After 2006 China's economy could encounter a modest downturn with GDP growth slowing from the present 10.4 percent to 9.6 percent in 2007 and 8.7 percent in 2008, said a World Bank (WB) report issued on Wednesday.

The WB released its annual report -- Global Economic Prospects 2007 -- in Beijing on Wednesday. It gives a medium-term view for China's economy in a special section on regional economic prospects.

Continued robust investment demand and a pickup in private consumption should keep China's GDP growth at high levels, says the report. "China's economy remains favorable in the coming years," said report author, Richard Newfarmer.

According to the document China's export growth rates are projected to decelerate toward 14 percent in 2008. This is lower than the estimated 20.3 percent increase in the year 2006. Mr Newfarmer said the modest slowdown wasn't a bad thing and would help ease pressure on China's economic growth.

The report also indicates that in coming years signs of the economy overheating would be limited to specific sectors and regions. While production capacity continued to expand in line with demand, inflation remained low and the current account was in surplus -- all of which augured well for a soft landing.

But the report also suggested that high investment rates and excess capacity in several sectors dominated by state-owned enterprises would leave open the possibility of a sharp decline in investment. In 2006 China made efforts to contain its soaring investment and balance the economy.

Rapid investment growth and a surge in exports as new capacity came on stream saw the Chinese economy expand by 10.7 percent year-on-year in the first nine months of 2006.

Investment demand in the country was particularly strong in the first half of 2006 but the WB report states that China's efforts to contain investment via tighter monetary policy and sector-specific administrative measures had resulted in a modest slowdown of GDP in the third quarter to 10.4 percent.  

The WB also said that robust expansion in credit and money supply, in part fueled by a strong balance of payment inflows, helped support acceleration in domestic demand. The contribution from this demand to growth increased to an estimated 7.3 percent in 2006. This is up from 5.6 percent in 2005.

In the first nine months of 2006 China's trade surplus increased to US$110 billion. This is higher than the total for all of 2005 and international reserves have exceeded US$1 trillion.

Owing to years of an annual export growth of more than 20 percent China has overtaken the US as the world's second-largest exporting nation over this year, according to the WB report.

Bert Hofman, the WB's Lead Economist for China, told Xinhua that establishing both an external and internal balance in the economy was still a major challenge over the coming years. And China's 11th Five-year Plan was an important policy to readjust the economy for future sustained and healthy development.

He suggested that China should closely monitor environmental pollution. This was a major challenge not only for East Asia and Pacific regions but also the world.

(Xinhua News Agency December 14, 2006)