Analysts on Monday welcomed China's announcement of a major package of measures to stimulate domestic demand but warned that economic growth was still likely to slow next year, reported dpa.
"While these measures cover a wide range of areas, the clear focus is government-financed or mandated investment and construction," Hong Kong-based economist Tao Wang of UBS Investment Research said in a report to clients.
"Public housing and infrastructure are likely to receive the biggest push," Wang said.
"These public projects will help to boost overall investment sentiment and bring about more bank lending," he said.
The government said top leaders agreed on the new measures to "offset the adverse external economy by boosting domestic demand."
It promised to spend an estimated 4 trillion yuan (588 billion dollars) on infrastructure projects, reduce some taxes and loosen bank lending requirements.
But the UBS report said growth of China's estimated gross domestic product (GDP) was likely to slow to 7.5 per cent next year, down from 9 per cent in the third quarter of this year.
Morgan Stanley Research in Hong Kong said it had lowered its GDP growth forecast for China from 8.2 per cent to 7.5 per cent.
"The lower growth forecasts are mainly explained by smaller contribution of net exports - due to slower export expansion - to growth and weaker investment in the real estate sector," Morgan Stanley said in a report.
"Consumption growth is also revised down moderately," it said.
The report said growth was likely to decelerate over the next three quarters staging a "modest recovery" in the second half of 2009 "as external demand starts to improve and the effect of China's pro-growth policy kicks in."
It said the main risk was a "potential massive collapse in real estate investment across the country."
But it added that the government's package "if consistently implemented, should help translate the balance sheet strength of the economy into economic growth resilience, limiting the extreme downside risk to the economy."
Wang said an "aggressive fiscal stimulus" was "necessary to jump start the economy," arguing increasing bank lending was "critical to sustain corporate investment needs."
The Shanghai Daily newspaper said the government had changed last year's macro-control policy of "preventing overheating and curbing inflation" and instead adopted a "principle of maintaining growth and taming inflation."
"China has to upgrade its economic growth structure," the newspaper quoted Zuo Xiaolei, chief economist at China Galaxy Securities, as saying.
"Exports cannot grow fast in the near future," Zuo said. "It is the right time for the government to boost domestic demand and stimulate consumption."
The package is designed to finance 10 major infrastructure programmes over the next two years, including transportation, rural projects, low-cost housing, environmental projects and post-disaster reconstruction.
Other measures include a reform of value-added taxes that would reduce the tax bills of companies by an estimated 120 billion yuan (17.6 billion dollars).
The government also decided to loosen lending rules for commercial banks to "channel more lending to priority projects, rural China, small and medium-sized enterprises, technical innovation, and mergers and acquisitions.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro- economic policies to deal with the complex and changing situation," it said in a statement.
It said China would adopt "active" fiscal and "moderately active" monetary policies in aiming for "steady and relatively fast" economic growth.
State media had speculated last week that the Transport Ministry was working on a plan to invest 5 trillion yuan (730 billion dollars) over the next three to five years, following the government's allocation last month of 2 trillion yuan (290 billion dollars) for the construction of roads, waterways and harbours.
The government is also keen to boost employment after falling exports caused tens of thousands of job losses this year in southern and eastern manufacturing bases.