China Viewpoint: A more proactive fiscal policy will depend on 2H delivery

Research evidence excerpt

China Viewpoint: A more proactive fiscal policy will depend on 2H delivery

Accessible version

China Viewpoint

A more proactive fiscal policy will depend

on 2H delivery

Demand Weakness Rekindles Growth Concerns 29 June 2026

Domestic demand weakness resurfaced as a main source of investor concerns recently, GEM Economics

after April – May data pointed to a potential contraction of both investment and Asia | China

consumption in real terms. While export-led growth will most likely keep supply-side Helen Qiao

indicators such as IP (industrial production) growth at a firm level in the near term, more China & Asia Economist

are worried about growth vulnerability in the absence of rebalancing. Merrill+852 3508Lynch3961(Hong Kong)

helen.qiao@bofa.com

Limited hope for substantial policy easing to help Benson Wu, CFA

So far, market has yet to place any hope on immediate policy stimulus. However, there is ChinaMerrill&LynchKorea(HongEconomistKong)

growing scrutiny over policy guidance from the central bank and Ministry of Finance. For +852 3508 5047

benson.wu@bofa.com

example, media focused on the PBoC Governor Pan’s remarks at the Lujiazui Forum in

mid June, which suggested a shift toward an overnight policy rate framework. By YvonneChina & AsiaHe Economist

enhancing the role of the 7-day OMO rate as the key policy benchmark rate and Merrill Lynch (Hong Kong)

+852 3508 5396

expanding overnight reverse repo operations, the monetary authority showed a higher yvonne.he@bofa.com

level of tolerance for lower rates. On the other hand, fiscal revenue growth outstripping

that of expenditure in April – May, raised concerns over a potential reduction of fiscal

deficit at a time when more fiscal stimulus is the most needed. Abbreviations:

Fiscal delay, not retreat YTD: Year-to-date