EXPECTATIONS are running high that China's decelerating growth will reverse course in the second half of the year, but economic figures - which some analysts say are suspect - suggest more policy easing may be needed to nudge the economy along.

"In the medium term, there are tail risks of a hard landing in China, where investment spending could slow more sharply, given overcapacity in a number of sectors," the International Monetary Fund said in its World Economic Outlook Update issued on July 16.

The IMF said growth in emerging markets could be lower than expected, making a smaller contribution to global expansion.

The thinking is that China is unlikely to continue to be the "white knight" that can rescue the world economy single-handedly.

Worse, the country could become a drag on growth. The IMF report cited certain risks to China's financial stability after years of rapid credit growth and saw strains in the domestic economy.

Alaistair Chan, an economist at Moody's Analytics, predicts China may stage a rebound in the third quarter, which would keep expansion close to the target rate of 8 percent for this year.

"There are, however, some near-term downside risks to our baseline forecast," Chan said. "If Greece leaves the eurozone in a disorderly fashion, the financial contagion could lower China's growth to 5 percent before it slowly recovers."

Adding insult to injury, a recent article in the New York Times said there was new evidence Chinese officials were falsifying economic statistics to disguise the true depth of the nation's troubles.

Inaccurate statistics

"Local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown," the New York Times wrote, citing power sector executives.

"Officials are also overstating economic output, corporate revenue, corporate profits and tax receipts," the newspaper reported. It said executives and economists roughly estimate the inaccurate statistics inflate a variety of economic indicators by 1 or 2 percentage points.

For the second quarter, China reported that its gross domestic product grew 7.6 percent, its slowest pace in three years.

Those who doubt the reliability of data released by the government look for alternative measures to gauge the country's economic status.

Stephen Green, a China economist at Standard Chartered Research, tried to use the consumption of cement, steel and bank loans as substitutes for electricity, a traditional barometer of strength in industrial activities.

"There are some signs of stabilization, particularly in the critical area of infrastructure," Green said in a recent report, emphasizing he was not just relying on official numbers to make that case.

In June, growth in cement production rose to an annual rate of 6.5 percent from 4.3 percent in May, and steel products to 6.7 percent from 6.3 percent.

Funding for investment from the state budget rose 32 percent in June, and bank loans were up 12 percent.

"Both look like they may be bottoming out in year-on-year terms," Green said. "In absolute terms, there was a mild month-on-month pick-up in long-term loan demand, which is a sign of returning investment appetite."

Indeed, China seems to be betting again on investment to save the economy from the current downturn.

Premier Wen Jiabao said during an inspection tour in Jiangsu Province last month that "maintaining reasonable investment growth is crucial to boosting domestic demand" - a significant shift in policy tone from previous emphasis on domestic consumption as the engine of growth.

"We think that investment will again come to rescue China's economy," said Zhou Hao, an economist at Australia & New Zealand Bank. "Local government will be able to accelerate infrastructure investment in the second half."

On June 25, Changsha, the capital city of Hunan Province, announced a stimulus package of 829 billion yuan (US$131 billion) to invest in 195 large-scale projects, including airports and urban transit, as well as 155 more modest infrastructure projects.

On the same day, the State Council approved a plan to promote the economies of six provinces: Hunan, Hubei, Shanxi, Anhui, Henan and Jiangxi. No headline numbers were announced, but the statement opens the door for more local government stimulus such as that announced by Changsha.

Meanwhile, the Ministry of Railways, the nation's largest corporate debt issuer, announced on July 30 that it will spend 470 billion yuan on railroads and bridges this year, 4.8 percent more than a ministry figure released on July 6.

"More ministries and local governments may follow suit to stimulate growth in their regions," said Zhang Zhiwei, an economist at Nomura. "As the leadership transition for provincial governments is completed, new leaders will have an incentive to push up investment."

Zhang said data on new loans and investment released in the next several months may reveal the scope of new stimulus because governments need financing from banks to implement projects.

In May, Credit Suisse economist Tao Dong said he expected the new round of stimulus to total about 2 trillion yuan. That would be about half of the massive 4 trillion yuan package unleashed by the central government in 2009 to deal with the aftermath of the global economic crisis. That earlier spending spree led to persistent high inflation and industrial overcapacity.

Consolidating growth

As a result, some analysts expect the recovery now at hand will be less dramatic than the one in 2009.

"Recent government statements do not imply urgency to introduce large-scale stimulus," said Ding Shuang, an economist at Citigroup.

"With inflation expected to remain subdued, we think the government will fully utilize space within its pre-set policy mix to consolidate growth momentum, with special emphasis on infrastructure investment in railways, highways, irrigation and energy saving projects."

Ding said he expects two more cuts in the reserve requirement ratio for banks and a third interest-rate reduction later this year.

At the same time, he said he sees limited scope for a rebound in home prices because of the government's determined control over the sector. Ding is forecasting 2012 economic growth of 7.9 percent, edging up to 8 percent in 2013.

Standard Chartered's Green also said he expects a better second half, bolstered by possibly three bank reserve ratio cuts and another interest rate cut.

"The economy will not come roaring back, but it will at the very least stabilize and should regain a little bit of momentum," Green said.

ANZ Bank's Zhou is forecasting GDP growth of 8.2 percent this year, after 8 percent expansion in the third quarter and 8.4 percent growth in the fourth.

"We think a rebound is under way, though the cyclical rebound will be a modest one because of the lack of policy conviction and the still uncertain global outlook," Zhou said.

The most recent support for China's recovery came from Robert Zoellick, former president of the World Bank.

Zoellick said on July 30 in Singapore that China has the resources to cope with the economic slowdown.

"The situation China now faces is very different from 10 years ago when it needed to create 23 millions jobs a year," said Zoellick. "Nowadays, China needs to create high-productivity, high value-added jobs instead of low value-added jobs, which creates opportunities and possibilities for future competitiveness."

If China adjusts the structure of its economy, he said, it will achieve "more of a soft landing."