The World Bank has cut China's growth forecast as the world's second-largest economy faces multiple issues, ranging from ongoing property crisis to weakening domestic demand and deflation, which is dragging down the economy.
It also cut the 2024 growth forecast for developing economies in East Asia and the Pacific, including China, to 4.5 percent, compared with 4.8 percent in April.
The report highlights China's economic problems that weigh on its growth, such as growing debt, weakening property market, as well as longer-term structural factors.
It pointed out that as China heavily relied on the property sector for growth in the past, now it is turning back to bite its economy as the real estate market has been in deep trouble since 2021.
"China's past growth, largely driven by investment in infrastructure and property, has left firms and local governments burdened by debt—as saturated infrastructure yields diminishing returns and an oversupply of housing reduces property prices," the report reads.
In addition, the World Bank pointed out that while many countries experience high inflation, China faces deflation as the country's producer price index dropped by 0.4 percent per month during the January–July period, wearing away corporate profits.
China's slow growth also hurts the rest of the region, as a 1 percent decrease in its growth is associated with a 0.3 percent regional growth reduction.
Exports of the region, especially from China and Southeast Asia countries, also took a hit with the introduction of the Biden administration's Inflation Reduction Act and the CHIPS and Science Act last year, which aimed to enhance American manufacturing and reduce U.S. dependence on China.
Other Banks Also Cut Growth ForecastThe World Bank's lowered forecast of China's growth comes as multiple global financial institutions and rating agencies cut the country's growth projection below Beijing's official growth target this year.
Some institutions have downgraded their forecasts due to a dim outlook about the country's economy. In August, UBS cut its forecast to 4.8 percent for 2023 and 4.2 percent for 2024.
China's Property Crisis Could Take Years to ResolveThe ongoing property crisis is a major problem for China's economy. The World Bank said investment in China's real estate sector has stagnated and declined by 28 percent since July 2021 amid weak housing demand and property developers' debt distress.
Country Garden, the country's largest developer by contracted sales, is also teetering on default.
Multiple debt defaults in China's real estate industry have resulted in partially-finished apartment complexes with disgruntled homebuyers, severely hurting the buyer's confidence in the real estate market.
Analysts estimate that China's property sector accounts for a quarter or third of its economy, while the U.S. property market, at its peak, represents only 5 percent.