China may be turning the corner on inflation, but the course of its economic policy remains unclear.
For the first time since 2010, the government has succeeded in driving inflation down below the 4-percent target level, reporting a drop to 3.2 percent in February from 4.5 percent the month before.
The official Xinhua news agency said the result would provide "more room for the government to stimulate growth," but world markets have been baffled in trying to guess when a monetary easing might come.
Premier Wen Jiabao has vowed not only to whip inflation, which is heavily influenced by food costs, but also the high housing prices that are driving a wedge between rich and poor.
In the meantime, growth of GDP, a measure of the value of a country's economic activity, has been fading as trade prospects dim, pressing the question of how soon the economy will need a shot in the arm. This month, Premier Wen lowered the 2012 growth goal to 7.5 percent, which could make it the slowest period in eight years.
But with the flurry of numbers released by the National Bureau of Statistics (NBS) for the first two months of the year, Premier Wen has given few clues about how far home prices should drop before the government will ease its monetary grip.
"The priority as far as I can see it at this moment is to make housing more affordable," said Pieter Bottelier, a China economic expert and non-resident scholar at the Carnegie Endowment for International Peace in Washington. "He doesn't want to leave his present job with a bubble in his record, so he is really pressing on that point."
On March 14, shares slumped on the Shanghai Stock Exchange fell sharply after Wen pledged to keep driving home prices down despite the economic risks.
Prices are still "far from coming back to a reasonable level," Wen said at the closing press conference of the National People's Congress (NPC), or parliament, according to the Associated Press.
Like most of the NBS data this year, the housing numbers are ambiguous.
Home sales in the first two months fell 14 percent from a year earlier, while total value dipped 20.9 percent. But real estate investment rose 27.8 percent to 543 billion yuan (U.S. $85.8 billion), down just 0.1 percent from a year before.
The flow of funds into the sector suggests investors still expect plenty of money to be made.
"Despite the slowdown in property sales and investment, China should continue its property curbs at this time," said Pan Jiancheng of the NBS-affiliated China Economic Monitoring and Analysis Center, according to Xinhua.
The double-digit sales decline was also contradicted by a Shanghai Securities News report on Feb. 28, citing "a clear rebound of housing sales over the past several weeks." The NBS reported two-month figures in some categories together, due to distortions from Lunar New Year holidays.
Last week, the NBS said new home prices fell in 45 of China's 70 major cities in February from a month earlier and showed no change in 21 others. Only four cities reported slight gains.
Bottelier said the government appears to be making progress on housing prices despite development interests.
"Who knows what will happen, but so far, they seem to be winning that fight," he told RFA. "It's mainly a fight between local governments and the central government."
It is hard to tell when the People's Bank of China (PBOC) will decide that its tight money policy has gone far enough, but there are risks of going too far.
"If I were in their shoes, I would of course look at the overall growth rate. I would be very keen to avoid an even sharper slowdown in the turnover of the real estate sector," said Bottelier.
"They've been relatively successful in killing the bubble, but that remains, I think, a potentially very dangerous area," he said.
Key industries that depend on construction and property development could be heading for a slump. China's 80 largest steel producers lost 2.3 billion yuan (U.S. $362.5 million) in January compared with a 7.9-billion (U.S. $1.25 billion) profit a year earlier, the China Iron and Steel Association said, according to the Global Times.
One problem for both analysts and the PBOC is in trying to assess the relative strength of lower economic numbers that are still in high double-digits. A slightly smaller boom can still be hard to control.
Urban fixed asset investment, for example, rose 21.5 percent in the first two months. That was only 2.3 percent less than last year's comparable period, but also the slowest since 2002, the NBS said.
Investment figures were also slightly skewed by a 44-percent drop in spending on railway projects, an aftereffect of the fatal bullet train crash in Zhejiang province last July 23.
Other numbers suggest risks to the entire economy in using monetary policy to target the housing sector.
Power production rose 6.7 percent in the period, a sharp decline from the 11.7-percent growth rate for all of last year, the National Energy Administration (NEA) said. If the trend continues, it could signal a wider slowdown.
At a press conference in Beijing on March 12, PBOC governor Zhou Xiaochuan appeared to push back against perceptions that tight money policy was specifically aimed at the housing sector.
Cuts in the reserve requirement ratio (RRR) for banks are not meant to boost capital market confidence or improve property market liquidity, Xinhua quoted Zhou as saying. Lower ratios would free up financing for different sectors based on loan distributions, he said.
In December, the PBOC lowered the RRR by 0.5 percent, marking the first cut in nearly three years, but at 21 percent, it remains near the record high set last June.