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REPEAT: China Set To Achieve 2014 Growth Target, World Bank Says

June 5, 2014

BEIJING (Alliance News) - Although China's economic growth will moderate over the medium term because of gradual rebalancing, it will meet the 7.5% growth target this year, the World Bank said in its China Economic Update released Friday.

From 7.7% growth in 2013, China's growth is set to ease to 7.6% this year and to 7.5% in 2015, the Washington-based development bank said Friday.

A rebalancing of growth from investment to consumption and from industry to services continues, but there are challenges and rebalancing is slow.

The prospect of 2014 growth falling below 7.5% will likely be met with accommodative fiscal and monetary policies, for which China has room.

The fiscal policy measures announced in April will help the authorities to reach the indicative growth target of around 7.5% this year, but will likely add to current imbalances and vulnerabilities, the bank noted.

The World Bank warned that those government polices run the risk of "perpetuating a traditional growth model that relies on government-led investment fueled by credit expansion."

The International Monetary Fund on Thursday advised China to refrain from unveiling additional stimulus. The IMF said such actions should only be deployed if growth slows significantly below this year's growth target.

After a slowdown in the first quarter of 2014, economic activity including industrial production showed signs of a pick-up, World Bank said.

The recent acceleration is likely to continue into the next two quarters, reflecting strong consumption, a recovery of external demand, and new growth supporting measures, including infrastructure investments and tax incentives for small and medium-sized enterprises, the bank said.

The lender, at the same time, identified several risks to the gradual adjustments in China. According to the World Bank, a disorderly deleveraging of local government debt could drag investment growth.

Secondly, an abrupt change in cost of capital for sectors like real estate could reduce economic activity. Finally, the recovery in exports may not materialize if growth in advanced countries weakens.

The bank urged authorities to focus on fiscal and financial sector reforms. It noted that while these reforms may reduce growth in the short run, policies that promote competition, lower entry barriers to protected sectors and reduce administrative burden on businesses will help dampen the impact, and create a more market-oriented economy.

China's banking regulator today said it will loosen lending to small businesses and infrastructure projects and tighten supervision over shadow banking.

The China Banking Regulatory Commission also said it will give priority to lending to first-time home buyers. CBRC Vice Chairman Wang Zhaoxing said the regulator will relax loan to deposit ratio.

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Source: Alliance News

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