To provide a floor under the slowing economy, policymakers have cautiously handed out pro-growth incentives on a selective basis, including favorable policies for small enterprises in terms of taxation and credit support. In December 2011, the Ministry of Finance announced to cut corporate income tax by half for small and micro-enterprises from January 1, 2012 to December 31, 2015.
On February 24, 2012, the central bank decreased the reserve requirement ratio by 0.5 percentage points, following the reduction in December 2011, which was the first cut since November 2008. It also required commercial banks to bump up lending to cash-starved smaller businesses and the weak agriculture sector.
"Since inflation is not a main concern at the moment, the policy stance could be more pro-growth than 2011. But it could be quite incorrect to assume that China is facing strong headwinds similar to the collapse of exports at end of 2008 and then to predict a massive stimulus," said Lu.
"The central bank may further cut the reserve requirement ratio in the rest of this year, but we see no chance for interest rate cuts unless the European debt crisis worsens," Lu said.
"We expect no major easing on property tightening, but Beijing could allow eased enforcement of home purchase restrictions in lower-tier cities," he said.
"As inflation pressures continue to ease, weaker export growth is likely to prompt further easing measures," said Qu Hongbin, a Hong Kong-based economist for HSBC Holdings Plc. "Once the easing measures filter through, growth is likely to rebound."
Qu added that he expects further efforts to stimulate the economy through tax breaks. Government spending and eased credit would help the economy to rebound in the second half of the year after "bottoming out" in the April-June quarter.
Lian suggested China retain the current prudent monetary stance and closely monitor the external economic environment.
The central bank could encourage lending to SMEs, affordable housing projects and strategic emerging industries, and further lower the reserve requirement ratio, said Lian. "But there is no need to lower the interest rates, and the economy would otherwise suffer negative interest rates in real terms," he said.
Paul J. Heytens, country director for China of Asian Development Bank (ADB), said China's GDP growth in 2012 is forecast at 8.5 percent, with the priority of macro-policy expected to shift from fighting inflation to stabilizing growth.
China's fiscal policy is expected to remain broadly expansionary, with higher spending on social security programs like education, health care, pensions and public housing, said the ADB in a recent report.
The bank said the Chinese Government may carry out further fiscal and financial reforms to ease the tax burden on consumers and small and medium-sized enterprises.
The main risks for China would be uncertainty over external demand among the country's largest trading partners, and potential increases in non-performing loans of local government.
But it pointed out that progress in diversifying export markets and re-balancing sources of growth toward domestic demand should help maintain economic growth momentum, and that the country's financial sector is sound overall.