With dark clouds gathering over China's economy, Beijing is feeling greater pressure to introduce stimulus measures to support growth.
Premier Wen Jiabao said last week the government should give more priority to maintaining growth, a comment that was seen as the start of a new fiscal spending spree.
Initial signs emerged in the past week as the National Development Reform Commission, China's top economic planning agency, gave the green light to around 100 projects aimed at boosting growth.
Why are people talking about it? China is showing obvious signs of a slowdown and that's not welcome news to anyone.
Growth in the world's second-largest economy plunged to a nearly three-year low of 8.1 percent in the first quarter and is on course this year to grow 8.2 percent, its slowest pace since 1999, economists polled by Reuters predicted. Beijing in March lowered the country's official growth target to 7.5 percent, from an 8 percent goal in place since 2005.
Just about everything in China's economy seems to have gone backwards in April and the raft of weaker data raised fears that China has yet to bottom out. The only piece of comforting news is that inflation is among all that's dropping, giving Beijing some wiggle room to step up easing efforts.
April growth numbers, especially industrial output, came in well below expectations -- growing at its lowest rate since the 2008 crisis.
With euro zone contractions set to deepen and the U.S. economy likely to decelerate in the second quarter of 2012, the outlook for Chinese exports also remains difficult. Therefore, net exports will likely be a small drag on growth this year, as they were in 2011.
Domestic economic activity also showed signs of weakness due to the overhang from the previous aggressive tightening in the property market.
Growth in fixed asset investment, which accounted for 54 percent of China's 2011 gross domestic product, slowed to 20.2 percent in the first four months of 2012, compared with economists' median forecast of 20.5 percent.
So is the stimulus for real? At least Nomura economist Zhiwei Zhang believes so, and China has been in the habit of surpassing its growth targets.
What has been observed in recent weeks, Zhang explained in a May 29 note, is a typical procedure adopted by the Chinese government in reaction to bad economic conditions. There are three steps to this procedure:
First, poor economic data led to senior government officials going to the provinces to investigate what is happening there. Premier Wen visited six provinces from May 18 to May 20, and Vice Premier Li Keqiang went to Jiangsu.
Second, the State Council met to decide collectively among ministries what to do on the policy front, which took place on May 23.
The third step would be to implement the policies agreed in the State Council meeting, which Zhang anticipates will happen in the coming months.
Sounds familiar? The Chinese government followed a similar procedure in 2008.
One other indication is the NDRC's recent approval of several steel mill expansion projects worth about 100 billion yuan ($15.7 billion).
At a time when the steel sector faces over-capacity and authorities have been trying to curb further investment in this sector, such a move suggests that policymakers are eager to promote growth in the short term despite the obvious problem in the longer term, Zhang said.
The size of the stimulus? Beijing has yet to announce a price tag. Chances are, they won't.
A big headline number would risk boosting confidence by too much and the government might want to rely on economic fine-tuning to see how the economy responds.
Credit Suisse economist Tao Dong gave his own projection in a May 28 research note to clients. He expects Beijing's stimulus spending to be as high as 2 trillion yuan, half the size of the 4 trillion yuan stimulus enacted in response to the global financial crisis in 2008.
The 2008-09 stimulus -- about 13 percent of GDP -- left China with soaring inflation and a pile of debt. While China rebounded quickly and achieved an almost 11 percent growth rate in 2010, the country also saw inflation spiking to a 37-month high of 6.5 percent in last July, well above the government's 4 percent target for the year.
Meanwhile, local governments that splurged on building new roads, bridges and other infrastructures were left with heavy debts.
Memories of the undesirable side-effects are still fresh and Beijing is extremely cautious this time around to avoid overshooting.
The Chinese government's intention is very clear, it will not issue another large scale stimulus plan to boost robust growth, the official Xinhua News Agency said in an article published Tuesday in response to the markets' frenzy speculation.
Signals of easing? In the absence of a specific headline number, the best signals could be central government expenditure, new loans, new projects in fixed asset investments, and steel production.
These measures all shot up significantly in the first quarter of 2009 after Beijing decided in November 2008 to stimulate the economy and boost project approvals.
For this time around, we expect these indicators to pick up in the coming months, but much more moderately compared with 2009, Zhang said.
He predicts that bank lending will likely pick up to 800 billion yuan in June and stay high during the third quarter, consistent with the annual new loan target of 8 trillion yuan.
The advantage of monitoring new loans and steel production as confirmation signals is that they are available on a high frequency basis, so that investors do not have to wait for the monthly data release.
Financial news in China typically reports how much new loans the four large banks in China lend out for the first 10 days, second 10 days, and third 10 days in each month, while the Chinese Steel Association reports steel production for the same 10-day cycle.
Policy easing so far. Barely a day after the release of the April data, Beijing announced a 50 basis-point cut in bank's reserve requirement ratio, or RRR, taking it to 20 percent for big banks and 18 percent for smaller banks.
That was the third bank reserve requirement ratio cut in the current easing cycle, following the first surprise cut on Nov. 30 and a second one on Feb. 24.
On top of the monetary easing, a slew of supportive measures have been implemented over the past few weeks.
Such moves include fast-tracking approval of infrastructure investment, offering subsidies for buying energy-saving home appliances, encouraging more private capital to enter a handful of sectors, which are dominated by state firms.
So what's next? The Chinese government has plenty of policy ammunition left.
Despite three cuts, the current RRR is still high, which means there is ample room to cut.
HSBC Chief Economist for China Qu Hongbin expects a 50 basis-point RRR cut in June and three more 50 basis-point reductions in the RRR cuts in the second half of 2012, according to a May 30 note to clients.
Inflation is on track to ease further, allowing Beijing to cut interest rates by 25 basis points around the middle of 2012, when the consumer price index is expected to slow to below 3 percent, Qu said. This should lower financing costs and spur credit demand.
On top of monetary easing, Qu is also looking for more fiscal stimulus and the opening of more sectors to private investment.
It's time for action, and we are confident that Beijing's policymakers will get on with the job of boosting growth, Qu said. However, he made it clear that those looking for a repeat of the large 4 trillion-yuan stimulus in 2009 are likely to be disappointed.