BEIJING (dpa-AFX) - China's growth momentum is set to slow further this year and next amid adjustments to spare capacity in the manufacturing sector and slower investment, and the government should focus more on structural reform and measures to tackle the risks to stability, the Organisation for Economic Cooperation and Development said in a report on Tuesday.
In its latest Economic Survey of China, the Paris-based think tank forecast China's growth to slow to 6.5 percent this year from 6.7 percent in 2016. The momentum was seen easing further to 6.3 percent next year.
'Growth is still high, but is gradually and appropriately moderating as the population ages and the economy rebalances from investment to consumption,' the OECD said.
'More widespread innovation and entrepreneurship, more effective corporate governance and state-owned enterprise reform are needed to improve the quality and resilience of growth.'
The Chinese economy will remain the major driver of global growth for the foreseeable future, the OECD said.
The report warned that high and rising enterprise debt, expanding non-banking activities and huge over-capacity in some sector are leading to a build up of financial risks.
'A burst of the housing bubble would hurt the real estate, construction and several manufacturing industries,' the OECD said.
That said, the Chinese financial sector may be able to absorb the shock as household indebtedness remains moderate and prudential regulations for mortgage loans are stringent, the report added.
Meanwhile, income inequality remains high despite improvement in the social safety net coverage over the past decade that contributed to reduce poverty, the OECD noted.
'Social infrastructure needs to be further developed, especially for rural citizens, and the tax and transfer system made more progressive,' the report said.
The OECD also said that the monetary policy stance of the Peoples Bank of China is appropriate, but the bank must rely less on targeted policy tools. The think tank recommended that the central bank must enhance prudential regulation by requiring lenders to take into account borrowers' repayment ability when extending loan.
The central bank must also restrict leveraged investment in asset markets, the report added.
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