Chinese officials have ruled out a major stimulus measure, reflecting concerns that the investments in 2008 exacerbated already severe imbalances in the economy

A nine month-low in manufacturing activity and a continued slump in industrial production have heightened concerns in China about the slowdown in its economy, triggering fresh calls for stronger stimulus measures ahead of a sensitive leadership transition.

Two sets of data released in recent days have worried analysts. Manufacturing activity slid in August to the lowest in nine months, according to the purchasing managers index (PMI) data released last week. The 49.2 per cent PMI index marked the first instance of the number falling below 50 per cent since December, reflecting a contracting manufacturing sector.

Even as the slowdown has prompted calls for stronger stimulus measures, this week’s inflation figure has underscored the limitations faced by the government in introducing more loosening. Following four months of declines, consumer price inflation rose by 2 per cent in August, according to the National Bureau of Statistics (NBS).

Ba Shusong, an economist with the official State Council Development Research Center, said this week that inflationary pressures had “prevented the government from issuing a stimulus” as it had done in 2008, introducing a massive 4 trillion yuan ($634 billion) package.

The National Development and Reform Commission (NDRC), the top planning body, said it had approved 25 new urban rail projects, worth 800 billion yuan ($126.98 billion) to drive growth amid weak external demand.

Growth slumped to 7.6 per cent in the second quarter of this year — the lowest in three years.

Much of the fast-tracked projects were, however, already included in the current Five-Year Plan, and do not represent additional investment.

Alistair Thornton, an analyst with IHS Global Insight in Beijing, said that the slump in fixed asset investment and industrial production, which has stayed below 10 per cent for five straight months, was “clear recognition that loosening has, thus far, been inadequate.”

“We can’t help but wonder whether the government has dropped the ball. Are officials so consumed with Party-planning for mid-October [for the leadership transition congress] that they have neglected a more coordinated economic policy response?”

Chinese officials have ruled out a major stimulus measure, reflecting concerns that the investments in 2008 exacerbated already severe imbalances in the economy. Officials said the focus would, instead, remain on driving domestic demand and achieving more balanced and sustainable growth.

On Tuesday, Premier Wen Jiabao defended the 2008 measures in a speech in Tianjin at the World Economic Forum Summer Davos meeting.

“I want to make it clear here that it was exactly due to our resolute decision and scientific response that China was able to avoid factory closures, job losses and the return of migrant workers to their home villages,” he said.

Mr. Wen, however, added that he expected recent loosening measures to help the economy stabilise and meet the annual target.

“Although growth is showing down,’’ he said, “it is being more stable.’’