ADB forecasts China 2016 growth at 6.5%

BEIJING - China's economic growth will further ease to 6.5 percent in 2016 and 6.3 percent in 2017, the Asian Development Bank (ADB) predicted on Wednesday.

"Weak external demand and excess capacity in some sectors, on top of a shrinking labor force and rising wages, continue to induce a gradual decline in China's growth rate," said Shang-Jin Wei, ADB's chief economist, following publication of the bank's Asian Development Outlook 2016 report.

China's economy grew 6.9 percent year on year in 2015, its lowest annual expansion in a quarter of a century.

"Supply-side reforms, including improving labor market flexibility, are needed to improve the economy's resilience to negative shocks and raise its potential growth," Wei added.

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, according to the report.

The ADB said key risks include weakening global demand, volatility in financial markets, and another dip in global commodity prices, among others.

Domestically, a weakening of consumer sentiment and a rise in bad bank loans would undermine economic performance, it added.

"The national government's more gradual approach to reducing production capacity, and its encouragement of mergers rather than bankruptcies in state companies, is helping to avoid a more extreme fallout from rebalancing the economy," the report said.

China has set an economic growth rate target of 6.5 to 7 percent in 2016, with an average annual growth rate of at least 6.5 percent through 2020.