Infrastructure investment likely to remain a major driver of China’s economic growth, says Scotiabank

China remains on track to reach its economic growth target for 2016, with fixed-asset investment rising 8.3 percent y/y in the January-November period. Infrastructure investment has already proved to be a critical driver of economic growth and will keep playing an important role in the year ahead after China tightened rules on overheated housing markets.

The country is expected to face headwinds again next year as the sustainability of rebounding Land Area Purchases and Floor Space Sales is in doubt. However, the chance of either a sharp yuan depreciation or a hard-landing is slim next year, Scotiabank reported.

China's Politburo last Friday reiterated the principle of "seeking progress while maintaining stability." China will make economic stability a top policy priority for 2017 ahead of a once-a-decade leadership reshuffle, while social stability would be the precondition for all other work.

The Central Economic Work Conference will be held soon, as early as this week. In the rest of this year, CFETS RMB Index is anticipated to stay in a range with a soft support level of 94. The CFETS said last Tuesday that the yuan "has conditions to remain basically stable at a reasonable and equilibrium level," which was echoed by the NBS on Tuesday.

"In the event of a broadly strengthening dollar, CFETS RMB Index is more likely to rise as the PBoC would certainly step in to curb over-speculation about the yuan depreciation," the report said.