Property market correction will weigh on fixed asset investment growth

Editor's note: This year's economic expansion is widely expected to be the slowest in many years, and the central leadership envisions a "new normal" for the pace GDP growth and its structure going forward. What will unfold in 2015 - sustained, rapid expansion or an orderly transition to slower growth? China Daily asked a group of economists and analysts on their expectations for the economy in 2015.

ROB SUBBARAMAN, CHIEF ECONOMIST IN ASIA, NOMURA SECURITIES CO?LTD

What is the most likely outcome for China's economy next year-sustained, rapid expansion or an orderly transition to slower growth?

We expect GDP growth to slide to 7.1 percent year-on-year in the first quarter of 2015 and slow further to 6.7 percent in the second before stabilizing in the second half. We believe that the down trend in growth will be mainly driven by domestic challenges, especially the slowdown in investment growth.

Consumption could holdup reasonably well, given the still tight labor market and rather robust income growth, while foreign demand may also improves lightly. But these factors are unlikely to offset the negative impact of the investment slowdown or resolve the severe overcapacity in many upstream industries.

The silver lining, however, is that growth may be more balanced and reforms could accelerate.

What is the most important indicator that observers should use when judging whether a transition has taken place? How can China achieve the goal implied by that indicator?

With a healthy slowdown, we expect gross capital formation growth to slow and the investment-to-GDP ratio to fall in 2015-16. Moreover, the ratio of aggregate financing to GDP is also likely to decline, indicating deleveraging may finally take place.

What is the biggest concern for the Chinese economy in 2015? How can China address that concern?

We believe the property market correction will continue through 2015, and there will be stricter control over local government borrowings. Together, these will weigh on fixed asset investment growth.

To avoid a sharp slowdown, we expect the government to loosen fiscal and monetary policies, including one more interest rate cut and four bank reserve requirement ratio cuts in 2015.

What is the most resilient part of China's economy? How can China best utilize its strengths in this area?

With a lower growth target, we believe reform will quicken, including that of State-owned enterprises, the government budget system, overcapacity cuts in upstream industries, interest rate liberalization, public utility rates and environmental protection. These reforms may cause short-term pain but will bring sustainable growth in the long run.