With GDP growth slowing over the past six quarters, China's key macro theme for the second half of this year has to be reviving the economy and the best way to bring about an economic turnaround is through aggressive stimulus. Therefore, it is time to pull out the big guns.

The National Development and Research Commission (NDRC) fired the first volley in the action when it began stepping up infrastructure projects' approvals in the second quarter. And the People's Bank of China (PBOC) has lent its support by easing credit through required reserve ration (RRR) cuts and lowering interest rates.

On the monetary front, the PBOC is expected to continue with its reverse-repos operations and implement one RRR cut and one interest rate reduction in the third quarter. Apart from the bank lending, government-led investment is the most effective way to prop up the flagging economy.

However, this round of stimulus is markedly different from previous ones in the way it is being executed, with more targeted investment than in the past and planned with a greater level of detail.

Recalling the hangover of high inflation and excess capacity from 2008's 4 trillion yuan stimulus package, the central government is now determined to execute the current package with a greater level of planning. This is perhaps the greatest difference between the current round of stimulus and the one in 2008, though not the only difference.

Much of the planning is taking place at the ground level by local governments instead of the central government, although the central government retains the right to final approval. Ningbo, Nanjing and Changsha have all unveiled long-term investment programs to boost local growth.

In 2008, relaxed credit policies towards the property market led to a real estate boom. The central government is keen not to allow this to happen again and has repeatedly stressed its determination to curb rising property prices. With property out-of-bounds as an investment target, the only option left for large-scale government investment is infrastructure.

While the Chinese economy transitions from an export-driven model to one that is consumption-driven, it will have to rely more heavily on investment to "stabilize growth". Over the next few quarters, more investment-related stimulus measures are expected to be announced, which should attract fixed-asset investment (FAI). The government is keen to maintain FAI growth of over 20 percent YTD in the second half of this year compared with a year ago.

Available data indicates that FAI growth in infrastructure bottomed in the first quarter of this year and has been on the rebound since the second quarter, with the momentum likely to sustain.

FAI growth figures offer only a broad picture of investment. To get a true picture of the economy, we require more granular data, including power consumption, coal prices and cement prices. An added advantage of this is that the more detailed the data, the less it tends to be subject to distortion. Our approach reveals that the slowdown is not as slow as it was before and investment activity is holding steady, though not improving. The country's GDP growth is expected to recover slightly, from 7.6 percent in the second quarter to 7.7 percent in the third quarter, and to continue to rebound to 8.1 percent in the fourth quarter of this year.

The author is chief economist at CCBI. The opinions expressed here are entirely his own.

(HK Edition 08/28/2012 page2)