China has the tools to tune up the economy

China's main stock index advanced for the fourth consecutive day, nearing a seven-year high on Tuesday, in anticipation of more support for stable growth.

The benchmark Shanghai Composite Index rose 1.55 percent to end at 3,502.85 points.

The run was prompted by Premier Li Keqiang's remarks last week that the government is likely to resort to a large set of "tools" to keep growth stable.

China has a full "tool kit" at its disposal and will use them if growth nears the lower end of its range, Li told a press conference after the annual parliamentary session.

"We are prepared to step up targeted macro-economic measures to boost market confidence if the slowdown hurts employment and salaries," said the premier.

China is under considerable downward pressure, and things probably won't improve much in 2015. Growth in industrial output is down. Retail sales growth is down.

Li admitted that it will be "by no means easy" to achieve this year's GDP target of around 7 percent, but where there's a will, there's a way.

QUICK FIX

Monetary and fiscal policies are powerful all-purpose utility tools and policy makers have already hinted that action is underway to prevent the economy sliding further .

Central bank governor Zhou Xiaochuan said last week that there would be some room for prudent adjustments to monetary policy, echoing the premier who is prepared to inject liquidity, "if necessary".

Benchmark interest rates were cut twice last year and the reserve requirement ratio (RRR) for banks has decreased. Some analysts expect more reductions soon.

In a recent research note, Barclays predicted at least two RRR cuts in the first half of 2015 and one benchmark interest rate cut in the second quarter.