Fine-tuning policies

To ensure economic stability, the Central Government vowed to make policies more "targeted, flexible and foresighted." China has already taken some selective steps, geared to small business, to prevent a deeper downturn.

The central bank, the People's Bank of China, has required commercial banks to bump up lending to cash-starved smaller businesses and the weak agriculture sector. In the first three quarters, small and medium-sized enterprises received 2.26 trillion yuan ($357.03 billion) in new loans, accounting for 68.4 percent of the total.

A more substantial move came on November 30 when the central bank announced to decrease the ratio of deposits that banks must set aside in reserve by 0.5 percentage points for the first time in three years. This was widely seen as a signal for China's policy shift toward targeted easing as inflation jitters give way to concerns over slowing growth.

"The cut is within expectations given liquidity shortages in the banking system," said Lu Ting, a Hong Kong-based economist with the Bank of America Merrill Lynch. "It is part of ongoing fine-tuning, which has been taking place since early October."

Ba Shusong, Deputy Director of the Research Institute of Finance at the Development Research Center of the State Council, pointed out that it is inappropriate to adopt more aggressive easing policies for fear of reigniting inflation.

"China must learn lessons from the massive credit expansion two years ago that sowed the seeds of acute inflation," he said.

Xia Bin, a member of the Monetary Policy Committee of the People's Bank of China and a researcher with the Development Research Center of the State Council, believes the key to stabilizing growth lies in the fiscal front.

"China is positioned to hand out more fiscal stimulus such as tax reductions for smaller businesses and strategic emerging industries, as well as greater efforts to improve the social safety network," he said.      

Need to rebalance

As China embarks on a more sustainable path of growth, economic rebalancing and structural adjustment takes center stage.

China will boost domestic demands, encourage consumptions, expand the proportion of people in mid-income groups, and foster the strategic emerging industries including information technology and new materials, according to the CEWC. Moreover, still efforts will be made to protect the environment, as well as enhance energy conservation and emission reductions.

"The slowdown provided a powerful catalyst for the country to accelerate economic rebalancing and wean off reliance on external demands," said Fan Jianping, Chief Economist with the State Information Center.

Instead of pumping massive lending and investments like it did in 2009, China should attach greater importance to seeking more sustainable growth and improving people's livelihood, he added.

"For example, the government should strengthen anti-monopoly efforts and foster private investments by opening up more state-controlled sectors," said Fan.