World Bank reduced its growth outlooks for China and the developing region of East Asia. The bank’s outlooks have been lowered for 2013 and 2014.
East Asian economies is expected to expand by 7.1% this year and 7.2% by 2014, according to World Bank. The bank’s previous outlooks were 7.8% and 7.6% respectively.
“Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand,” the bank reported.
China experienced a cut as well, with the country forecasted to grow by 7.5% this year, while by next year the economy is predicted to grow by 7.7%. The bank’s previous predictions were 8.3% for and 8.0% for 2014.
“Still, the economy has yet to make the decisive turn toward consumer-based growth,” according to World Bank.
The bank reported that China’s biggest problem is between the local government debt and its supervision.
World Bank warned that China should strengthen its municipal finances “with clear rules on borrowing, on allowed sources of borrowing, on debt resolution, and on the disclosure of comprehensive financial accounts by local governments.”
“The rapid expansion of shadow banking poses serious challenges, since shadow banking is closely linked to the banking system, is less regulated, and operates with implicit guarantees from banks and local governments,” according to the Bank.
On the bright side, the second-largest economy showed an improvement, with a boost in consumption and services sectors. As well as China’s investment stimulus program with credit expansion also showed an improvement as well.
The International Monetary Fund (IMF) is expected to be release its new world economic outlook by Tuesday.
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