Economic Watch: Softer but better growth expected for Chinese economy in 2018

Externally, the normalization of monetary policies in developed economies might weigh upon the exchange rate and capital flow balance while more protectionist practices from the United States might dampen China's exports.

China's cross-border capital flows hit a turning point in 2017 as foreign currency reserve levels stabilized after two years of decline.

Zhu estimated that the basic equilibrium of capital flow will continue in 2018 with a stronger yuan, steady economy and improved market sentiment due to financial risk control efforts and other reforms.

Better manufacturing investment and robust external demand due to the recovering global economy may help to partly offset some upstream sector weakness, according to UBS.

Iris Pang, economist at ING, believes 2018 will be another good year for China, supported by consumption of goods and services and infrastructure investments.

ING expects manufacturing of high-tech products and parts to grow by more than 50 percent this year, cushioning the loss of production from overcapacity cuts in non-ferrous metals, shipbuilding and building materials.

Data from December and Q4 point to resilient growth momentum, which Nomura believes was driven by a robust expansion of the services sector, as it continued to benefit from China's economic rebalancing toward consumption and the Internet-led "new economy."

New growth drivers including consumption and the service sector contributed over 30 percent and 70 percent to the country's economic expansion and new jobs respectively, underscoring a steady shift in China's growth model, official data showed.

Growing new engines such as consumption will continue to lend strong steam to economic expansion in 2018 while the role of investment might further fall, Zhu noted.