World Bank has lowered its growth forecast for China citing weak demand for its exports and lower investment growth. The bank said it expects China's economy to grow by 7.7% this year, down from its projection of 8.2% in May.
China's exports have been hurt by economic problems in the Euro zone and the US, two of its biggest markets. Meanwhile, policymakers have found it tough to boost domestic demand enough to offset the decline in foreign sales.
China's slowdown this year has been significant, and some fear it could still accelerate, the bank said in the latest report.
After the global financial crisis in 2008-2009, China unveiled a slew of stimulus measures, including record lending by state-owned banks, to maintain a high rate of growth.
While the measures helped it sustain growth, they also resulted in a sharp increase in property prices in the country, raising fears about asset bubbles being formed. Prompted by those fears, policymakers have been trying to curb lending in recent times.
While the moves have helped to keep property prices in check, there have been concerns that they may have hurt China's growth.
However, the bank said that despite the recent slowdown in the economy, Beijing may be prompted to hold back on any big stimulus measures, not least because any such move may result in property prices rising again.
Economic momentum is expected to be weak during the coming months with limited policy easing, a property market correction, and faltering external demands, the bank said.
It added that the role of investment in China's growth had also reduced over the past year, indicating that Beijing may be trying to rebalance its economy.
In 2011, China's consumption contributed more to GDP growth than investments, for the first time since records of GDP began in 1952, it said.
Some observers see this as the start of a trend in domestic rebalancing, and associate this with a more permanent growth slowdown in China.
However, it said that the central government had accelerated approvals of its investment projects which could support the recovery in investment and activity in the quarters to come.
The bank also lowered its forecast for East Asia in the wake of a slowdown in exports from the region. It said growth in East Asia, which includes countries such as Indonesia, Malaysia, Thailand and Philippines, will decline a full percentage point to 7.2% this year.
However, it added that strong domestic consumption in the region was likely to boost its economic recovery next year.
Weaker demand for East Asia's exports is slowing the regional economy, said Pamela Cox, World Bank East Asia and Pacific Regional Vice President.
But compared to other parts of the world, it's still growing strongly, and thriving domestic demand will enable the region's economy to bounce back to 7.6% [growth] next year.