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Abu Dhabi, UAEMonday 10 December 2018

Asian Development Bank boosts China's economic forecast

Lender now expects China’s economy to grow 6.7 per cent in 2017, up from a previous projection of 6.5

Workers make a vat at a porcelain factory in Jingdezhen, Jiangxi Province, China. ADB has raised its outlook for the country's economy. Reuters
Workers make a vat at a porcelain factory in Jingdezhen, Jiangxi Province, China. ADB has raised its outlook for the country's economy. Reuters

The Asian Development Bank (ADB) raised its outlook for China’s economic growth this year on the back of strong domestic consumption, an export recovery and solid growth in services.

ADB now expects China’s economy to grow 6.7 per cent in 2017, up from a previous projection of 6.5 per cent made in April.

The 2018 growth forecast was also raised to 6.4 per cent from 6.2 per cent.

China’s economy has grown at a faster than expected 6.9 per cent pace in the first half of this year, on track to beat the government’s target of around 6.5 per cent despite Beijing’s efforts to curtail risky forms of investments and rising debt.

“The [Chinese] economy remains resilient, solidifying its role as an engine of global growth,” said Yasuyuki Sawada, the ADB chief economist.

“Supply-side reform is moving forward, but eventual success hinges on a careful balancing of the role of the market and the state, particularly as the country continues its transition to a more market and services-driven economy.”

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ADB’s forecasts for China in 2017 and 2018 now match those of the IMF, which upgraded its own China growth forecast in July.

But 6.7 per cent growth for the full year would still indicate a notable slowing over the second half of the year.

A cooling property market due to strong government controls and weaker exports growth could impact overall economic output in the second half, analysts say.

Indeed, August economic data suggested the world’s second-largest economy is finally starting to lose some momentum as borrowing costs rise.

Rising debt in the economy and a reliance on credit to drive growth has also raised worries among groups including the IMF and led S&P Global Ratings last week to cut China’s sovereign credit rating.

ADB said it expects China’s monetary and financial policies will remain unchanged this year, while exchange rate reform could include a widening of the trading band for the yuan.

But the bank highlights risks that include liquidity shortages from regulatory tightening, global trade protectionism and renewed capital outflows if the dollar begins to strengthen.