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World Bank keeps its forecast of China GDP at 6.5% in 2017

The World Bank kept its forecast for China’s 2017 economic growth at 6.5 percent unchanged on April 13, and expected the Chinese economy to continue to slow down gradually, as it rebalanced toward consumption and services.

The fresh East Asia and Pacific Economic Update also projected a growth rate of 6.3 percent next year and 2019, compared with 6.7 percent last year, but upgraded its economic growth forecast for 2018 for emerging countries in East Asia to 6.1 percent, up from the 6.0 percent it projected six months earlier.

“We’re hoping that economic policy will move to address some of the macro-economic vulnerabilities that have built up since the global financial crisis including the problem with deleveraging, the credit expansion, and we think that if they pursue with these policies seriously that will have a somewhat dampening effect on economic growth,” said John Litwack, the lead Economist China at World Bank.

The Asian Development Bank last week also projected China’s gross domestic product (GDP) to grow 6.5 percent in 2017 and a more pessimistic 6.2 percent for next year.

The main challenge to more inclusive growth in China is the gap in living standards between rural and urban areas. The World Bank expected poverty reduction to continue, with the extreme poverty rate projected to decline to 0.4 percent by 2019.

“China certainly has a very well-developed program for poverty alleviation. Part of the focus needs to be on providing services, making sure that public services are at minimal levels of standards in all parts of China, focusing quite a bit on children, making sure that children in poorer areas still have the opportunity to receive higher quality of services,” Litwack noted.

Financial stability risks associated with the rapid build-up in domestic debt, including by local governments, are a key near-term challenge. Credit to the government and private non-financial sector increased by 16.2 percent last year, up from a rise of 15.1 percent in 2015.

For China, the report also said that the government should step up its efforts to reduce corporate debt and restructure state-owned enterprises, tighten the regulation of shadow banking and address the rising household mortgage debt issue.