China Signals More Fiscal Support as Growth Shifts Toward New Industries

China’s policymakers are maintaining a supportive policy stance as signs of softer domestic momentum increase the need for additional economic support, according to HSBC strategists reviewing July data and the latest Politburo guidance.

Recent data showed weakness in retail sales and Fixed Asset Investment, while Industrial Production and exports remained relatively supported by demand linked to artificial intelligence and green technologies. HSBC noted that these newer industries are becoming increasingly important growth drivers for the Chinese economy.

The Politburo continued to describe fiscal policy as “proactive” and monetary policy as “moderately loose.” Policymakers also renewed calls to strengthen counter-cyclical support, reflecting concerns that domestic economic momentum has softened despite support from exports.

Fiscal measures are expected to play a larger role. Authorities have called for faster government spending and greater use of existing bond quotas. HSBC noted that Special Local Government Bond issuance has reached about 55% of the annual quota so far this year, compared with 63% during the same period last year.

Refinancing bond issuance, meanwhile, has reached around 84% of the annual quota. This suggests local governments continue to face fiscal constraints, with more borrowing being used for refinancing rather than financing entirely new investment projects.

On monetary policy, HSBC sees less urgency for broad interest-rate or Reserve Requirement Ratio cuts. Instead, policymakers are more likely to rely on targeted structural measures and liquidity operations, including Open Market Operations and treasury bond purchases.

Infrastructure is expected to be another major area of policy support. Faster fiscal spending could direct more investment toward China’s “six networks,” which include power, water, computing, information and communications technology, urban infrastructure, and logistics.

The National Development and Reform Commission has cited more than RMB7 trillion of investment this year, although detailed plans have not yet been fully released. HSBC expects stronger infrastructure spending to provide counter-cyclical support and help strengthen domestic demand.

Consumption policy is also shifting toward services and human capital. Areas such as tourism, healthcare, sports, elderly care, and childcare are becoming increasingly important within China’s longer-term economic strategy.

This suggests future consumption support may focus more heavily on services rather than durable goods. Earlier programmes supporting purchases through trade-ins appear to be losing momentum after significant policy support was brought forward previously.

Overall, HSBC sees China relying on a combination of faster fiscal deployment, targeted liquidity measures, infrastructure investment, and services-led consumption support as policymakers respond to weaker domestic demand and encourage a transition toward newer sources of economic growth.