Government to enhance effectiveness of macro policies, spur innovation-led growth, consumption, experts say

China’s economy is on track for a steady rebound in the remainder of the year and its annual growth target of around 5 percent is achievable, backed by a solid first-half performance and robust policy support from the country’s economic decision-makers, said economists and global executives.

On July 31, Premier Li Qiang presided over a State Council executive meeting which called for stepping up efforts to enhance the effectiveness of macroeconomic policies. The meeting also arranged for the implementation of interest subsidies on personal consumption loans and loans to service sector businesses to better stimulate consumption and enhance market vitality.

As the country’s latest step to boost innovation-driven growth, the State Council executive meeting approved a guideline to implement the AI Plus initiative, emphasizing the promotion of large-scale, commercial application of artificial intelligence and its accelerated adoption and deep integration across various sectors of economic and social development.

Looking ahead, economists said that policymakers will likely strengthen countercyclical adjustments with a stronger mix of fiscal and monetary measures to shore up domestic demand and cushion the impact from a more complicated external environment. These may include expanding fiscal spending to spur consumption, further reductions in the reserve requirement ratio of commercial banks, and interest rate cuts, as well as targeted support for exporters and workers hit by external shocks, they said.

Their remarks came after a meeting of the Political Bureau of the Communist Party of China Central Committee, which was presided over by Xi Jinping, general secretary of the CPC Central Committee, shed light on the economic priorities for the second half.

The key meeting, held in late July, called for solid efforts in economic work in the second half of the year, with a focus on stabilizing employment, businesses, markets and expectations, and effectively promoting the positive interplay between domestic and international economic flows.

Macro policies should be continuously strengthened and intensified in a timely manner, the meeting said, stressing the implementation and refinement of a more proactive fiscal policy and a moderately loose monetary policy.

“China’s economic activity has remained stable with limited volatility, so the main policy focus should be on implementing existing fiscal, monetary and financial measures,” said Luo Zhiheng, chief economist at Yuekai Securities. “The strength and timing of additional support will depend on new developments in the second half of the year.”

China’s second-quarter GDP grew 5.2 percent year-on-year despite headwinds from United States’ tariff hikes, marking the third consecutive quarter of growth above 5 percent.

Luo said the recent high-profile meeting’s policy signals, such as “stepping up policy efforts when appropriate” and “enhancing flexibility and foresight”, mean that while the current fiscal and monetary policies should continue to stabilize market expectations, policymakers will also make flexible adjustments based on evolving conditions, such as rolling out new incremental measures and strengthening countercyclical adjustments.

“A wide range of policy tools remains available for deployment,” he added. “It is advisable for the government to adjust fiscal budgets with forceful spending, provide timely relief for hard-hit sectors such as foreign trade, offer subsidies for people in difficulty, and expand the scope of trade-in deals to cover services consumption.”

Prior to the Political Bureau meeting, the CPC Central Committee held a symposium in July with non-CPC figures to solicit opinions and suggestions on the current economic situation and the economic work for the second half.

While presiding over the symposium, Xi noted that the country’s economy still faces many risks and challenges. He underscored the need to properly understand the situation, enhance the awareness of potential dangers, think about the worst-case scenario, and make good use of development opportunities, potential and advantages to consolidate and expand the positive momentum of economic recovery and improvement.

Huang Hanquan, head of the Chinese Academy of Macroeconomic Research, said the government must capitalize on the current window of opportunity, when the economy and social expectations are relatively stable, to prepare reserves of a group of incremental policies to ensure sustained growth for the remainder of the year.

“The first half of the year showed encouraging results, mainly driven by intensified policy support and key reforms,” he added.

Li Chao, chief economist at Zheshang Securities, noted that the Chinese economy “expanded 5.3 percent in the first half, and we expect the economy to further consolidate this upward trend in the second half”.

According to the National Development and Reform Commission, the country’s top economic regulator, China’s GDP is expected to reach about 140 trillion yuan ($19.4 trillion) this year, reaffirming the country’s role as a major contributor to the world’s economic growth.

Li said that achieving the preset annual growth target of around 5 percent “should not be difficult”, adding that new quality productive forces are emerging as key pillars on both the supply and demand sides.

Zhang Ning, senior China economist at UBS Investment Bank, said future policy stimulus will be data-dependent, while the timing of new fiscal support, which Zhang’s team estimates will be over 0.5 percent of GDP, may come around the end of the third quarter or fourth quarter.

Xiong Yi, Deutsche Bank’s chief economist for China, said, “If GDP growth slows faster than expected, a budget deficit increase may become necessary in the fourth quarter.”

He said he anticipates that the Chinese economy will grow 4.8 percent in 2025. According to Xiong, service consumption is expected to become a new driver of economic growth and employment in the second half of the year.

Recently, several global institutions and banks raised their forecasts for China’s economic growth, bringing them closer to the country’s official growth target.

The International Monetary Fund now expects China’s full-year growth to come in at 4.8 percent, up 0.8 percentage point compared with a previous forecast made in April. Morgan Stanley raised its China 2025 GDP growth projection to 4.8 percent from 4.5 percent.

Meanwhile, with the nation’s manufacturing activity cooling in July amid unfavorable weather and the traditional offseason, economists said further efforts are needed to bolster domestic demand and employment.

The official purchasing managers index (PMI) for the manufacturing sector stood at 49.3 in July, down from 49.7 in June, data released on July 31 showed.

Despite the moderation, high-tech manufacturing continued to gain traction in July, highlighting the vitality of the country’s industrial upgrading and reinforcing the sector’s ability to withstand ongoing external challenges.

The manufacturing PMI has stayed below the 50 mark that separates expansion from contraction for the fourth consecutive month. In July, the subindex of new orders — a barometer of market demand — dropped to 49.4 from 50.2 in June, while that of new export orders went down to 47.1 from 47.7 in the previous month.

External headwinds dampened export momentum, while the effect of earlier policies to boost domestic demand started to wane in July, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

Downward pressures may intensify in the third quarter, said Wang, who expects additional measures to boost domestic demand as relatively low levels of sovereign debt and inflation offer China ample policy room.

Notwithstanding the external challenges and uncertainties ahead, global executives expressed strong confidence in China’s economy.

Lin Chunmei, president and general manager of Corning Greater China, said that China’s economic performance in the first half of 2025 was “very strong”, particularly in exports and industrial production.

“Despite challenges, I believe there will be continued positive development in the second half,” Lin said.

Ben Simpfendorfer, a partner at consultancy Oliver Wyman, said he believes that China’s 2025 growth target remains achievable despite trade disruptions, while a sustained recovery will hinge on measures to bolster consumer confidence.

Contact the writers at ouyangshijia@chinadaily.com.cn