TheChinese economy will see a measured deceleration in growth as the countrypresses ahead with reforms and pushes toward a soft landing, according to a UBSeconomist.

China'sGDP is expected to grow at a rate of between 6% and 6.6% in 2016, with growth deceleratingto between 6% and 6.2% in 2017, Yifan Hu, regional CIO of Greater China andchief China economist at UBS, said during a presentation in Hong Kong on July11.

China'seconomy grew at an annual rate of 6.7% in the first quarter, the slowest quarterlypace in seven years. The world's second-largest economy is expected to expand3% to 6% in the mid- to long term, which is still good in the global context,Hu said.

Fiscalpolicy support will play a more critical role in boosting the economy and addressexcess capacity in industries such as steel, energy and cement, Hu said. Sheadded that the government is also expected to reduce tax and fees to supportsmall and medium-sized enterprises and reform value-added tax to favor newservice sectors.

Hubelieves monetary policy will stay cautiously accommodative and the People'sBank of China will favor liquidity injections via open-market operations, aswell as medium- and long-term lending facilities, rather than further cuts inthe reserve requirement ratio and interest rates in 2016. Thecentral bank aims to have more flexibility in controlling the amount ofliquidity in the market and directing it to desired sectors, she said.

UBSwarned investors about Chinese bank stocks, pointing to questions about theaccuracy of reported nonperforming loan figures. Chinese lenders' profitabilityand dividend payouts may decline in 2016, said Louisa Fok, an equity analyst atUBS CIO Wealth Management.