Beijing: China’s factory output growth was surprisingly feeble in April and fixed-asset investment slowed, rekindling concerns that a nascent recovery is stalling and adding to pressure on policy-makers to take action to stimulate the economy.

However, China’s already-easy monetary policy and rising home prices complicate the options available to Beijing’s new leadership, leading some analysts to say that any response could be limited to fiscal measures.

Annual industrial output grew 9.3 per cent last month, according to data released by the National Bureau of Statistics on Monday, up from a seven-month low hit in March but still missing market expectations for a 9.5 per cent expansion.

“Economic activity remains weak,” said Liang Youcai, a senior economist at the State Information Centre, a government think-tank.

“We now expect second-quarter gross domestic product growth of around 7.8-7.9 per cent if there are no stimulus measures.” Monday’s data dealt a further blow to investors’ hopes for a decisive revival of the world’s second-largest economy, following last month’s announcement that growth unexpectedly cooled in the first quarter of the year to 7.7 per cent.

Growth in fixed-asset investment, an important driver of China’s economy, also disappointed in April. Investment rose 20.6 per cent in the first four months from the same period a year ago, compared with expectations for a 21 per cent rise.

Only retail sales met market expectations, growing 12.8 per cent in April from a year ago.

For investors, the big question now is whether China’s economic rebound remains intact. This month’s evidence underlines Beijing’s growing policy dilemma, with economists saying that a recovery — if at all — is still fragile.

Data last week showed China’s consumer inflation, although muted, quickened more than expected in April, narrowing the scope for Beijing to further ease monetary policy if growth swoons.

Worse, surprisingly strong trade figures last week that were incongruous with subdued foreign demand suggested a substantial flow of hot money betting on a rising yuan is sneaking past China’s capital controls.

A flow of speculative cash into China is a headache for Beijing as it may fuel a rally in the country’s frothy property market, where prices are already at all-time highs.

“Monetary policy is now facing a dilemma,” said Jiang Chao, an analyst at Haitong Securities in Shanghai. “On the one hand, the central bank cannot cut interest rates for fears of reigniting property inflation. But on the other hand, China is seeing mounting hot money inflow pressures.”

April’s factory output data showed makers of transport equipment experienced one of the sharpest slowdowns last month compared with March. Crude oil output was another major decline.

China’s state-led infrastructure construction boom has been a major contributor of growth since the 2008/09 financial crisis as local governments pump-primed their economies.

Yet the sector has slowed in the past two years after profligate state spending accumulated a pile of government debt worth as much as 20 trillion yuan ($3.25 trillion), leading Beijing to order banks to reduce funding for the industry.

However, some analysts say Beijing could relax controls over financing of state infrastructure projects should economic growth slacken further.

A researcher at a state think-tank told Reuters last week that some local governments are already lining up financing options for their planned infrastructure projects in case they get a green-light from Beijing. He declined to be named due to the sensitivity of the matter.

Beijing has so far offered few clues about its policy plans, saying little beyond its stock phrase of keeping economic growth “stable”.

Within the government, state researchers say policy-makers are debating over whether to focus on short-term demands or long-term benefits. There are arguments for Beijing to take action and stimulate growth now, or hold off and focus instead on restructuring the economy for the long haul.

China wants to promote consumption and cut its reliance on investment and exports, a transition that could be painful in the short-term as it constrains the government’s ability to unveil any new large-scale fiscal stimulus.

Ting Lu, an economist at Bank of America-Merrill Lynch, said he did not believe Beijing would succumb to the temptation to try to lift economic growth in the near term.

“Policy-makers will resist introducing stimulus measures unless growth slides much further,” Lu said. “However, we believe that these new policy-makers will try to avoid disrupting credit supply.”

Credit supply in China has risen rapidly in recent months as governments and companies sought financing outside the traditional banking sector amid Beijing’s clampdown on property and infrastructure investment.

The trend extended into April, when M2 money supply grew 16.1 per cent, above forecasts for a 15.5 per cent gain. China’s easy credit conditions, combined with its lacklustre real economy, has led some analysts to worry that money is being used for financial speculation rather than actual investment.

A Reuters poll last month showed analysts expect China’s economy to grow 8 per cent this year, up from 7.8 per cent in 2012, although many economists say the risks are for growth to disappoint.

Analysts have struggled to track the turns in China’s economy in the past year, often proving to be too upbeat.

Predictions that a mild economic recovery was under way this year proved overly optimistic after growth sputtered between January and March. Calls in 2012 for a growth rebound were also nine months too early, materialising only in the fourth quarter.