China: Incremental support and trade risks – TD Securities

TD Securities’ Senior Asia Economist Alex Loo assesses the July Politburo meeting, noting no major new stimulus despite acknowledged growth challenges. The focus is on fiscal execution, accelerating spending and bond use to support the Six Networks infrastructure program. Loo expects stronger fiscal implementation to lift China’s GDP growth to 4.6% in 2026, with potential off-cycle stimulus if US-China trade tensions escalate.

Politburo signals cautious policy stance

"As we expected, the Politburo (China's top leadership) refrained from announcing any large-scale stimulus plans since growth risks haven't worsened materially."

"The Politburo's focus is squarely on policy execution for H2 2026, especially on fiscal implementation as the Politburo called for an acceleration in the "pace of fiscal spending and bond fund utilization to vigorously promote the construction of key projects and new infrastructure, as well as new social development initiatives"."

"For 2026, the broad budget deficit (combination of official deficit, special local government bond quota, and special sovereign bond) is estimated at CNY11.8tn, similar to 2025. Meeting this full-year target implies another CNY7.2 trillion (5.2% of GDP), which is a substantial fiscal impulse and could boost GDP growth in the second half."

"If authorities manage to ramp up fiscal execution, we expect GDP growth to recover from the 4.3% y/y in Q2, and we expect full-year GDP growth to land at 4.6%, in line with the GDP target range for 2026 at "4.5-5.0%"."

"In this scenario, we would expect China to respond tit-for-tat, and a further escalation would likely prompt a fresh stimulus announcement at the October Politburo Economic meeting in the form of a supplementary budget like in October 2023."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)