May 6, 2014 / 9:07 AM / in 5 years

OECD cuts China 2014 growth forecast to 7.4 percent

BEIJING (Reuters) - China’s economic growth is likely to slow to 7.4 percent in 2014 from 7.7 percent last year due to the government’s drive to curb credit risk and excessive factory capacity, the OECD said on Tuesday.

A woman looks for goods at a supermarket in Beijing March 22, 2013. REUTERS/Kim Kyung-Hoon

In November, the Organisation for Economic Co-operation and Development had predicted China’s economic growth could accelerate to 8.2 percent in 2014.

The OECD attributed the slower growth forecast to Beijing’s efforts to rein in the shadow banking sector, overcapacity in such industries as steel and cement and a cooling property market. Many real estate developers and local governments have relied on shadow banking credit such as trust loans and other forms of off-balance sheet borrowings to stay liquid.

China’s government has in recent weeks hastened construction of railways and affordable housing and cut taxes for small firms in a bid to support the slowing economy, but Premier Li Keqiang has ruled out any forceful measures.

“Investment may slow more than projected if the supportive measures fail to counterbalance the effects of the phasing out of excess capacity and the anti-corruption campaign,” the OECD report said.

“Consumption may also surprise on the downside if a cooling property market were to damp housing-related spending and weak income growth were to curtail spending on durables.”

The latest Reuters poll showed China’s growth could slow to 7.3 percent this year, the weakest showing in 24 years and slower than the official target of 7.5 percent.

Beijing’s efforts to tackle factory overcapacity and pollution have hit output, while a sustained anti-corruption campaign has hurt consumption, especially of high-end goods.

The government is trying to restructure the economy so it is driven more by consumption than the traditional engines of exports and investment, but wants to avoid a sharp slowdown that could fuel job losses and threaten social stability.

“The pace of structural reforms will influence short-term outcomes, the challenge being to keep up sufficient momentum to reduce imbalances whilst avoiding overly abrupt adjustments that might trigger a crisis,” the OECD said.

The OECD predicted China’s consumer inflation will ease to 2.4 percent in 2014 from 2.6 percent last year.

The volume of China’s exports of goods and services will grow 7.5 percent in 2014, slowing from 8.6 percent last year, while import growth could ease to 9.2 percent from 10.7 percent.

China’s current account surplus as a share of GDP could shrink to 1.2 percent in 2014 from 2 percent last year, it added.

Reporting by Kevin Yao; Editing by Jacqueline Wong

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