16 September 2025
After a resilient H1, China’s growth has slowed in July and August. Some market watchers see this as a turning point that will lead to more assertive easing. We have, indeed, seen an acceleration in policy rollouts recently, and we expect China to dial up its policy support using a combination of cyclical and structural measures. We lay out five key questions around China’s policy expectations and what to watch out for in the remaining months of the year.
Yes, a stronger policy stance is likely to come through but more as a planned move than just reacting to the recent weak data. We expect much of the heavy lifting from fiscal policy, especially from the central government’s budget, while monetary policy will continue to maintain an easing bias. This will not only provide support in the near term but also help the long-term transition, with more structural measures to lift consumption demand and promote technology and innovation. More will be unveiled in the new 15th Five-Year-Plan in October or November.
The anti-involution campaign is a key plank of China’s effort to rebalance its economy, i.e., to stimulate domestic consumption, while reducing excess capacity in the economy. In 2016, it took a month for PPI to turn positive in m-o-m terms (six months in y-o-y terms). This time it may take longer, but it won’t be too gradual: top officials have set the tone in July and government agencies are working out the details. Once sector-specific policies are formed using supervision and enforcement tools, things will speed up – likely in the next month or two.
We think the People’s Bank of China (PBoC) will cut rates again soon but may be approaching their lower limit, given constraints linked to banks’ net interest margins. Liquidity injections will likely follow, including cuts to the reserve requirement ratio and open market operations. The PBoC may also resume treasury bond purchases from the secondary market soon. “Excess demand” that pushed yields to low levels is no longer a concern, given recent investor rotation into equities, while bond issuance may surge, as the government ramps up fiscal policy support.
No, for two key reasons. First, the government has already taken significant measures to help alleviate stress in local government debt as seen in the RMB12trn debt swap package announced last year. Second, we are seeing more fiscal reforms to both improve revenue sources for local governments and to have the central government take on a larger role in providing fiscal support. Meanwhile, there is still cRMB3.3trn in new government bonds (general and special bonds) left to be issued for the remainder of 2025. Special bonds will help infrastructure spending and provide funding support for additional consumer subsidies.
The housing sector may rise up in terms of policy priorities: in August, Premier Li re-emphasised the urgent need to stabilise the housing market. Bloomberg reported on 14 August 2025 that the government is considering asking distressed asset managers and central state-owned enterprises (SOEs) to acquire housing inventory from troubled developers. Other than purchase relaxations, urbanisation may boost housing demand, as migrant workers gain access to basic public services, including social housing.
Source: LSEG Eikon
* Past performance is not an indication of future returns
Source: LSEG Eikon. As of 15 September 2025, market close.
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1. This report is dated as at 16 September 2025.
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