There has been much talk recently that China may follow up its 2008 4-trillion-yuan economic stimulus package with a "stimulus 2.0" program designed to provide much-needed economic investment to promote growth. At the same time, there have also been calls for a reduction of the interest rates. Local governments have also begun to adopt alternative policies in an effort to reinvigorate the real estate market.

However, the question of which stimulus measures will ensure sustainable economic development is still very much an open one. The fact that China's economic slide has slowed of late, especially in the first quarter of this year, has not changed the fact that China's economic development remains the same. China, therefore, requires a selective and well-managed economic stimulus program to ensure sustainable growth.

As far as specific measures are concerned, there should be three main areas of focus.

Continue the macro housing control policy

China now has a very serious real estate bubble which has spread across the country. Local governments, however, are implementing alternative measures to boost the housing market, such as easing loan conditions provided by the Housing Fund, or providing government housing subsidies to certain residents. Some are also asking banks to relax loan restrictions for first-time home buyers, and even to consider measures which would encourage people to purchase second or third homes.

To my mind, though, such measures would not be beneficial to the development of the housing market. Instead, governments should introduce a strict and progressive housing taxation system to ensure a regulated domestic housing market.

Normalize the scales of credit and money supply

Currently, the benchmark interest rate for loans is 6.56 percent, while the average private interest rate for loans may be as high as 21.58 percent in Wenzhou, Zhejiang Province. Some people, therefore, have suggested that a lowering of the benchmark interest rate would encourage enterprises to borrow more in order to invest more.

However, the competition among banks is on credit scale, not prices. Since the current benchmark interest rate is far lower than the expected market interest rate, the adjustment won't significantly affect the demand for credit. The central bank should keep a bottom line of monetary policy adjustment, and should not allow enterprises to fuel their investments via the channel of excessive credit, as this could merely create new problems.

Expand investment

Expanding investment is crucial if we wish to see steady economic development. Many projects approved by the National Development and Reform Commission (NDRC) are expected to launch soon. However, investment should focus on people's livelihoods, and the development of infrastructure projects in both Western China and rural areas of the country is a good example of this. This will also narrow the economic gap between eastern and western China and boost economic development in areas which currently lag behind China's more rapidly developing centers of growth. The required funds for this investment should be directly transferred from the central treasury.

China's "stimulus 2.0" program should ensure that no more mistakes are made in order to ensure that the country's economy develops in a steady and sustainable fashion.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

(This post was published in Chinese and translated by Xu Lin.)

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.