The People's Bank of China (PBoC) is likely to implement more "fine-tuning" measures in the coming months to shore up economic activities as the country's economy is facing downside risks.

The HSBC flash PMI slipped back to below the 50 threshold again, falling to 48 in November, after rebounding to 51 in October from 49.9 in September. While a below-50 reading in the barometer does not necessarily forecast a manufacturing recession in the coming months, it does highlight the downside risks to the economy.

Barclays has forecast a below-consensus GDP growth of 8.4 percent for China in 2012. But this forecast is now facing downside risks, mainly due to the deterioration in the growth outlook for the euro zone, which is increasingly likely to see a mild recession, as well as the ongoing and widespread correction in China's property market.

The output sub-index in the HSBC PMI series also sank to 46.7 in November from 51.4 in the previous month. Despite the seasonal pick-up usually recorded in November, I think the NBS PMI also declined last month, falling from 50.4 in October and 51.2 in September.

Compared with the NBS index, the HSBC index focuses disproportionately on small and medium-sized enterprises and exporters. Although the below-50 reading was a surprise, the weaker sentiment was in line with expectation, given the slowdown in external demand mainly due to an expected contraction in the euro zone economy in the fourth quarter this year and first quarter next year, and the continued moderation in domestic activity given the significant slowdown in housing starts and construction.

I think fiscal policy will play a bigger role to support the economic growth in China in the future. While monetary policy likely will maintain its neutral stance for now, I expect the central bank to implement more "fine-tuning" measures in the coming months, including those targeted at small companies and exporters.

However, any change in the official monetary policy bias is most likely to occur during the first quarter of next year. And I do not rule out the possibility of a selective lowering of the reserve requirement ratio (RRRs) for some banks, or an even broader RRR cut before the end of this year, as growth in M2 and total social financing is slowing quickly.

However, even if a broader RRR cut is implemented, I think it would be used for the purpose of stabilizing liquidity conditions, for example, to offset the contraction due to capital outflows. The RRR hike is viewed as a more effective and less costly tool for the PBoC to drain system liquidity compared with outright tightening, hence the PBoC would also stand ready to reduce RRR if banking system liquidity is deemed as too tight.

The author is vice-president and China economist at Barclays Capital Asia. The opinions expressed here are entirely her own.