BEIJING - China's growth continues to moderate, reflecting policy efforts to rebalance the economy as the country works to implement reforms supporting more sustainable growth, the World Bank said on Wednesday.

For 2015-16, China's average economic growth is expected to ease to slightly above 7 percent as policy efforts to place the economy on a more sustainable growth path are likely to intensify, according to the World Bank's China Economic Update released on Wednesday.

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Short-run moderation

"Policy efforts to tighten credit growth, reduce excess capacity, internalize the cost of industrial pollution, and harden budget constraints of local governments intensified in 2014. These policies are welcome and will help put growth on a more sustainable path," said Karlis Smits, Senior Economist and main author of the report.

The World Bank's Chinese economic growth forecast for 2014 has been revised downward to 7.4 percent, largely due to weaker-than-expected domestic economic activity.

Targeted support measures and the recovery of external demand have helped stabilize growth through the transition, but pressures from the weak housing market remain a significant drag on growth, said the report.

China's economic growth rate dipped to 7.3 percent in the third quarter from 7.5 percent in the April-June period, official data showed.

"The key short-term policy challenge is to strengthen market discipline in the financial sector. In the medium term, the challenge is to keep the reform momentum going," said Chorching Goh, Lead Economist for China.

The Update, a regular assessment of the Chinese economy, indicates that the current emphasis on meeting short-term growth targets will make it more challenging to implement policies needed to shift growth to a more sustainable path in the medium term.

Medium-term transition

The key medium-term policy challenge remains implementing reforms that support China's transformation toward "more efficient, equitable, and sustainable" growth, noted the report.

In an uncertain global economic environment, China's sizable policy buffers should be reserved to maintain overall macroeconomic stability in case of unexpected domestic or external economic shocks, said the World Bank.

China is in a "new normal" period, as policy makers adjust from an economic growth model reliant on investment to one supported by consumption and higher productivity, which in the short run will weaken growth performance, World Bank Managing Director Sri Mulyani Indrawati said during a recent interview with Xinhua.

However, the changing Chinese growth rates should not be interpreted as a weakening growth trend, but as a redesign of the growth model to make it more inclusive and based on sustainable domestic demand, Indrawati said.

"Implementing reforms can accelerate China's economic growth potential, but it will not reverse a moderation in growth over the next decade. Without policy action, the slowdown in China's potential growth in the medium term could be more severe," noted the report.