China: Growth weakened despite activity stabilization: Production steadies, domestic demand drags

Research evidence excerpt

China: Growth weakened despite activity stabilization: Production steadies, domestic demand drags

n, margin pressure and disinflation.

Policy needs to shift from supply-side to absorption. The priority is faster fiscal execution:

drawing down deposits, front-loading special bonds, expanding policy-bank and central-

government financing, and pushing funds into projects with clear demand, productivity

gains, and private-sector participation. Housing policy should focus on completion,

inventory absorption, urban renewal and buyer confidence. Monetary easing can help at the

margin, but without stronger credit demand, rate cuts would be more signal than stimulus.

The July Politburo meeting is likely to reinforce faster fiscal deployment, domestic demand

support, and stabilization of employment, enterprises, markets and expectations. The key test

is whether policy can turn available funding into activity, otherwise it will remain a buffer

rather than a turnaround. The 15th Five-Year Plan for Expanding Consumption, released on

July 13 by the NDRC and Ministry of Commerce, is directionally positive but short on

implementation details and explicit, targeted fiscal deployment. It aims for retail sales of

around CNY 60trn by 2030, up from CNY 50.1trn in 2025, and emphasizes services, digital

and green consumption, AI-plus-consumption, consumer infrastructure, income growth and

social security. As with past initiatives, the risk is that a consumption plan becomes state-

guided, supply-side oriented and infrastructure-heavy, limiting its ability to generate genuine

household demand.

Our outlook remains for managed stabilization, not a decisive rebound. We have lowered our

full-year real GDP forecast to 4.6%y/y from 4.7%, reflecting weaker domestic demand and