China's 2015 outlook in three words

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It's been a bumpy ride for China's economy this year, with multiple growth scares followed by bouts of policy stimulus, and next year will be no different, says Goldman Sachs, telling investors to prepare for a moderate but "choppy growth deceleration."

A housing market adjustment, decelerating credit growth and an advancement of difficult structural reforms in areas such as local government debt management and interest rate liberalization, will present continued headwinds for the world's no. 2 economy in 2015.

"As the government tries to strike a balance between supporting growth and pushing forward reforms, we see a fair likelihood of a repeat of 2014's stop-and-go pattern in economic momentum in the New Year," Goldman economists wrote in a note Monday.

"Although we expect these reforms to proceed gradually, experiences from the anti-corruption campaign and the recent crackdown on shadow credit suggest that the impact of reforms could be highly uncertain, with the potential of posing significant downside to growth," they added.

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Gross domestic product (GDP) growth is set to moderate to 7 percent next year from an estimated 7.3 percent in 2014, the bank predicts.

Top policymakers are convening in Beijing this week for the country's annual Central Economic Work Conference (CEWC), where economic priorities for the coming year will be discussed, including the GDP target.

Goldman expects the official growth target will be lowered to around 7 percent to facilitate the transition to a lower but more sustainable growth path.

Bright spots

Despite challenges facing the economy, policymakers can take comfort from an improving external environment, which will benefit exports, easy global financial conditions and lower commodity prices.

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These factors, in addition to a lower growth target, will help support Beijing's reform drive next year.

"These external and domestic factors should hopefully imply a reduced need to keep cyclical policy accommodative to stimulate the economy, and correspondingly a wider window to advance structural reforms," Tilton said.

That's not to say the government won't respond with targeted policy easing when needed, the bank said, noting that reserve requirement ratio (RRR) cuts of up to 50 basis points are on the cards to offset factors such as foreign exchange outflows.

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"Fiscal policy is likely to become genuinely more pro-active in 2015," it added.

Bullish on mainland shares

While economic growth is set to grind lower, Goldman remains overweight on Chinese equities.

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This is based upon the expectation of increased liquidity mainly coming from Chinese households and overseas funds.

Chinese stocks have been on a roll, surging 30 percent in the past three months on increasing enthusiasm among retail investors. Last month, more than a million new brokerage accounts were opened in China, up 280 percent year-on-year, according to Reuters.