One looming concern is the brewing asset bubble in the real estate and stock markets. The housing prices in many cities have hit a record high, sending out worrying signals about a possible market bust. Unaffordable home prices weighs down household consumption and the living standards of low-income populations. More disturbing, though, are emerging signs that many enterprises are piling into the real estate market for speculation. Their distraction is a heavy blow to the real economy and its structural rebalancing.

Due to synchronous recessions in the developed world, the bottoming out of the devastated export sector appears to be some way off. Worse still, vicious global trade protectionism has rubbed salt into the export wounds. China needs to help the manufacturers focus more on high-end products. It is imperative now for them to sharpen their competitive edge and build up a viable marketing network.

On top of the uncertainties is a bleak outlook for the employment landscape that was ravaged by the export meltdown. Though government support measures provided some respite, a large number of migrant workers and university graduates remain unemployed, casting an ominous shadow over the economy. As the largest employer and a backbone of the real economy, the small and medium-sized enterprises (SMEs) hold the key to employment revival. In restoring health of the SMEs, the following measures can be effective: First, it is necessary to create a favorable policy environment for the SMEs to innovate out of the conundrum. Second, easier access should be granted to SMEs by improving their credit guarantees and credit record system.

Zuo Xiaolei: Sustainability First

Zuo Xiaolei is Chief Economist of China Galaxy Securities Co. Ltd. (CFP )

While most other major economies are contracting and suffering through the worst economic crisis in decades, China appears to have turned a corner. But the economic recovery is not yet on solid ground as the infrastructure-weighted investments cannot be sustainable in the long run. An end to the fiscal spending might lead to a new downturn.

Aside from this, the growth spurt is also presenting a set of challenges, including industrial overcapacity and environmental damages incurred by resurgence in industry. The overcapacity, in particular, may choke off growth potential in the future. A more long-sighted perspective is to spur the service industry and mobilize more private investments to achieve the multiplier effect available in government stimulus.

The deep gloom has provided an impetus for the country to redirect the economy toward consumption. While this may require a compromise on the short-term growth rate, given its positive implications for growth sustainability, it is well worth the effort.

The government should be more cautious in approving new projects since the outpouring of bank lending has fuelled fears of bad loans. The new loans so far this year have been comparable to one third of China's GDP last year. If policy makers continue to keep the lending taps wide open in coming months, the concern may turn into a real threat. After all, it is difficult to issue so many loans in such a short period and not face problems.

An even bigger question is how China can cool down the burning-hot real estate market. Skyrocketing house prices will not be a risk as long as the affordable housing projects can properly meet the needs of poor households. But the soaring mortgages may be sowing the seeds for a wave of bad loans. To prevent risk contagion, the regulators would face the head-scratching of how to set up firewalls between banks and the property markets.

For a country still facing potential downturns, it is too early to fight inflation, even though excessive liquidity is flooding the economy. China's consumer price index, the barometer of inflation, has kept falling for months in a reflection of lingering deflationary pressures. Even if inflation descends in the near future, the policy makers are well-positioned to withdraw the monetary stimulus.