BEIJING, Feb 14 Chinese growth is set for a slowdown that is likely to reassure policy ma

BEIJING, Feb 14 (Reuters) Chinese growth is set for a slowdown that is likely to reassure policy makers, but imbalances plaguing the economy are unlikely to go away, the World Bank said on Wednesday.

In its latest quarterly update on the economy, the bank kept its projection for 2007 gross domestic product growth unchanged at 9.6 percent, based on expectations that the pace of exports and investment will moderate from recent peaks.

The economy expanded by 10.7 percent last year.

Despite a concerted government campaign to tilt the economy away from export and investment-led growth, crucial imbalances would persist, the bank's Bejing-based economists said.

''Continued productivity growth and a resilient world economy promise only a minor export slowdown,'' their report said.

''Domestically, the fundamental drivers of investment remain, and investment is therefore unlikely to slow drastically in 2007,'' it added.

China was likely to keep running a big current account surplus, setting the stage for further increases in its stockpile of foreign exchange reserves, which now exceed $1 trillion.

China faced other challenges, such as boosting consumption as a driver of growth, but the economic outlook was ''broadly favourable'', the report said.

Export growth would probably ease to 20 percent, in real terms, this year from 24 percent in 2006.

To cut its record trade surplus more quickly, China would need among other things to push the yuan higher.

''Much of the planned reduction in the trade balance will have to come from policies to rebalance the economy, including fiscal and pricing policies and a stronger exchange rate,'' the bank said.

MORE TIGHTENING Rising incomes would continue to propel solid consumption growth, while policy makers would be less concerned than they were a year ago about a potential rebound in investment growth.

Although consumer price inflation had picked up recently, medium-term price pressures remained moderate, the bank said.

China said on Wednesday that annual inflation had subsided to 2.2 percent in January after a spike to 2.9 percent in December.

If inflation rose, the case would grow for higher deposit and lending rates, which would dampen the relative attractiveness of frothy stock markets over bank deposits, the bank said. Higher inflation also supported the case for a stronger yuan.

China's industry, investment and export-based growth had become increasingly problematic because of trade tensions and environmental and resource constraints, it cited Louis Kuijs, the main author of the report, as saying.

Spending more on healthcare and education were steps in the right direction as it tended to reduce investment and increase consumption.

Still, China needed a host of structural policies to tackle the root causes of the imbalances. The bank advocated greater reliance on services and incentives to shift labour from agriculture to more productive urban jobs.

''Growth along such rebalanced patterns could boost urban unemployment, wages and household incomes and reduce rural-urban disparities, while mitigating external imbalances,'' it said.

REUTERS PV DS1305