UBS: China's GDP growth to reach 7.8 percent in 2014

China's real GDP growth is expected to improve modestly from 7.6 percent this year to about 7.8 percent in 2014, investment bank UBS said in a report on Thursday.

Key variables for the 2014 growth outlook continue to be exports, property development, and most importantly, the credit cycle, according to the report.

The contribution of net exports to GDP growth is expected to turn from an estimated -0.2 percentage points this year to 0.2 percentage points in 2014.

Domestic demand should remain largely stable, with investment growth slowing slightly due to weaker infrastructure investment as consumption regains some momentum.

"We expect China's GDP growth path to oscillate within a narrow range next year, staying at around 7.7 percent year-on-year in all quarters except for the second quarter, when we see it touching 8 percent year-on-year," said Wang Tao, economist of UBS.

Achieving solid growth while staying on course with reforms will be the key pivot of the macro policy setting in 2014, according to the report.

"We expect the government to set a 2014 GDP growth target of 7 to 7.5 percent, and M2 growth target of 12 to 12.5 percent (down from 2013's 7.5 percent and 13 percent respectively)," said Wang.

Given the rapid increase in China's overall leverage levels in recent years, Wang said the government would try to slow the pace of leverage increase.

To achieve this, Wang believes the central bank will try to manage a so-called "tight balance" of interbank liquidity conditions, by keeping money market rates relatively elevated but credit conditions stable.

On the fiscal front, Wang expects the budget deficit be kept below 2 percent of GDP on a cash basis, with spending concentrated upon social housing and other types of "livelihood"-related expenditure, but away from general public consumption.

Property market policies will likely be kept relatively stable, with the government focused on boosting social housing supply but refraining from the use of administrative measures to constrain demand.

"We do not expect a property tax to be rolled out in many cities in 2014, nor do we see major progress in land reform next year," said Wang.