UBS downgraded China's GDP growth forecast from 8 percent to 7.7 percent in 2013 and 7.8 percent in 2014, the investment bank said in a research note on Tuesday.

Economic indicators have been relatively weak in 2013, according to the report.

These include lower rates of consumption, slower wage growth in recent quarters, the government's frugality campaign, a drop in export demand and most importantly, strong credit expansion has so far not generated the expected increase in investment.

"While some of the weakness may be transitory, increasingly evidence suggests that growth will be weaker than we previously envisaged," said Wang Tao, an economist with UBS.

The bank thought the 20 percent decline in property starts in March will be short-lived as developers realize that the government's new tightening measures had little bite and sales would remain solid. Indeed, April housing starts rebounded by 14.5 percent year-on-year and sales remained strong.

On the other hand, export orders have continued to drop in recent months, and the renminbi has appreciated by about 6 percent on a trade-weighted basis in the past few months.

Neither bodes well for exports in the coming months.

"What has been most disappointing is that strong credit expansion since the third quarter of 2012 has not delivered better growth," said Wang.