Slower growth 'can be good development'

China's annual GDP growth is likely to slow to 5 percent over the next decade, even if the country successfully carries out the reforms it's pledged to undertake, according to Robin Bew, managing director with the Economist Intelligence Unit, a London-based think tank.

But that's not necessarily a pessimistic view, because a slower-growing but consumption-driven Chinese economy will make a larger global contribution, Bew said.

China's GDP will probably expand 7.7 percent this year due to a stabilizing macroeconomic environment, Bew said on Wednesday during the Hay Group International Conference in Shanghai.

The world's second-largest economy expanded 7.6 percent in the first three quarters of the year, according to official figures.

Bew said that despite the recent uptick, economic growth will decline to 7.3 percent in 2014. The pace of growth will decelerate further to 5.9 percent in 2018 and to about 5 percent by the end of the next decade, according to the EIU.

The EIU's estimates take into account the reforms outlined during the Third Plenum of the 18th Central Committee of the Communist Party of China. The changes are expected to unleash the potential for China's economic growth for the next decade.

The EIU's outlook seems a bit pessimistic, compared with forecasts from other institutions, such as UBS AG, which said that China's growth will accelerate to 7.8 percent in 2014 on the strength of improving consumption and exports.

But Wang Tao, chief economist at UBS, said that it may take time before the reform measures have an impact, as they're likely to face resistance from vested interest groups.

"The reforms are vital to future economic growth. But they will not allow China to grow more quickly; they will only allow the economic transition to happen," Bew said. "China needs to make these reforms if it is to continue growing at all.

"The nation's old advantages are eroding," he said, adding that the country will transform itself from a low-cost manufacturing base to a consumer market with strong potential.

To cash in on opportunities in the expanding consumer market, Bew said that companies would want to invest where the biggest changes are happening - not in coastal areas but in the west and north, where incomes are rising fast.

"Shanghai is the wealthiest, but it is not growing very fast. Businesses are interested in growth, seeking the next big sources of revenue, which are in second- and third-tier-cities."

New foreign direct investment in China's coastal areas will continue to fall. The amount of FDI received by China's eastern provinces is likely to be halved by 2015, according to the EIU.

That decline doesn't portend job losses or a property slump, he said. "It's not a withdrawal of current investment, only less new investment coming in, although new construction will see a slowdown.

"It's a good thing for China because the cities in the north and west don't just need the money; they also need the operating know-how of foreign companies to help increase productivity."

China is growing slowly, but as it becomes bigger, the country will still be one of the drivers of the global economy.

"In the past, China's demand for raw materials has been very supportive of growth in other countries... that's going to continue," Bew said.

"In the meantime, China's rising wages and higher demand will create new opportunities."