Moody's says China growth as low as 6.5 pc paves way for economic reform

Beijing should be ready to accept growth as low as 6.5 per cent this year and the next to facilitate structural reforms needed to rebalance the economy, says Moody's Investors Service.

"It's a rare phenomenon where economies sustain rapid growth for even three decades, let alone for longer," Thomas Byrne, senior vice-president on sovereign risk at Moody's, told the South China Morning Post yesterday.

The ratings agency predicts China's real, or inflation-adjusted, gross domestic product growth will edge down into the 6.5 to 7.5 per cent range this year and next, compared with double-digit rates of the past decade.

The Moody's assessment comes amid the raging debate among China watchers over whether the economy will decelerate substantially in the years ahead because of challenges such as overcapacity, rising labour costs and mounting financial risks.

After growth cooled to an 18-month low of 7.4 per cent in the first quarter, President Xi Jinping urged people to adapt to a "new normal" of lower growth rates.

"So far the signs are suggesting authorities are favouring stability over growth and will gradually work out the imbalances in the economy," Byrne said.

"The risk is that [the] reforms are not carried out decisively and that the build-up in the leverage of the system is not contained."