China’s growth outlook is still subject to mounting headwinds despite the achieved soft-landing in 2014

China’s fourth quarter GDP growth came out at 7.3% y/y, flat with that of the previous quarter and broadly in line with market expectation (Consensus: 7.2% y/y). In sequential terms, Q4 GDP expanded at a pace of 1.5% q/q sa, decreasing from 1.9% q/q sa in Q3. As a consequence, 2014 GDP increased by 7.4%, registering the lowest growth rate since1991. A number of activity indicators in December were also released today, including industrial production, urban fixed asset investment and retail sales, which are broadly in line with market expectations. All in all, a soft-landing is achieved again in 2014 thanks to the authorities’ pro-growth measures. Nevertheless, we believe that the growth outlook is still subject to a number of headwinds such as the sluggish property market, increasing indebtedness of local governments and firms as well as the continuous expansion of the shadow banking sector. In view of them, our 2015 GDP projection is kept at 7.0% as before. On the policy front, we anticipate more conventional monetary easing will be implemented in 2015 to sustain domestic demand and prevent a hard-landing.

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