RECENT weeks have seen a surge of visitors to Beijing's Sanlihe area, where offices of the National Development and Reform Commission are located.

The nearby hotels are reportedly full again, a classic sign of more people rushing to the country's top economic planning agency to apply for approvals of various investment projects.

Chinese authorities are rolling out a series of measures to bolster investment under a policy of "stabilizing growth."

The need for additional economic stimulus was underscored by yesterday's release of the official Purchasing Managers' Index for May. The widely watched index fell to its weakest reading in five months, barely clinging above the tipping point between growth and contraction.

While some stimulus may be critical to the nation's economic health, analysts are warning that investment in construction should be tempered by concerns about long-term benefits, less inequality and the creation of fewer bubbles.

"The worsening external environment and slowing domestic activities have served as a wake-up call for the Chinese authorities," said Liu Ligang, an economist at Australia & New Zealand Banking Group Ltd. "The latest policy announcements suggest that growth is again at the top of the nation's agenda."

'Fine-tuning' policies

Since mid-May, the State Council, China's Cabinet, has repeatedly provided guidance about "fine-tuning" policies to sustain the country's economic expansion. New investment projects are being fast-tracked.

On May 11, China Securities Journal reported that green light has been given for construction of new airports in provinces such as Heilongjiang, Gansu, Hainan and Guizhou, and the Xinjiang Uygur Autonomous Region as well as Chongqing City.

The latest issue of Caijing magazine also reported a number of big infrastructure projects winning financial support from the Ministry of Finance. Large-scale and long-delayed projects of Wuhan Steel and Baosteel are said to be among them.

In addition, there is talk about expansion of a program to spur purchases of construction materials in rural areas for people to build their own homes.

The intensity of such moves inevitably reminds people of the late 2008, when China unveiled a massive 4 trillion yuan (US$635 billion) stimulus package to deflect the impact of the global financial crisis.

"It is unfortunate that the government is turning back to its old tool kit," said Huang Yiping, an economist at Barclays Capital. "But boosting investment is currently the only available option."

Chinese authorities had been hoping that a rise in domestic demand might fill the gap caused by shrinking exports and incoming foreign investment.

They have also stressed the need for tolerance, saying slower growth is necessary for rebalancing the economy to put it on a more stable future trajectory.

However, the reality of a slowdown threatening job creation and social stability showed there are limits to tolerance.

Economic data

China's gross domestic product in the first quarter expanded 8.1 percent from a year earlier, the weakest pace in nearly three years. That stoked fears of a hard landing.

Worse, key economic data in April pointed to more downward pressure on several fronts. Data on trade, industrial production, fixed-asset investment and retail sales were all disappointing.

China's slowdown has been blamed on the debt crisis in Europe, China's biggest market; a collapse of infrastructure investment; and mortgage restrictions.

"The government does not have a choice about a new round of stimulus, albeit some projects in the previous package have barely been finished," Huang said.

Still, stimulus stirs unease.

Esteemed scholars, such as Wu Jinglian, a senior government adviser, have publicly warned against a repeat of the 2008 strategy that led to massive bank lending, stubborn inflation, skyrocketing housing prices, excess production capacity, mounting local government debt and the risk of dud loans.

On May 30, Xinhua news agency published a lengthy story, denying that the current stimulus effort harks back to 2008. It stressed the importance of avoiding rash investment.

"China is launching a 'mini-me' version of the 4 trillion yuan program adopted four years ago," said Stephen Green, an economist with Standard Chartered. "As of yet, no numbers are attached to the package, but we expect policymakers will be cautious not to repeat the mistakes of 2008, and such concerns will be reflected in a much more controlled pace of bank lending."

Credit growth

But still, credit growth will respond to the increased pace of investment approvals, Green added.

Tao Dong, an economist at Credit Suisse, went one step further, predicting that China may pump in as much as 2 trillion yuan in investment into the economy this time. But such forecasts remain in the realm of speculation, with no verification from the government.

On May 30, the State Council rolled out a guideline promoting the development of seven emerging industries of strategic importance. The industries - energy conservation and environment protection, new-generation information technology, biotechnology, high-end equipment manufacturing, new energy, advanced industrial materials and green vehicles - are considered key in the current battle against a sharp economic slowdown.

"Unlike in 2008, when China virtually encouraged investment in all projects, the country now is choosing to bolster investment in industries that have a future," said Tommy Xie, an economist at OCBC Bank. "The new guideline targets both growth sustainability and industrial transformation, and aims at longer-term development."

On May 16, the State Council announced a 36.3 billion yuan subsidy program to encourage use of energy-efficient household appliances, LED lighting devices and power generators. That seemed to indicate that consumer consumption remains an integral part of policy strategy.

The Cabinet has also announced expansion of private investment in state-dominated fields like railways, energy, telecommunications, education and health care, potentially creating a fairer business environment for the private sector. However, that economic reform may be slow in coming.

On the housing front, the central government has made it clear that the restrictions on mortgage lending will stay, but it's showing some flexibility in more than 40 cities around the country. The "fine tuning" began when government officials in Yangzhou City in east China's Jiangsu Province announced subsidies for first-time homebuyers and began accelerating construction of modest residential apartments.

Strategic industries

Barclays Capital's Huang said the latest measures appear to be different from those of 2008.

"We can see it is not as big a stimulus package," he said. "Some projects are under the 12th Five-Year Plan, and their spending is more modest. It is focusing on power, water, railways, clean energy and other strategic industries that have been chosen more selectively."

Huang said he expects the government will soon combine these measures with a few more monetary moves. The central bank may repeat several times this year its March cut in the reserves banks are required to hold as a ratio of assets. That would free up more capital for lending.

"The probability of an interest rate decline in the near term has also significantly increased, and we continue to expect the yuan to appreciate over the long run," Huang said, though he admitted that such monetary policies have much less direct impact on boosting demand.

Government support for economic growth invariably runs the risk of over-stimulation, over-capacity and asset bubbles. That was the lesson learned from the years following 2008.

However, if the government moves wisely, one careful step after another, it may be able to minimize the side effects of stimulus, retain public confidence, keep inflation under 3.2 percent and achieve a growth rate of 8.1 percent this year, Huang said.