(EnergyAsia, August 19 2015, Wednesday) — China faces “financial vulnerabilities” and “challenges” as its economy adjusts to a new era of significantly slower growth, according to recent separate reports by the World Bank and the International Monetary Fund (IMF).
After growing by more than 10% a year in the first decade of this century, the World Bank expects the Chinese economy to expand by 7.1% in 2015 and by 6.9% in 2017, while the IMF has a more downbeat call for 6.8% this year and 6.3% in 2016.
Both institutions put a positive gloss on the slowdown in describing the world’s second largest economy as entering a new phase of a “more balanced and sustainable” growth.
“In the short run, the slowdown in China’s economy growth means the government is making inroads with structural adjustments and policy efforts to address financial vulnerabilities,” said Karlis Smits, World Bank’s senior economist who wrote the bulk of the report.
“Over the medium term, these efforts are helping China gradually shift its growth model from manufacturing to services, from investment to consumption, and from exports to domestic spending.”
The bank said Beijing’s recent moves to slow credit growth, contain shadow banking and limit borrowing by local governments have led to slower investment growth in real estate and heavy industtires. At the same time, the government has announced a series of limited, targeted stimulus measures to prevent growth from slowing down too much.
The IMF said China’s reliance on credit-financed investment since the global financial crisis has created “large vulnerabilities” including a runaway domestic real estate bubble and massive municipal debts, both brought on by unsupervised cheap loans.
The IMF said it welcomed Beijing’s pledge to undertake structural reforms for a “more sustainable growth model” that will reduce “vulnerabilities” while “preventing growth from slowing too much.”
On a positive note, the World Bank found that the Chinese economy has been growing its services sector, especially in banking and insurance while domestic consumption has risen at a slightly faster rate than investment spending.