The bank stressed it expects a soft landing but trimmed its growth outlook this year to a still-robust 8.2% from 8.4%. It cited US and European economic woes and Chinese lending and investment curbs imposed to cool an overheated economy.
Beijing is trying to steer growth that spiked to 10.4% in 2010 to a sustainable level without causing the economy to stall. Some analysts say it is succeeding, but others say government controls, coupled with last year's plunge in export demand, might cause growth to nosedive, raising the risk of job losses and unrest.
While the prospects for a soft landing remain high, there are concerns that growth slows too quickly, the bank said in a quarterly report on China. The Washington-based bank, which acts as a consultant to governments and lends to finance anti-poverty programs, said that if the downturn worsens, Beijing should be ready to cut taxes and step up social spending to shore up growth.
In a very volatile environment the government needs to be very flexible and to really look at the data as they come in month by month and be ready to move, the banks lead China economist, Ardo Hansson, said at a news conference.
A slump in the worlds second-largest economy could have global repercussions, hurting exporters of oil and other commodities, industrial components and consumer goods. It also might fuel political tensions as the ruling Communist Party prepares for a handover of power this year to younger leaders.
China's economic growth declined steadily throughout 2011 and fell to a 2 1/2-year low of 8.9% in the three months ended December.