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OECD sees China growth accelerating in 2014, urges reforms

Tuesday, 19 Nov 2013 | 5:00 AM ET

BEIJING, Nov 19 (Reuters) - China's annual economic growth is likely to accelerate to 8.2 percent in 2014 from an expected 7.7 percent this year, driven by stronger domestic demand, the OECD said on Tuesday.

"Growth is picking up and inflation remains low, domestic demand has led the turnaround," the Organisation for Economic Co-operation and Development said in its latest report on the global economic outlook.

The OECD outlook was rosier than a recent Reuters poll that showed China's economic growth could slow to 7.4 percent in 2014 from an expected 7.6 percent this year - the weakest in 14 years.

The government is aiming for 7.5 percent growth in 2013.

The OECD highlighted the need for Beijing to quicken structural reforms in favour of stronger domestic consumption, as economic expansion still relies heavily on investment.

"With the economy recovering, there is now a favourable window to push forward with structural reform, in particular financial liberalisation, encouraging labour mobility and tax reform," the OECD said.

Last week, China's leaders pledged to make the most sweeping economic and social reforms in nearly three decades to put the world's second-largest economy on a more stable footing.

China's reforms may support economic growth eventually, but certain reforms may have some short-term negative impact on the economy, the OECD said without elaborating.

"There are also downside risks, notably stemming from local public debt. Mishandled defaults, were they to occur, might jeopardise the health of the banking system and confidence in capital markets," it added.

China's local governments are saddled with piles of debt, resulting from unfettered spending spurred by Beijing's massive stimulus programme during the global financial crisis in 2008-2009.

China's National Audit Office is conducting an audit of all government debt and its report is expected to come out soon. Its data showed local debt at 10.7 trillion yuan ($1.8 trillion) by end-2010.

Standard Chartered, Fitch and Credit Suisse have estimated local government debt at the equivalent of anywhere between 15 percent and 36 percent of China's GDP.

The OECD predicted China's consumer inflation will ease to 2.4 percent in 2014 from 2.5 percent this year.

The volume of China's exports of goods and services will grow 6.8 percent in 2014, slowing from 8.8 percent this year, while import growth could ease to 9.2 percent from 9.8 percent.

China's current account surplus as a share of GDP could fall to 1.5 percent in 2014 from 2.3 percent in 2013, it added.

($1 = 6.0922 Chinese yuan)

(Reporting by Kevin Yao; Editing by Chris Gallagher)