China'S Economy Is Expected To "Slow Down" Next Year.

In the 8 month of this year, the RMB depreciated by nearly 3% against the US dollar, which had an impact on the global market.

Goldman Sachs believes that the possibility of greater volatility in the RMB exchange rate is the uncertainty for analysts to predict the biggest performance in Asia and the world market in the coming year.

Goldman Sachs expects that the renminbi will depreciate slightly against the US dollar in 2016, 3-4%, and by the end of 2016, the yuan will depreciate to 6.6 against the US dollar.

But Goldman Sachs said there was great uncertainty as it faced the risks of a rising US dollar, weak China's economic growth and unsatisfactory stimulus policies.

In August this year, the central bank implemented the central parity system of RMB exchange rate reform, making the RMB exchange rate move in the direction of marketization.

This reform is accompanied by the rapid depreciation of the renminbi in a few days.

Worries about the continued depreciation of the renminbi have led to massive capital outflows.

According to Goldman Sachs report, from August to October, the central bank spent 126 billion US dollars on foreign exchange reserves to resist the pressure of capital outflow and prevent excessive depreciation of the RMB.

In November, foreign exchange reserves shrank by 84 billion US dollars, though half of it was due to valuation effects.

There was a callback in the yuan after a sharp depreciation of 3% in August.

However, as the IMF Committee put the renminbi into the basket of SDR at the end of November, the China Foreign Exchange Trading Center released the CFETS RMB exchange rate index with 13 currencies in December.

On that day, offshore renminbi fell below 6.56, hitting a four year low.

Market comments say that China's move is intended to reduce the link between the RMB and the US dollar and allow the renminbi to depreciate further.

Goldman Sachs said that the above measures prompted the market to see that China may make significant adjustments to the exchange rate policy at some point in the future, which may allow the renminbi to depreciate sharply.

At the same time, the bank also said that the 8 month's exchange rate reform actually increased the difficulty of gradual depreciation.

The reason is that the clear trend of devaluation may be interpreted by the market as the determination of the government to maintain the stability of exchange rate, thus bringing about the risk of large-scale capital outflow once again.

Nonetheless, it is a feasible policy choice to allow two-way floating and gradual tightening of capital account control in the process of gradual devaluation.

However, the prediction of a slight depreciation of the renminbi is facing obvious problems.

The US dollar is rising and the stimulus policy is limited. China's economic growth is not satisfactory.

Although the decision-making level still indicates that the GDP growth rate basically meets the established target of "about 7%", the performance of monthly indicators, especially industrial / investment indicators, is obviously weaker than expected.

The growth rate of industrial added value dropped to below 6%, and the growth rate of fixed assets investment was only about half of that of a year ago.

The differentiation of industry and service sector has intensified: the nominal value of service industry has increased by more than 10% over the same period last year, while the industrial output value, which is affected by overcapacity and PPI, is almost zero.

Goldman Sachs says it will overcapacity next year.

Structural problems such as accumulation will pressure domestic demand, and the official GDP target is expected to be lowered to 6.5%.

It is also believed that even this low target growth rate will face severe challenges.

Therefore, policy stimulus will play a key role in the 2016 year.

The government may be inclined to adopt fiscal policies such as increasing infrastructure spending, and further easing monetary policy by reducing interest rates and reserve requirements.

On the basis of these stimulus policies, Goldman Sachs expects to grow at 6.4%.

However, the bank believes that future reform measures will bring double risks. Both slow and rapid reforms may affect growth: if the reform is too slow, the unsustainable economic imbalances will continue to develop, and if too much reform is carried out too quickly, the source of traditional growth may be destroyed before the new growth engine is established.

In addition to the significant differentiation of growth,

The report also expressed doubts about official data.

In the first three quarters of this year, the official GDP growth rate fluctuated by only 0.1 percentage points, while the industrial added value, investment and international trade data were much more variable.

Goldman Sachs, an alternative indicator of China's overall economic activity, shows that the gap between official GDP and Goldman Sachs CAI CAI has widened over the past year.

As shown in the figure, from 2011 to 2014, the official GDP data curve basically coincides with the Goldman Sachs CAI data curve.

Since 2015, the trend gap has widened.

It is noteworthy that the trend shows that CAI growth has dropped to around 5% in the first half of 2016.