BEIJING - The Asian Development Bank (ADB) on Wednesday trimmed its growth estimate of China for 2011 and 2012, mainly because of the weakness of external demand and the government's efforts to cool inflation.

A pedestrian walks past Arturo Di Modica's "Charging Bull" sculpture in Shanghai. In an update of its flagship annual economic publication, the Asian Development Bank cut its China's growth estimate for this year to 9.3 percent from the 9.6 percent projected in April. [Photo/ Bloomberg]

But economists at the ADB said a lower rating of China's sovereign credit suggested by some major international rating companies is unlikely.

In an update of its flagship annual economic publication, Asian Development Outlook 2011, the ADB cut the growth estimate of this year to 9.3 percent from the 9.6 percent projected in April. For 2012, the growth forecast was lowered to 9.1 percent from 9.2 percent.

"Downside risks to the growth outlook relate mainly to uncertainty over external demand, in particular from the European Union, the country's largest trading partner," said ADB chief economist Changyong Rhee.

Paul Heytens, country director of the ADB in China, said the modest recovery in the US, growing fiscal and debt concerns in the EU, and Japan's post-tsunami economic slowdown would exacerbate uncertainties in the world's second-largest economy.

Rhee said that as an overall budget deficit equivalent to 2.1 percent of GDP is projected for 2011 and 2012, there is scope to run a somewhat more stimulatory fiscal policy in 2012 if GDP growth prospects dim.

"Weakening external demand will eventually affect China's exports, but it may take longer than we initially thought," said Zhang Zhiwei, Nomura Holdings Inc's chief economist for China.

He said the strong domestic demand shown by the import rebound in August would help to support an economic soft landing in the coming months.

However, inflation remains a concern, with the average rate expected to remain above the official target of 4 percent despite numerous policy actions already taken by the government, the ADB said.

The bank's 2011 inflation estimate was revised up to 5.3 percent from 4.6 percent in April, largely owing to a sharp spike in food prices.

Wang Tao, head of China economic research at UBS Securities Co Ltd, said the current continued strength of property sector activity in particular, and domestic demand in general, as well as the resilience in exports do not yet support immediate policy easing.

Another risk pertains to a potential increase in non-performing loans (NPL) in connection with the fast increase in local government debt, Heytens said.

While NPLs remain at a moderate level of about 1 percent of total bank lending, the number could increase by several percentage points in the coming years because one-third of local government debt is estimated to be at risk, he said.

"However, we believe that this risk is unlikely to cause major disturbances in the economy during the forecast period, given the overall soundness of the financial sector," he added.

"Given the good health of the financial sector and very comfortable fiscal position, it's very unlikely that we will see any change in ratings (of China's sovereign credit)," said Yolanda Lommen, economics unit head of the ADB China office.

Dragged down by slower economic growth in China, the growth forecast for East Asia was trimmed to 8.1 percent this year from the April estimate of 8.4 percent. In 2012, a further easing of growth in China will cause overall growth of the five economies to dip further to 8 percent, the report said.