Growth in the Chinese economy is set to slow to 6.5 per cent this year before dropping to 6.3 per cent in 2018, the Organisation for Economic Co-operation and Development (OECD) has said.
The predicted fall, which was announced as part of the OECD’s economic outlook report, comes as China's corporate debt reaches 175 per cent of its Gross Domestic Product (GDP), one of the highest figures for an emerging market economy.
One of the major financial risks in the Chinese economy highlighted by the report was the amount of borrowing by state-owned business.
“In China, the high share of non-performing and 'special-mention' loans reflects to a large extent borrowing by state-owned enterprises,” the report said.
The Chinese banking system is flagged as a particular risk by the OECD.
Alvaro Santos Pereira, director of the country studies branch of the OECD's economics department said: “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.
“I think it's important to intensify efforts to tackle this issue.”
The OECD's forecast for growth in China this year is in line with the Chinese government's growth target of around 6.5 per cent rather than last year's 6.5-7 per cent range.
However, while the economy grew 6.7 per cent in 2016, this was its weakest rate of growth for 26 years.
Despite the slowdown, export volumes of Chinese goods are anticipated to increase to 3.4 per cent this year and 3.3 per cent in 2018. This is a significant rise, up from 2.3 per cent in 2016 as the global demand for Chinese products intensifies.