The Bank of Canada remains surprisingly bullish on China in spite of widespread investor angst about slowing growth.

The Chinese economy has the potential to grow at 6 per cent a year for another 15 years, more than doubling its economy and sustaining its appetite for Canadian goods, senior deputy governor Carolyn Wilkins said Tuesday.

"China's demand for commodities should remain high and grow from a higher base, even if the country's economic growth is slower and less reliant on natural resources," Ms. Wilkins said in remarks prepared for a speech to the Vancouver Board of Trade.

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She argued that China's slowdown to a more sustainable pace is "not only inevitable, it's desirable."

Slower Chinese growth has been blamed for the sharp fall in the price of oil and other commodities since 2014. China is the world's second-largest consumer of oil – after the United States – and buys half of the global output of base metals, according to Ms. Wilkins.

The Liberal government is in the midst of a major review of its relationship with China, including exploring the idea of negotiating a free-trade deal as well as joining the Asian Infrastructure Bank.

But Ms. Wilkins cautioned that China's transition to a slower and more sustainable growth path could be bumpy. She said the bank is keeping a close eye on developments there because of the potential fallout in Canada.

"China has the potential to grow at a healthy pace over the longer run, but the transition will take time and there is uncertainty about whether this potential will be fully achieved," she warned. "China may go through some periods of economic and financial volatility."

Economic modelling by the central bank suggests that a shock from China would have a measurable, but relatively small, effect on Canada's economy. Every percentage point that Chinese gross domestic product growth falls below the bank's baseline projection would knock 0.1 percentage points off Canadian GDP growth. That's roughly a sixth of the magnitude that a similar U.S. slowdown would cause in Canada.

"Canada is not immune to the risks that China's transition poses to the global economy," Ms. Wilkins said. "It is nonetheless well positioned to manage them."

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Canada would be affected mainly via lower commodity prices, reduced trade and weakened investor confidence, she said. A significant and sudden depreciation of the Chinese currency, the yuan, would also affect Canada.

On the other hand, direct financial spillovers would be small because Canadian banks have relatively little exposure to China, even though roughly 400 Canadian companies operate there.

Canada's financial system is better prepared now to handle "adverse shocks" than it was before the 2008 financial meltdown, according to stress tests conducted in 2013 by the International Monetary Fund and Canadian authorities, Ms. Wilkins pointed out.

The key for China is to stay out of the "middle-income trap" that affects many rapidly developing countries, unable to shift from investment-fuelled to consumer-driven growth, she said.

Ms. Wilkins said China faces three key challenges – introducing a comprehensive social safety net, developing credible monetary policy and maintaining financial stability.

She highlighted the danger posed by the rapid expansion of domestic credit in China, much of it used to fund state-owned enterprises. "This sector is where a lot of the excess capital and non-performing loans may reside," Ms. Wilkins said.

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China may also be under-reporting the extent of its bad loan problem, she added.

Canada-China trade has grown more than fivefold since 2000, and exports now exceed $20-billion a year.