Christopher Wood, equity strategist at brokerage CLSA reckons the clearest sign of Beijing preparing a major stimulus effort would be the Shanghai index climbing above 2,600.

Instead it fell 2.1 percent last week, the same week Beijing announced a 26.5 billion yuan ($4.2 billion) programme to subsidize purchases of energy-saving household electrical equipment - a drop in China's 50 trillion yuan economic ocean.

STRONGER THAN BEFORE

Some analysts say there is no need for Beijing to spend big as China is stronger than in 2009 when 4 trillion yuan ($635 billion) of stimulus came in the wake of the 2008-09 global financial crisis.

Back then firms had axed around 20 million Chinese jobs as global trade ground to a standstill, threatening the social stability China's Communist Party says justifies its rule.

Today's labour market is tight, wages are rising and employers struggle for staff.

That implies a risk of inflation catching hold if policymakers loosen too aggressively - it took two years to bring prices back under control after the last stimulus effort.

The 10.7 trillion yuan local government debt mountain created at the same time still remains to be conquered.

Analysts at consultancy GK Dragonmics applaud Beijing's resistance to a spending splurge as a sign that coddled state-backed firms should stop expecting handouts at the first whiff of economic woe.

They say a minor counter-cyclical boost is all the current downturn needs. A softly-softly approach is clearly underway.
Fiscal data for the first four months of 2012 shows year on year central government spending growth of 26.2 percent, more than twice the 12.5 percent growth in revenue.

The last time spending outpaced income in the first four months was 2009 when it jumped 31.7 percent year on year and revenue fell 9.9 percent.

Spending on education is up 31.3 percent to 468.6 billion yuan. It's up 17.7 percent on social security and job creation at 457.9 billion yuan. Agriculture spending is up 35.7 percent to 278.9 billion yuan. Transportation spending - a risk area from 2009's stimulus - is up 84.5 percent to 197.1 billion yuan. And 70.7 billion yuan has been spent on affordable housing.

Meanwhile budget allocations for fixed asset investment projects jumped 40 percent year on year in March and April.

David Fuller's view With the exception of the "local government debt mountain", this economic data is in stark contrast with what we see in the west and Japan. China is reflating, incrementally, selectively and without running up central government debts.

This is hugely important because while problems in Greece and Spain garner more headlines and roil markets, China remains the main engine of global GDP growth.

I agree with Christopher Wood who is mentioned above for citing 2600 on the Shanghai A-Shares Index (weekly & daily), a level which Fullermoney has mentioned on numerous occasions. Technically, a sustained push above that level would break the progression of lower rally highs, clear the 200-day MA, establish another higher low and confirm a new medium-term uptrend following the yearend trough.

Since the stock market is a lead indicator, a sustained move above 2600 would provide the best evidence to date that China's economy had not only completed a soft landing but was also strengthening once again.