Analysts say the government's fiscal stimulus, the most potent boost to the economy so far, will bring a measure of calm to the deepening gloom over the markets and help rebalance the country's export-dependent growth model.

Stiff headwinds are undoubtedly ahead for this year, but the fiscal expansion efforts will likely buffer a steep fall in public investments, they said.

But China's fiscal capacity is not inexhaustible. As the spending spree materializes, policy makers have increasingly felt the squeeze of a tighter budget.

"This year's fiscal expenditure is expected to see a rally, while the growth of fiscal revenue will likely slow down, casting some shadows over the country's fiscal position," Xie said. It would be a difficult fiscal year for the country, he added.

Xie's worries are actually not unfounded as signs of a shaky fiscal base have been emerging. According to the Ministry of Finance (MOF), the country's fiscal revenue rose 20.5 percent year on year to 5.8 trillion yuan ($846.7 billion) in the first 11 months last year. The growth rate for the entire year was estimated at 19 percent, a sharp drop from the 32.4-percent growth rate in 2007.

Xie said narrowing corporate margins, gloomy stock and property markets and a basket of tax waivers have placed more pressure on the country to collect fiscal revenue. Post-earthquake reconstruction activities and the economic stimulus measures have also ratcheted up fiscal expenditures.

The country's fiscal base has not shown any signs of consolidating as more tax cancellations and reductions continue to come into effect. The value-added tax revamp alone would knock around 120 billion yuan ($17.5 billion) in revenue off the government's balance sheet, according to MOF estimates.

"It will take a long time for fiscal revenue to recover its torrid growth," Xie said. "We hope that it could happen in the latter half of this year."

Some economists believe that the country's budget deficit this year will be greater than in 2008, but will not cross the international alert threshold of 3 percent of GDP. The World Bank has forecast that China's budget deficit would rise to 2.6 percent of GDP in 2008. But the country could still have ample room to increase public spending after running modest fiscal deficits, said Louis Kuijs, a senior economist with the bank, in a report.

"As along as the fiscal revenue growth rate does not dip into negative territory, it's generally risk-free for China to run a modest fiscal deficit," said Liu Yuhui, a researcher at the Chinese Academy of Social Sciences, in a printed statement. "It's a worthwhile choice to hold up the economy at the slight cost of fiscal surpluses."