TOKYO -- For investors, the recovering U.S. economy has been like a beacon in the fog over the past couple of tumultuous months. But economist Shuang Ding reckons it may be time to chart a course back to China. Ding is head of greater China research at Standard Chartered Bank in Hong Kong. Prior to joining the bank, he worked at the International Monetary Fund and served as an economist at the People's Bank of China from 1993 to 1997. He spoke with The Nikkei about the state of the yuan, also known as the renminbi, and the outlook for the world's No. 2 economy. Q: What lies ahead for the yuan in relation to the stronger U.S. economy? A: We think the U.S. economy is already showing signs of weakening, and it may have passed the peak of its expansion cycle. The ISM [The Institute for Supply Management's business survey] weakness appears to have spread from manufacturing to services; investment and consumption momentum are softening; exports are also being affected by the strong dollar. The shale oil industry has been affected by low oil prices. We only forecast GDP growth of 1.6% for the U.S. in 2016. The Federal Reserve will not have much room to raise interest rates. We forecast only one rate hike this year, in the first half, and the renminbi will continue to depreciate against the U.S. dollar to the range of 6.6 to 6.7. Then the Fed will stop, and perhaps start to cut rates at the end of this year. The dollar's strength may end, or it could even weaken in the second half of this year. The renminbi, on the other hand, could recover against the dollar to 6.5 to 6.6. When expectations for a strong dollar start to shift, that is when people will realize that the renminbi will not depreciate: [They will think] "The yield is still higher than the dollar, so why change to the dollar?" Capital outflows, at least compared with now, will be smaller. In the next couple of years, I expect the renminbi to continue to appreciate against the [currency] basket as China's productivity growth is still faster than other countries. Meanwhile, international investors may allocate more capital to China now that the yuan has been included in [the International Monetary Fund's] special drawing rights. Q: China's foreign reserves for January will be published Sunday. Considering the volatility of the past month, reserves may have declined at a faster pace. Is the market ready for another decline in foreign reserves? A: We think the central bank intervened a lot in January. Still a lot of control measures introduced since late last year have worked to contain some of the outflows, keeping the loss around $100 billion, the same as last month. Looking at the offshore renmenbi rate in the past two days, there are signs that short positions in the renminbi have partly been hit due to shift in expectations for a strong dollar. We don't know if this will be temporary, and when people's expectations will change. But when that happens, I don't think foreign reserves will decline further. And downward pressure on the renminbi will ease.

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