LONDON - Though suffering a slower GDP growth, China's painful steps to achieve economic rebalance could offer long-term gains, Ewen Cameron Watt, chief strategist at the BlackRock Investment Institute, said Thursday.

"It is undoubtedly a desirable policy to reduce the dependence on fixed asset investment, and increase the share of consumption. China's government and financial regulators are doing right things in that respect, and deregulation of interest rate is also helpful," Watt said.

"I think allowing the consumers' (savings) real interest rate to return to positive is important to this (economy rebalance) shift."

Watt, who spoke with Xinhua after the release of the institute's midyear investment outlook report, said that in his opinion, "the size of the Chinese economy is understated in the official numbers.

"The services industry is particular under-measured. Looking at the share of industry of other economies in the same state of development," Watt said, "I think the economy is more balanced than you think when you look at the official data."

According to the outlook report, China's credit has been growing at an alarming pace, and the government now faces a stark choice -- either cleaning up the mess now and facing some market disruption, or waiting and confronting an even bigger problem later. Beijing smartly appears to take the first route.

"China's new leadership appears willing to tolerate slower growth if it helps rebalance the economy toward consumer spending, " the report said.

Data showed earlier this week that China's real GDP growth slumped to 7.5 percent in the second quarter, down from 7.7 percent of the first quarter this year and 8.1 percent a quarter before.

"It is impossible to believe that the Chinese growth can continue to rely on the stock of total social financing growing at three times the rate of GDP because of the unsustainable investment level, so you have to believe this is going to be changed," Watt said.