Chinese leaders have gradually eased controls imposed over the past two years to cool an overheated economy and inflation. But some analysts warn they need to move faster as global demand and Chinese consumer spending weaken.
Economic growth fell to a nearly three-year low of 8.1 percent in the first quarter and factory output in April grew at its slowest pace since the 2008 crisis, raising the threat of job losses and possible political tensions.
"Downward pressure on the economy is increasing," said a statement issued after a Cabinet meeting led by Premier Wen Jiabao, the country's top economic official.
It said Beijing will "maintain stability" in policy but promised changes to spur domestic demand.
"It looks like Chinese policy makers are finally getting worried," said Credit Agricole CIB economist Dariusz Kowalczyk in a report. "It is high time given the potential negative consequences of the deepening debt crisis in Europe."
On Thursday, HSBC Corp. said Thursday its Purchasing Managers Index based on a survey of Chinese manufacturers showed activity weakened further in May.
A preliminary PMI, based on responses by 85 to 90 percent of companies surveyed for the full index which is released later, fell to 48.7 from April's 49.3 on a 100-point scale. Numbers below 50 indicate a contraction.
Beijing has tried to pump money into the economy by easing credit controls but Chinese media say bank lending has barely grown this month compared with a year earlier. That suggested companies were delaying investment due to uncertainty about the economic outlook.
The World Bank warned other Asian governments on Wednesday they need to boost their own domestic demand to offset the impact of China's slowdown and weakness in Europe and the United States. The bank said exporters of oil and other commodities such as Indonesia that have benefited from China's boom are "especially vulnerable."
Wen signaled the government's intentions last weekend by promising to give "more priority" to maintaining growth.
Wednesday's statement promised to expand private investment in state-dominated fields such as energy, telecommunications and railways but gave no details.
The World Bank and others have warned Beijing needs to scale down the dominance of state companies in a wide array of industries and promote free-market competition to keep incomes growing and avoid financial problems.
Analysts expect Chinese leaders to move more cautiously than they did in response to the 2008 crisis. Then, a 4 trillion yuan ($586 billion) stimulus helped China rebound quickly but fueled inflation and a wasteful building boom.
The government has avoided talk of a possible new stimulus, instead stressing targeted measures such as spending more to build low-income housing. Real estate is traditionally a key driver of Chinese growth, pumping money into construction and other industries, but Chinese leaders have vowed to enforce curbs imposed to rein in surging housing costs.
The Cabinet promised to support solar power, energy-saving products and affordable housing but gave no financial targets.
"The government is now ramping up its stimulus but the impact will come too late to stop this quarter's GDP growth rate falling further," said Capital Economics analysts Mark Williams and Qinwei Wang in a report.
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