Chinese economy

31 July 2026, 09:20 UTC Chief Investment Office GWM Investment Research

Politburo meeting signals measured support, no policy pivot Chinese economy Authors: Yifan Hu, CIO Greater China and Head Macroeconomics APAC, UBS AG Hong Kong Branch; Kathy Li, CFA, Macro Strategist, UBS AG Hong Kong Branch

• Focus on fiscal execution: Faster spending and bond deployment should lift infrastructure and strategic investment in 2H26.

• No policy bazooka, as expected: Monetary support will likely remain targeted, while the consumption push is primarily supply-side.

• Growth divergence to persist: Resilient exports and firmer investment may support a mild sequential recovery, with additional easing only if momentum further weakens.

China’s mid-year Politburo meeting was held on 30 The pace of government bond issuance has lagged July, with investor attention focused on policy prospects in 1H26 following weaker-than-expected 2Q GDP growth. Key % of full-year government bond issuance quota, Jan-June takeaways are as follows:

Fiscal execution to accelerate. Fiscal policy is to be more proactive, with faster fiscal spending and government bond issuance. Funding will continue to support the “Two Key”— implementing major national strategies and strengthening security capacity in key areas—as well as the “Two New” initiatives for large-scale equipment upgrades and consumer goods trade-ins.

Notably, fiscal spending grew by only 0.8% y/y in 1H26, at the low end of its recent five-year range. Government bond issuance has also lagged amid tighter scrutiny of local government financing, leaving around 60% of the CNY 11.9tr full-year quota unused for 2H26. We think other planned tools, including the CNY 800bn policy-based Source: CEIC, Wind, UBS, as of July 2026 financial instrument led by policy banks—up from CNY 500bn last year—will also be deployed faster in 2H to support the funding especially the so-called "Six Networks" projects. Specifically, the "Six Networks" is a multi-trillion- yuan infrastructure strategy laid out in the 15th Five Year Plan, focusing on the water network, new-type power grids, computing power network, next-generation

This report has been prepared by UBS AG Hong Kong Branch. Please see important disclaimers and disclosures at the end of the document.

communication network, urban underground pipeline Economic divergence likely to continue network, and logistics network. The initiative aims to Monthly activity data strengthen domestic supply chains, integrate renewable energy, expand 5G/6G connectivity, support AI and digitalization, and upgrade urban infrastructure through long-term investment, in line with the strategic focus on AI+ and high-end manufacturing supply chains.

No major monetary easing. Monetary policy is to remain moderately accommodative and urged to be adjusted via various tools if needed. We expect the People's Bank of China (PBoC) to maintain ample liquidity through RRR cuts, various liquidity-management tools, such as overnight reverse repos and Chinese government bond purchases, and targeted credit easing. In our view, the room for policy rate cuts for the rest of the year remains limited amid reflation, banks’ NIM pressure, and rising global rates.

Limited new consumption stimulus. The meeting called Source: CEIC, UBS, as of July 2026 for expanding domestic demand, improving supply to meet diverse consumption needs, and unlocking the potential of services consumption. However, the focus appears largely supply-side, implying limited near-term growth support. Retail sales growth is therefore likely to remain mild in 2H, despite some headline improvement from a lower base.

Additional focus on trade/investment openness and risk management. The meeting mentioned supporting more balanced trade policy and attracting foreign investment, against a backdrop of rising geopolitical headwinds, lingering US tariff uncertainty, and EU-China trade tensions. It also reiterated the need to stabilize the property market, continue the local government debt- resolution, and anti-involution efforts, albeit from a risk management perspective rather than signaling new policy initiatives. The 5th Plenum is also confirmed to be held in…