China Growth Could Drop to 7% in 2014, Warns Government Think Tank

China's economic growth could drop to 7% this year, lower than the official 7.5% target, according to a top government think tank.

The Chinese Academy of Social Sciences (CASS) has revised its 2014 GDP growth forecast down to 7.4% and has warned growth could slow to as low as 7%, state media reported on 30 April.

Beijing-based CASS believes China's economic growth will continue to be powered by investment.

The think tank also warned that surplus production capacity and heavy local government debt burdens will slow fixed asset investment.

The downward revision came ahead of the release of official purchasing managers' index (PMI) data for the month of April, due on 1 May.

Societe Generale Cross Asset Research said in a note to clients: "...We expect China's growth to continue weakening amid slowing credit growth. However, the recovery of the developed economies, especially the US, should be able to largely offset the drag from our bumpy landing scenario for China."

Standard Chartered said in a note to clients: "China will release the official manufacturing PMI for April on 1 May. We expect weak growth in manufacturing activity to have continued, with a reading of 50.2. While seasonal factors and targeted stimulus should provide support, producers' caution on restocking and government efforts to cut overcapacity are likely weighing on demand."

"China's leaders have introduced some pro-growth measures, including boosting investment in social housing and railways, cutting taxes for small companies, and reducing the reserve ratio for rural commercial banks.

"We expect them to closely monitor the effects of the current loosening while pushing ahead with further targeted measures in line with the reform agenda. A neutral stance on market liquidity could also help to stabilise growth," the British firm added.

Provinces Miss Targets

Almost all Chinese provinces missed their yearly growth targets in the first quarter, as Beijing ordered them to focus on curbing pollution and reigning in debt.

Economic growth in 30 of China's 31 provinces and municipalities missed their yearly targets, according to government data and media reports published this week.

China Slowdown

About a fifth of China's economy is shrinking while the remainder is growing moderately, an independent economist, Andy Xie, has said.

Xie, speaking to CNBC Asia earlier in the month, said China's economy was probably not growing at the 7.5% rate that Beijing targets this year. However, he did not provide any forecast.

Xie added that Beijing's recent stimulus measures were possibly aimed at bolstering sentiment.

A strong services sector will not prevent China's economy from slowing by the middle of the year, analysts said on 3 April, a day after Beijing rolled out modest stimulus measures designed to support growth and the reforms drive.

On 2 April, the Chinese government said it would expedite construction of rail projects and cut taxes for small companies, the first real action this year to boost activity.

China's economy expanded 7.4% in the January-March first quarter. The economy grew 7.7% in the fourth quarter of 2013, down from 7.8% in the preceding quarter.

Full-year growth for 2013 was 7.7%, steady from the previous year.