China’s growth will decline to 6.5 per cent this year and slide further to 6.3 per cent in 2017, the Asian Development Bank forecast on Wednesday as it warned the world’s second-largest economy over its huge industrial overcapacity.
“Weak external demand and excess capacity in some sectors, on top of a shrinking labour force and rising wages, continue to induce a gradual decline in China's growth rate,” Shang-Jin Wei, ADB’s chief economist, said.
The ADB warned that in the long-run China faces a demographic squeeze as the population ages. China's economy grew 6.9 per cent year-on-year in 2015, to its lowest annual expansion in a quarter of a century. It targets to achieve a growth rate of 6.5-7 per cent this year. “Supply-side reforms, including improving labour market flexibility, are needed to improve the economy's resilience to negative shocks and raise its potential growth,” Wei said during the release of Asian Development Outlook 2016 report. The sharp slowdown in investment, particularly in real-estate and capital-intensive industries, will remain a drag on the economy, but this will be partly offset by further Government spending on infrastructure and green investment, said report.