Beijing Doing Enough

China Watch - Quick Insights 30 Jul 2026

BEIJING DOING ENOUGH Rory Green

The July Politburo, the meeting which determines policy for H2/26, has set out modest proposals for accelerated fiscal and monetary easing. Crucially, Beijing has recognized the weaknesses in the economy and will focus on bond issuance and infrastructure to promote growth. We stick with our current GDP forecast of 4.8% yoy.

Official assessment of the economy is extremely important. The diagnosis of performance in respect to annual GDP and longer-term targets determines the scope for government action. Q1/26 was judged to be a “good start” to the year. Recognition of a slowdown in activity was the minimum required by the Politburo. Some commentators had feared Beijing might be blinded by tech export success.

As we expected the tone changed in July. The meeting noted “it is essential to attach great importance to the difficulties and challenges in economic operation, strengthen confidence, [and] rise to the challenge.” More tellingly “stability” was omitted from description of the economy. For a leadership that is “stability” obsessed, the removal of that noun suggests officials consider current macroeconomic developments to be unstable and therefore government action is required.

Having acknowledged weakness, the Politburo laid the groundwork for greater fiscal and monetary easing. On fiscal, the emphasis is on more rapid utilization of existing funds for large-scale infrastructure projects. Monetary, meanwhile, was slightly more dovish than expected: the meeting called for the comprehensive use and timely adjustment of monetary policy tools – a phrase that typically precedes rate cuts.

Anaemic demand for money limits the effectiveness of PBoC action, nevertheless we expect a 10bps cut in Q4/26. Fiscal will still need to do the heavy lifting. And there is plenty of ammunition – roughly RMB7 trn (5% of 2025 GDP) of available fiscal space in H2/26. Off-balance-sheet financing worth RMB800bn is available, too.

Local governments have been cautious on spending, particularly in Q2/26. In part, this reflects greater debt and project suitability scrutiny ahead of 2027, a key year for political promotions. A clear directive from the Politburo should help combat provincial reticence. Fiscal was a 0.5 ppt drag on growth in H1; that is likely to flip to a positive 0.4 ppt boost over the last six months of 2026. Infrastructure is the biggest beneficiary.

The meeting report contained the usual grab-bag of policy focus areas, including consumption, technology, food security and real estate. There were no material changes, aside from a nod towards raising service spending.

Beijing has signalled enough for us to be confident in our call that Q2/26 was the bottom for 2026 and strong exports, resilient consumption and recovering investment will all help stabilize and then modestly reaccelerate growth.