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World Bank Cuts China's Growth Forecast, Sees Soft Landing

World Bank Cuts China's Growth Forecast, Sees Soft Landing

The World Bank trimmed its 2012 growth estimate for China, as domestic demand growth as well as investment decelerates amid weak foreign orders. Nevertheless, the lender sees prospects of a soft landing.

The growth projection for this year was lowered to 8.2 percent from its January estimate of 8.4 percent, the Washington-based lender said in its China Quarterly Update on Thursday. The prospects for a gradual adjustment of growth remain high.

"The risks of overheating are moderating, increasing the prospects to achieve a soft landing," said Ardo Hansson, lead economist for China.

Nonetheless, economic growth for 2013 is seen at 8.6 percent, up from the prior estimate of 8.3 percent.

Key risk factors that challenge soft landing are weak and uncertain growth prospects of high-income economies and the evolution of the ongoing correction in China's property markets.

Although sufficient space remains to respond to downside risks, any policy response would need to be carefully crafted keeping in mind longer-term effects and objectives, the update said.

The lender advised China to tweak its reserve requirements further to ease the availability of credit. But the policy rate action should best be reserved for potential downside scenarios since real interest rates are already accommodative, it said.

Moreover, the World Bank said administrative measures to cool the property market should be substituted by market-based steps that raise the cost of capital and expand the range of investment opportunities.

According to the World Bank, China's longer-term outlook will depend on its management of central structural challenges. Looking forward, the lender noted that China should shift its focus from the rate of growth towards the quality of development.

Yesterday, the Asian Development Bank cut its 2012 outlook for China to 8.5 percent from 9.1 percent. The ADB projects 8.7 percent expansion for 2013.

The gross domestic product is expected to grow 8.4 percent year-on-year in the first quarter, the weakest pace since 2009. The National Bureau of Statistics is set to publish the first quarter GDP figures on Friday.

by RTT Staff Writer

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