EU forecasts another 3-year slowdown of China's economy

European Commission has said China's economy will be registering another three-year slowdown with the forecast of 2016 GDP growth slipping below 7 %.

"The forecast for 2014 is for growth of 7.3%, moderating to 7.1% in 2015 and 6.9% in 2016," European Commission said in its autumn economic forecast report on Tuesday.

European Commission has delivered conservative forecasts for all the major economies, such as US, Japan, China and itself as the new Juncker Commission took office on Saturday.

Brussels said its forecast on China is predicated on a controlled slowdown in the real estate sector, together with a managed adjustment to lower trend growth, reflecting a degree of successful "re-balancing" of the Chinese economy.

Given the tepid first half of the year,European Commission said Beijing is expected that both monetary and fiscal policy will remain accommodative and that the Chinese government will continue to use targeted stimulus measures to keep growth within reach of the official target for 2014 of 7.5%.

European Commission says the major risk factors are closely linked to China's domestic imbalances, particularly over-reliance on investment spending and the high weight of property related investment in GDP.

"The associated build-up of local government and corporate debt has been large by historical standards, with a significant proportion financed by the shadow banking system, and the quality of the underlying assets is variable," it has warned in the report.

But Brussels had active comment on Beijing's efforts on re-balancing its economy, saying a gradual rebalancing towards higher consumption and lower levels of (higher quality) investment is warranted.

However, it also warned that a sharper-than-expected slowdown in investment would not only have a direct impact on domestic demand, but could also place highly leveraged corporates and developers under pressure, with potential knock-on risks for the financial system.