With disappointing economic data chasing China into the new year, HSBC is cutting its growth forecasts, citing five key themes for the economy.
The first trend -- disinflationary pressure -- is driving the forecast cuts, HSBC said.
"Inflation has been decelerating sharply since late 2011, with all measures now at a multi-year low," it said in a note Tuesday, citing the consumer price index's decline from an average 4 percent in 2010-11 to 1.4 percent last month as well as a 33-month long contraction in the producer price index. "This disinflation, which is not new, is mostly a reflection of weak demand."
Forecasting continued disinflation into 2015, HSBC cut its 2015 gross domestic product (GDP) growth forecast to 7.3 percent from 7.7 percent and lowered its 2016 view to 7.4 percent from 7.6 percent.
It also expects intensifying disinflationary pressures will push policy makers to take more aggressive easing measures. While the People's Bank of China (PBOC) already delivered a bigger-than-expected lending rate cut last month, real interest rates remain elevated above the level of real returns, HSBC said.
"From the perspective of both growth and debt sustainability, further broad-based rate cuts are needed," the bank said.
Infrastructure and reform
The second economic theme next year is continued robust infrastructure investment, offering a key growth driver, HSBC said.
China's main planning agency has sped up project approvals since early this year, giving the go-ahead to nearly 1 trillion yuan worth of infrastructure investment, HSBC noted, adding most of the work will likely start early next year.
HSBC also expects further investment in the New Silk Road initiative, with China pledging around $40 billion to improve transportation connections in the region, including between Asia and Europe.
The next major theme is the country's reform momentum, which HSBC expects will pick up speed. On the fiscal side, HSBC expects progress on budget management to take stricter control of local government debt and spending. In addition, HSBC tips reforms of state-owned enterprises and further interest rate liberalization.
The fourth economic theme is for the property market to cool, but not collapse, HSBC said.
"In recent months, signs of stabilization have emerged, at least on the sales side, but it is still too early to predict a rebound," HSBC said. "The earliest we can expect to see any positive impact on the economy would be mid-2015 as sales usually lead investment by six months."
Its base case is for sales to continue contracting, but at a more moderate pace, with investment to remain depressed for the first half of 2015.
"Continued softness in the property market means related sectors will likely remain under pressure," it said, estimating that the property sector accounts for 0.25 yuan of every 1 yuan of materials demand.
HSBC's fifth and final theme for next year is .
"The currency's volatility is rising and will continue to do so in 2015," it said, adding it now expects the U.S. dollar will fetch 6.22 yuan by the end of next year, compared with a previous forecast of 6.10 yuan and around 6.19 yuan currently.
HSBC expects the yuan will appreciate in nominal terms against its trading partners' currency as well as offering some real appreciation as inflation will likely remain higher in China than in the euro zone and Japan. It doesn't believe China will enter a "currency war" to try to devalue its currency against its trade rivals.
"In view of the still sluggish external demand, the benefits from depreciation may not be so obvious. In addition, such a move from the PBOC might trigger more competitive devaluation from China's trade partners," HSBC said. "Instead of devaluation, we think policymakers will do more to increase the renminbi's capital account convertibility," it added, citing efforts to encourage outward infrastructure investment as leading toward more balanced flows and relieve appreciation pressure on the yuan.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter