit growth in both exports and imports for the remainder of the year.

The bank now expects the world's second largest economy to grow by 7.6 per cent this year, down from July's forecast of 7.7 per cent and April's forecast of 8.2 per cent.

It expects gross domestic product growth of 7.4 per cent next year, down from its April forecast of 8 per cent.

"The Chinese central government will have to carry out a delicate balancing act of encouraging sustained robust growth through reforms and stimulus, while continuing to mitigate risks in the financial sector through careful monetary policy management," ADB chief economist Changyong Rhee said in Hong Kong yesterday.

"Authorities must continue with structural measures to help lift the economy, putting greater emphasis on domestic consumption and less on investment."

Boosting domestic consumption would require more public spending on health, education and social safety nets, ADB said, which would need faster fiscal reforms to release sufficient resources to develop social services.

The mainland's economy grew by a weaker-than-expected annual rate of 7.6 per cent in the first half of the year due to soft domestic demand and a sharp deceleration in foreign trade, putting Beijing under pressure to accelerate reforms to take up the economic slack.

In August, the mainland recorded a series of improved economic data, with industrial output, retail sales and exports all showing gains, backed by some growth-support policies and improving external demand. Rhee said those figures pointed to a better second half, but the overall economic environment would remain subdued.

"Moderating growth in the PRC [People's Republic of China] is the price of structural reform," Rhee said, adding GDP growth could stay above 7 per cent a year over the next decade as it reaped the fruits of structural reform.

The ADB said the knock-on effects from the slowdown in mainland growth would be seen across Asia, especially in East and Southeast Asia, which had deep economic ties with China.

It trimmed its economic growth target for developing Asia to 6 per cent this year, down from an earlier forecast of 6.6 per cent. Hong Kong's economy would grow by 3.2 per cent this year, it said, down from an earlier forecast of 3.5 per cent.