OECD lowers China's growth forecasts for 2017/18, warns of ballooning corporate debt

The Organisation for Economic Co-operation and Development (OECD) in its bi-annual economic outlook report released on Tuesday lowered China's economic growth to 6.5 percent this year and to 6.3 percent in 2018.

The Paris-based think tank also warned of also warned of China's ballooning corporate debt and called for the government to intensify efforts to tackle this issue. China's corporate debt is about 175 percent of GDP, one of the highest in emerging market economies, with state-owned enterprises (SOEs) accounting for around 75 percent.

"In terms of risk, we believe that internally the biggest risk is the accumulated and fast pace of growth of credit both in terms of shadow banking and the banking system," said Alvaro Santos Pereira, director of the country studies branch of the OECD's Economics Department.

The report noted that that protectionism by some trading partners would hurt Chinese exports. Exports are expected to grow 3.4 percent in 2017 and 3.3 percent next year due to increasing global demand. While imports are set to grow 7.7 percent this year and 6.0 percent in 2018, as imports used to process exports fall, the OECD said.

The OECD's forecast for 2017 is largely in line with the Chinese government's growth target of around 6.5. Analysts believe that the more modest target will give policymakers more room to tackle debt risks and push through painful reforms, though authorities are expected to proceed cautiously to avoid hurting growth.