Is China easing losing its mojo?

The People's Bank of China in Beijing's financial district.
Tomohiro Ohsumi | Bloomberg | Getty Images
The People's Bank of China in Beijing's financial district.

China is pulling out all the usual easing props to counter its slowing economy, but the old hats don't appear to be working as well as they used to.

"The sluggishness of China's economy reinforces our view that further easing measures will be needed," economists at Read MoreANZ said in a note Thursday. "However, the monetary easing so far appears to have limited impact on the real economy, indicating that the policy transmission process has been ineffective."

Earlier this month, a slew of data, including industrial output and retail sales, missed analysts' expectations. In the first quarter, China's economic growth slowed to 7.0 percent, its slowest in six years. China's economy expanded 7.4 percent in 2014, its slowest pace in 24 years and undershooting the government's target for the first time since 1998.

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So far, the People's Bank of China (PBOC) has cut interest rates three times in the past six months amid concerns that the government's annual gross domestic growth (GDP) target of "around 7 percent" could be at risk. The latest rate cut followed two rounds of cuts in the reserve requirement ratio (RRR) of major banks, the latest one bringing the rate down to 18.5 percent.

Despite the easing measures, even China perma-bull HSBC has cut its outlook, lowering its GDP growth forecast for this year to 7.1 percent from 7.3 percent.

HSBC expects the PBOC will deliver another 50 basis points in policy rate cuts, up from its previous forecast for 25 basis points, and 250 basis points in RRR cuts, up from its previous 100 basis point forecast.


Others also note that the easing measures have lacked their usual punch.

"Although policymakers started to adopt a number of easing measures in in the fourth quarter of 2014 to counter the weak growth, the effects so far have been limited," analysts at Goldman Sachs said in a note last week. "This casts doubt on the efficacy of recent policies."

Goldman expects a key reason policy easing isn't as noticeable is due to measures implemented since 2013 to limit the risks from local government financing vehicles and shadow banking, steps which have slowed credit generation, feeding slower growth overall.

"Recent policy measures should therefore be viewed as part of a broader credit rebalancing rather than a stimulus aimed only at boosting short-term growth," Goldman said. "We expect policy to maintain its balancing act between steering credit away from the riskier sectors (such as trust financing) while encouraging it to flow into underserved areas (such as consumer lending)."

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ANZ is pointing to a slightly different issue: it believes banks are eyeing rising credit risks and limiting their lending, particularly by keeping interest rates for Chinese companies too high.

"While the weighted average lending rate dropped by 22 basis points in the first quarter to 6.56 percent, the real interest rate for Chinese corporates picked up to above 10 percent by the end of the first quarter," ANZ said. "This is quite alarming as the extremely high real interest rate could further squeeze profit margin of corporates and reduce their incentives to expand investment and production."

ANZ advised authorities to ease restrictions on firms' ability to tap bond markets for funding.

"Once banks see their best clients move to capital market to raise funds, they will then have to lower their lending costs or pay more attention to small and medium-sized private enterprises," it said.

To be sure, not everyone thinks monetary policy has stopped working.

HSBC believes that the easing came too slowly, but with more aggressive measures ahead, it tips headline GDP growth to hit the bottom in the third quarter.

The bank also is laying a chunk of the blame on factors outside of the control of China's policy makers.

"Export growth has been weaker than expected so far in 2015, a reflection of softer external demand and the yuan's strength in relation to its trade partners," HSBC said. It's lowered its export growth forecast for 2015 to 4.2 percent from 7.1 percent.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1