China stocks surged on Thursday with the Shanghai index experiencing its biggest daily rise since January 5, as investors bet on an increased chance of policy stimulus after disappointing bank loan data.

Central bank data showed on Thursday that Chinese banks extended far less credit amounting to CNY 697.3 billion (USD 112.55 billion) in December than expected despite a surprise interest rate cut by the central bank.

China’s central bank unexpectedly cut interest rates for the first time in more than two years in late November in an attempt to ease strains on companies desperate for funds and also loosened lending policy late in the year. Despite instructions from the central bank to extend more loans in December, banks seem to be reluctant to lend as companies struggled to pay off existing debts and bad loans have spiked. But the weak data indicates that Chinese government's traditional reliance on credit to spark the economy is losing its effectiveness, posing a further challenge to policymakers as they look for ways to avert a sharp slowdown in 2015.

Bloomberg citing anonymous sources familiar with the matter had reported on January 6th that facing the prospect of the slowest growth since the global recession in 2009, China is about to engage in a massive economic stimulus program totalling USD 1.1 trillion to expedite hundreds of infrastructure projects across seven sectors. As per report “In one sweeping move, Chinese government is expected to approve 300 projects all at once as part of a larger two year stimulus plan running from 2014 to 2016 that will be administered through the country’s National Development and Reform Commission. This departure from the usual process, where each project is typically approved individually, indicates the urgency the government is placing on boosting economic activity through development projects. The sweeping initiative will be funded by central and provision governments, bank loans, state owned companies and the private sectors.”

China has been hesitant to resort to such a massive stimulus package because it will worsen the country’s debt problems but efforts to replace stimulus investment with consumption driven growth has been insufficient. Now China faces the possibility of GDP growth falling below 7% for the first time since the second quarter of 2009. The Chinese government has said it needs 7.2% annual growth to keep employment steady.

Although the stimulus package hasn't been officially announced, it seems that there may be more cause for optimism. At this point, the program is still squarely in the region of speculation, something which will hopefully be cleared up, soon, by an official announcement.

Infrastructure investments are especially crucial for China’s central and western regions, where development lags behind the wealthier coastal areas. In November, reports had emerged that China would earmark USD 16.3 billion especially for infrastructure development in those areas.