Growth stability in China has alleviated concerns over a hard landing, as quasi fiscal spending pushes up infrastructure investment. Upbeat property market is largely driving stability in China’s activity data. China’s GDP grew 1.8 percent q/q in Q3, unchanged from Q2 due to increased efforts by the government to stabilize the economy.

Analysts at Deutsche Bank expect Chinese growth to slow to 6.2 percent y/y in Q1 2017 mainly due to the slowdown in the property sector as the government will face a difficult choice between achieving the growth target of 6.5 percent and containing risks in the property sector. Deutsche Bank expects China’s economy to grow 6.5 percent in 2017. They see 50 percent of probability that growth may drop below 6 percent for a full year sometime between 2018 and 2020.

China’s economy still faces strong headwinds.  There are definitely limitations to China’s credit-fuelled and property-driven growth model. Against this backdrop, PBoC is likely to keep the overall monetary policy accommodative in the foreseeable future.

"PBoC will start another round of policy easing by Q2 after economy shows signs of weakness. We continue to expect two RRR cuts in 2017, though we acknowledge that the PBoC may choose to release liquidity through open market operations instead of explicit RRR cuts. We think CPI inflation will likely pick up to 2.5% in 2017 from 2.1% in October 2016.” said Deutsche Bank in a report.