After the initial excitement spurred by Premier Wen Jiabao's pledge of fiscal support abates, investors may want to see more concrete steps from the government before they are convinced about an economic rebound.
Wen told the World Economic Forum on Tuesday that if needed, the government will tap into its trillion-yuan fiscal surplus and the fiscal stability fund, worth more than 100 billion yuan (HK$122.5 billion), to ensure stable economic growth.
He also said there is ample space to use monetary and fiscal tools to stabilise the economy.
The remarks boosted hopes of tax cuts and more infrastructure investment in the months ahead, fuelling a surge in Asian markets.
There is good reason to welcome the news, especially after the mainland's weakening growth in industrial output and investment and lacklustre exports in recent months indicated a gloomy economic outlook.
However, economists caution that Wen's promises may not give the economy a big enough boost without the support of banks, which have been lukewarm so far in increasing lending to new projects, for fear of deteriorating asset quality.
Wen's remarks indicated "the government still has enough fiscal fire power to stimulate the economy if it wants to and if that is needed," said Louis Kuijs, chief China economist at the Royal Bank of Scotland.
But the government is unlikely to "go all out and implement the kind of big physical packets that they did 3-1/2 years ago", Kuijs said, referring to the 4 trillion yuan stimulus package introduced in late 2008 in the face of the global financial crisis.
The State Council said yesterday it will accelerate export rebates as part of measures to stabilise trade. But its statement failed to mention significant changes to existing policies.
Economists said more measures may be gradually rolled out, such as tax cuts and approving more highway, subway, and energy-saving projects.
Li Tie, director of the China Centre for Urban Development at the National Development and Reform Commission, said the state planning agency is looking into improving transport systems in 18 city clusters.
But investment activity may not rebound markedly simply on the back of central fiscal resources, analysts say.
Mark Williams, chief Asia economist at Capital Economics, said "the key difference from 2008 is that the stimulus announcement at that time was coupled with a surge in bank lending".
At that time, the central government invested 1.18 trillion yuan, only a third of the package. The more crucial funding was from banks, which lent nearly 10 trillion yuan in 2009, a historic high.
Financial institutions lent 6.1 trillion yuan in the first eight months of this year. Demand for loans was weak owing to the economic downturn and excessive capacity in industries such as steel and cement.
Tsinghua University professor Li Daokui said the central bank has space to cut the banks' reserve requirement ratio and ought to issue more bonds.
The top leadership reshuffle seems to have delayed the introduction of specific measures.
"Once the leadership in the party and in the government are in their new seats, I would expect to see structural reforms starting to pick up pace again," Kuijs said. However, a drastic change is unlikely, he said.
Additional reporting by Jane Cai