In its December 2014 Asia Cyclical Outlook, Pimco Australia executive vice president Adam Bowe said Chinese policymakers embraced key themes in the second half of 2014.
Chinese leaders are tolerating slowing trend growth, refraining from large-scale stimulus and focusing on structural reform, Mr Bowe said.
"We also expect them to acknowledge this new reality by lowering the 2015 GDP growth target from 7.5 per cent to 7.0 per cent," he said.
But Pimco itself is forecasting a 'below-consensus' GDP growth of six and seven per cent, Mr Bowe said.
The "measured policy approach" of Chinese policymakers is aimed at cushioning downside macro risks, he added.
"The People's Bank of China is expected to lower interest rates further next year to loosen monetary conditions, and there is room for additional fiscal expansion, but we are not expecting any large-scale reflation policy to reverse the moderating credit-investment cycle," Mr Bowe said.
The sharp falls in the price of oil and iron ore will lower Chinese inflation and boost national income, he said.
"Conversely, policymakers have fixed the yuan strongly versus the US dollar and largely refrained from currency intervention," Mr Bowe said.
"As a result, the yuan is appreciating strongly in real effective terms, and this is somewhat offsetting the positive terms-of-trade shock in addition to restricting the competitiveness of Chinese exports," he said.
