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China still has firepower to boost its economy

Don't hit the panic button over China's financial turmoil just yet -- the government still has a few tricks up its sleeve.

Over the last few months, Beijing has pulled out the stops to battle a stock market rout and signs of a sharp slowdown in its economy, including allowing a shock depreciation of the currency.


The measures bought some short term relief, but the haphazard response hasn't been enough to shore up confidence in China's economy or markets.

With China now growing at its weakest pace since the global financial crisis, it's no wonder international investors are getting increasingly nervous.

Still, the world's second-largest economy has plenty of firepower. Here are four tools that analysts say China could deploy to stimulate activity.

1) Central bank action

The People's Bank of China could lower interest rates, making it cheaper to take out loans. It can also cut the amount that banks are required to keep on reserve, said Khiem Do of Baring Asset Management. That allows them to lend more to businesses and households.

Both these options "will increase liquidity in the economy and also ... to the stock market as well," he said.

2) Infrastructure investment

Despite rapid urbanization, China still needs more infrastructure -- roads, highways, subways, water supply, healthcare and more.

"Such infrastructure investment can improve overall returns to an economy's physical and human capital, and typically happens during -- not after -- a country's period of rapid development and industrialization," said Wang Tao of UBS. "In the near term, infrastructure investment can directly contribute to GDP growth."

Such spending won't guarantee growth in the long run but could buy China time until corporate investment and consumer spending recover.

By Sophia Yan