China likely to revise growth target: World Bank

Economists urge flexible 6.5 -7.5 % growth forecasts

China is expected to further lower its economic growth target to 7 percent next year, the World Bank said on Wednesday, while urging the country to focus on reform efforts to ensure a more sustainable path.

"Growth in China continued to slow in 2014, reflecting policy steps to put economic growth on a more sustainable footing," the World Bank said in its biannual report of the China Economic Update.

The World Bank forecast China's GDP growth for 2014 at 7.4 percent, still within the range of the government's preset growth target of about 7.5 percent.

"Policy efforts to tighten credit growth, reduce excess capacity, internalize the cost of industrial pollution, and harden budget constraints of local governments intensified in 2014. These policies are welcome and will help put growth on a more sustainable path," Karlis Smits, senior World Bank economist, told reporters at a media briefing.

The World Bank revised downward projections for the country's GDP growth in 2014 to 7.4 percent from 7.6 percent in June, largely due to weaker-than-expected domestic economic activities weighed by the slackening housing market.

China's GDP grew 7.3 percent in the third quarter from a year earlier, the weakest since the first quarter of 2009.

China's once red-hot real estate sector, which used to be an important driver of China's economic growth, has shown signs of cooling since early this year.

Average growth is expected to further ease to slightly above 7 percent for 2015-16, as policy efforts to make the economy more sustainable are likely to intensify, the World Bank noted in the report.

The Chinese government's indicative growth target for 2015 will signal the emphasis that the authorities are putting on growth and reforms, according to the institute.

China faces tough decisions regarding a trade-off between achieving its short-term economic growth target and implementing reforms to ensure a long-term healthy economy.

"The emphasis on meeting short-term growth targets will make it more challenging to implement the policies necessary to shift growth to a more sustainable medium-term path," the World Bank's report indicates.

China's focus should be on reforms rather than meeting specific growth targets, Smits said.

Consistent with the World Bank's forecast, the IMF also foresees that China's economy will grow 7.4 percent this year. But it has many tools to keep growth well above 7 percent next year, Changyong Rhee, director of the Asia and Pacific Department at the IMF, told a briefing in Manila in September.

The weak property market is regarded by many as the biggest risk facing China's economy, as falling home prices, transactions and new investment drag on related sectors from home appliances to furniture and steel.

However, Rhee said China's faltering property market is just a gradual adjustment rather than a hard landing.

"The golden era for the property market has gone in China, and a sluggish real estate sector could weigh on investment next year," Chen Xingdong, chief China economist at BNP Paribas Corporate and Investment Banking, told the Global Times on Wednesday.

The real estate sector plays an important role, contributing 15 percent of China's economy, Chen estimated.

China could set up an official growth forecast range of 6.5 to 7.5 percent for next year, rather than a fixed growth target, so as to leave more room for reforms, he said.

The downward pressure will persist in 2015, as reform policies are expected to further constrain irregular economic activities such as frenzied investment by local governments, Chen noted.

The country revised its budget law in August which pushes forward a transparent budget control system and holds local leaders accountable for local government debt risks and defaults.

Overvalued Chinese currency also tends to put domestic manufacturing activities, another pillar sector contributing about 47 percent of China's GDP growth, at a great disadvantage in the international market, Lu Zhengwei, chief economist of the Industrial Bank in Shanghai, told the Global Times on Wednesday.

Even though China doubled the daily trading band of the yuan in March amid an effort to make the exchange rate regime more flexible, it is not market-driven enough to reflect the true value of the yuan, resulting in the overvaluation, Lu said.

Amid China's efforts to shift from the investment-led manufacturing hub to a consumption-driven economy, it will further promote domestic demand by increasing people's incomes, especially farmers, improving social welfare and expanding distribution networks, according to a State Council meeting presided over by Premier Li Keqiang on Wednesday.

The meeting stressed the need to promote consumption of e-commerce and boost purchases of energy-saving products, stabilize home purchases by increasing affordable housing supply and facilitating the use of public housing funds, as well as bolstering traveling and entertainment spending.