Lender trims China, Asia growth forecasts

The Asian Development Bank cut its annual growth forecast for China to 7 percent from 7.2 percent on Thursday, blaming weak external demand, a declining working-age population and rising wages in the country.

China's GDP grew by 7 percent year-on-year in the second quarter, higher than previous market estimate of 6.8 percent.

Jurgen Conrad, head of the economics unit, PRC resident mission of the ADB, told a news conference in Beijing that he did not see any reason to mistrust the figures.

However, he added, the "quarterly GDP statistics are less reliable than annual statistics" in assessing economic performance.

ADB has also trimmed its 2015 growth forecast for Asia to 6.1 percent from 6.3 percent, amid slower-than-expected economic activity in China and the United States.

Wei Shangjin, the bank's chief economist, said slower growth in China is likely to have a noticeable effect on the rest of Asia given its size and close links with other countries in the region through regional and global value chains.

Official figures revealed on Wednesday that consumption's contribution to the economy reached a record 60 percent in the first half, while the country's fixed-asset investment fell to a 15-year low during the same period.

The same day, Janet Yellen, the US Federal Reserve chair, said she expected a US interest rate increase by the end of the year. The Fed is keeping an eye on the situation in Greece, too, as well as the stock market turmoil in China, according to media reports.

Wei insisted that the ongoing fluctuations in the Chinese stock market will not have a big impact on China's GDP and real economy. The financial sector, he said, is also expected to contribute less to growth after the recent stock market correction, although the drop in stock prices is unlikely to have much impact on consumption.

Economists say the rate normalization could lead to a widening in the interest rate differential with the dollar likely to gain strength this year against other currencies. A stronger dollar will make other currencies weaker, but China may be "an exception", Wei said.

A United Overseas Bank Ltd report on Wednesday, meanwhile, said China's financial reform is on track, including interest rate liberalization and further opening of the capital account, which allows for greater participation by foreign players in China's domestic capital markets as the country aims for Special Drawing Rights admission by the end of 2015.

Wei warned the opening of the capital account should remain at a cautious but reasonable pace, as some developing nations may have opened up their capital markets too quickly, which posed risks to their economic stability.