ADB lowers China's growth forecast to 7.7%

HONG KONG -- The Asian Development Bank lowered its 2012 GDP growth estimate for China to 7.7 percent from 8.5 percent projected in April, whereas a soft economic landing will be ensured by the Chinese government, an economist of ADB said Wednesday.

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Changyong Rhee, a chief economist of ADB, said at a news conference that downside risks to the economy of China are likely to intensify in the short term given bleak global demand and the uncertain outlook for the country's largest trading partners.

"The global slump in demand, especially from Europe, will remain a serious drag on growth in the near term," Rhee said, adding that the government's strong fiscal position, receding inflation and expansionary policy measures should ensure a soft economic landing.

The Chinese government announced earlier this year that its target growth rate is 7.5 percent, which from Rhee's perspective, means that the government overweighs quality growth than quantity growth.

Rhee said that the government has responded with a series of measures to stimulate economic activity, including additional state spending, tax cuts and incentives, and advancing infrastructure projects.

Rhee considered the slowdown of growth as a natural adjustment. "There is no need to be panic." he said, "You cannot expect that China will continue to grow by two-digit. It is just a natural adjustment to a more sustainable growth path."

The report named ADB's Asian Development Outlook 2012 Update released Wednesday brought down its 2013 forecast for China to 8.1 percent from 8.7 percent.

In the report, ADB also projected Asia's GDP growth dropping to 6.1 percent in 2012, and 6.7 percent in 2013, down from 7.2 percent in 2011. The ongoing sovereign debt crisis in the euro area and looming fiscal cliff in the United States have significant spillovers to the developing Asia.

As for Asia's growth, ADB suggested that services can be a supplementary growth source. Services, according to the ADB report, now account for almost half of Asia's output. In China and India, two giants in the region, services contributed to more than 40 percent and about two-thirds of growth respectively between the year 2000 and 2010.

However, the sector's true potential remains blocked by restrictions and regulations. "These barriers need to be dismantled so that everyone, particularly the region's poor, can seize the opportunities of growth," Rhee said.