China eschews fiscal fanfare for supportive spending

China's focus on fine-tuning monetary and fiscal policies to fight the risk of a sudden economic slide worries investors pricing in a sixth successive quarter of slowing growth with no obvious sign of the solid stimulus they want.

With domestic activity stifled by government curbs on real-estate speculation, the potential damage to demand for China's factory products from a deeper European debt crisis seems a logical justification for a spending splurge.

"Maybe it would be easier for China if there were another global financial crisis. They could just stomp on the gas again and pick up the pieces a couple of years down the line," Tim Condon, Asia chief economist at ING in Singapore, told Reuters.

It could happen yet, as Greece perches on the precipice of a default that analysts at Berenberg Bank calculate would trigger headline losses of 425 billion euros ($543 billion), and spark contagion threatening euro zone viability.

The size of pre-emptive efforts elsewhere to absorb shocks from a deeper debt crisis - an 800 billion euro firewall for the euro zone, $1 trillion of firepower at the IMF - give voice to calls that Beijing should think big, not tweak the margins.

Condon's quip illustrates deliberate difficulty he says China has chosen in adjusting settings economy-wide to try to rebalance demand and output while cushioning growth's grind lower.

"The worrisome scenario is that things slow all year long and it turns into a pretty ugly year. That is certainly what the Shanghai Composite is telling us," Condon said.

The benchmark Shanghai stock index finance/markets/index?symbol=cn%21SHI">.SSEC is up a tiny 7 percent so far this year. It hit a near three-year low in January, failing twice since to hold above 2,450 points as investor confidence wavered.

Christopher Wood, equity strategist at brokerage CLSA reckons the clearest sign of Beijing preparing a major stimulus effort would be the Shanghai index climbing above 2,600.

Instead it fell 2.1 percent last week, the same week Beijing announced a 26.5 billion yuan ($4.2 billion) programme to subsidize purchases of energy-saving household electrical equipment - a drop in China's 50 trillion yuan economic ocean.

Stronger than before

Some analysts say there is no need for Beijing to spend big as China is stronger than in 2009 when 4 trillion yuan ($635 billion) of stimulus came in the wake of the 2008-09 global financial crisis.

Today's labor market is tight, wages are rising and employers struggle for staff.

That implies a risk of inflation catching hold if policymakers loosen too aggressively - it took two years to bring prices back under control after the last stimulus effort.

The 10.7 trillion yuan local government debt mountain created at the same time still remains to be conquered.