Edinburgh-based global fund manager Standard Life Investments said its longer-term outlook on China “has become increasingly negative” and that it fears China might not carry out corporate governance reforms quickly enough.

Standard Life Investments, which manages assets of around $360 billion, said structural reforms in China will play an important role in determining the trends of global financial markets in 2016.

In the January edition of the fund manager’s Global Outlook series, Standard Life Investments said it believes China’s gross domestic product (GDP) growth is closer to 5% than the 6.9% reported by the Chinese authorities.

“Although we believe policy makers will avoid a hard landing, it is becoming more likely that Chinese leaders will not enact necessary reforms quickly, especially of state owned enterprises (SOE),” wrote Alex Wolf, Standard Life Investments’ emerging markets economist.

“In China, we expect policymakers to continue walking a tightrope — balancing enough fiscal and monetary stimulus to prevent a sharper growth collapse, while slowly proceeding with supply side reforms to remove excess capacity.

“Slowing Chinese demand, which we believe was worse than official data reflected, was one of the largest causes of the emerging market trade and output contraction experienced last year. As such we see some room for cyclical upside, as policy measures take effect.

“However, our longer-term outlook on China has become increasingly negative. Our own view is that GDP growth is closer to 5% than the 6.9% reported by the Chinese authorities …

“State owned enterprises are at the heart of China’s problems, and reforms here would deliver the biggest dividends from a growth and rebalancing perspective, but Beijing has been dragging its feet.

“State owned enterprises reform plans delivered over recent months were received with optimism, but we believe they failed to address corporate governance issues or the reduction of excess capacity through corporate restructuring and closures.”

Wolf concluded: “If China growth does disappoint this could drive continued volatility in global markets.

“Sluggish growth is priced into markets but a hard landing which impacts on currency, capital flows, commodities and social stability is not.

“This could result in more aggressive domestic monetary easing, forcing the renminbi lower against the dollar, with adverse implications for global inflation and a blow to emerging markets dependent on robust Chinese demand for manufactured goods and commodities.”