Furher rate cuts likely from PBoC this year

Despite the financial market turmoil, a soft landing is still seen as the most plausible scenario in the coming two years. Chinese growth will continue falling due to structural constraints such as a shrinking labour force, diminishing returns on capital and maturing productivity growth. 

In addition, adjustments will have to be made to reduce overcapacity and clean up corporate balance sheets. These adjustments will dampen domestic demand. But the authorities remain stability obsessed when it comes to growth. 

Driven by fears of a sharp slowdown, they will likely delay the structural adjustments in the coming two years and use the "old normal" approach to support the economy, that is, rely on credit expansion and public investment. 

"Investment is expected to grow at a faster pace than the overall economy in 2015 and 2016. Monetary conditions will be kept loose to facilitate this. One more rate cut of 25bp and two RRR cuts of 50bp are expected this year. The policy support will likely offset some of the structural pressure and GDP growth is forecasted at 6.8% this year and 6.6% in 2016", says Nordea Bank.