Will there be new growth policies in the third quarter?

The Political Bureau meeting at the end of July this year serves as a critical observation window, which typically sets the tone for economic work in the second half of the year. Additionally, the end of the third quarter marks the timeline when the issuance and utilization of special bond and special treasury bond quotas are largely completed, and it is also the window where policy effects emerge in a concentrated manner. Overall judgment suggests that incremental policies will most likely be rolled out sequentially in the third quarter.

On July 15, data released by the National Bureau of Statistics showed that China's GDP recorded a 4.7% year-on-year growth in the first half of the year. Among them, the year-on-year GDP growth rates for the first and second quarters were 5.0% and 4.3% respectively. In comparison, the first-half GDP growth fell within the annual GDP growth target range of 4.5%–5%, laying a solid foundation for achieving the full-year growth goal, though the second-quarter GDP growth rate also hit the lowest single-quarter level since 2023.

Looking at the "three driving forces" of economic growth, exports in the first half outperformed market expectations, with total goods exports rising 13.4% year-on-year, and the export growth rate reaching 20.8% in June; consumption demonstrated steady growth, with total retail sales of consumer goods (hereinafter referred to as "social retail") increasing 1.3% year-on-year in the first half, lower than the full-year level of last year (3.7%); national fixed asset investment saw notable fluctuations, with its first-half growth rate dropping 5.7% year-on-year, and fixed asset investment excluding real estate development declining 2.7% year-on-year.

Liao Bo, Chief Macro Economist at Northeast Securities Research Institute, stated that overall, the domestic macro economy showed a K-shaped divergence in the second quarter, mainly manifested as supply outpacing demand, external demand performing better than domestic demand, and the new economy enjoying higher prosperity than the old economy.

At the press conference held on the day of data release, Mao Shengyong, Deputy Director of the National Bureau of Statistics, noted that against the backdrop of a complex and volatile international situation, overall slowdown in global economic growth, decelerating international trade, and significantly rising inflationary pressures in most countries, China's economy maintaining a 4.7% growth rate in the first half of this year is truly commendable. China's economy has achieved effective improvement in quality and reasonable growth in quantity.

The Remarkable 4.7% Growth Rate

This year, especially since the second quarter, new shifts have emerged in the global economy, with some international institutions projecting varying degrees of slowdown in growth rates of major economies in the second quarter. Recently, the International Monetary Fund (IMF) also lowered its forecast for this year's global economic growth to 3.0%, down from 3.5% growth last year.

Against this backdrop, China's economy in the first half of the year can be described as achieving growth against the trend. In the first half of this year, the GDP increment reached 3.6 trillion yuan, the largest increment for the same period in the past five years, and the IMF recently raised its full-year China economic growth forecast by 0.2 percentage points.

Zhang Liqun, a researcher at the Development Research Center of the State Council, said that looking at the economic growth report card, China's economy withstood pressures in the first half and maintained steady growth, with the development of new technologies and new industries being particularly outstanding. It can be said that despite the slight slowdown in second-quarter GDP growth, the fundamental trend of China's economy operating stably and evolving toward higher quality and new growth drivers has not changed.

As Zhang Liqun mentioned, according to preliminary calculations by the National Bureau of Statistics, in the first half of this year, new growth drivers represented by high-end manufacturing, the digital-intelligent economy, and modern services contributed over 40% to economic growth, highlighting the distinct feature of the economy shifting toward new and higher-quality development.

Specifically, a series of indicators reflecting new growth drivers performed well in the first half. For example, the second-quarter growth of the equipment manufacturing industry above designated size reached 9.7%, 0.8 percentage points faster than the first quarter; the added value of the high-tech manufacturing sector grew by 14%, 1.5 percentage points higher than the first quarter; the electronics industry posted a 14.8% year-on-year growth in the first half, with the second-quarter growth hitting 16.1%, 2.5 percentage points faster than the first quarter.

At the press conference, Mao Shengyong stated that in the first half of this year, the transition between old and new growth drivers in China accelerated, with numerous highlights in scientific and technological innovation and industrial upgrading that people can intuitively feel in their daily work and lives. For instance, smart production lines and industrial robots are ubiquitous in factory workshops, while new energy vehicles and smart home appliances are gradually becoming widespread in daily life. These new industries, new products, and new demands continuously build advantages for high-quality development and provide solid support for China's economy to maintain steady and positive momentum.

Furthermore, against the backdrop of multiple shocks facing global trade, China's import and export performance in the first half of the year was also remarkable.

In the first half, China's total goods imports and exports increased by 16.9% year-on-year. Among them, exports reached 14.7314 trillion yuan, up 13.4%, and imports hit 10.7372 trillion yuan, rising 22.1%. Looking at June alone, China's export growth rate reached 20.8%.

Zhang Lin, Vice President of Far East Credit Rating Research Institute, said that exports have reached a historic peak in their contribution to China's economic growth. In the first half of this year, the export value exceeded 2.1 trillion USD, hitting a new all-time high; exports denominated in RMB reached 14.7314 trillion yuan, growing by 13.4%. AI-related products and automobiles contributed over 60% of export growth, and China achieved positive trade growth with almost all trading partners, reflecting the irreplaceable core position of "Made in China" in the global industrial chain.

Against the backdrop of high export growth in the first half, Zhang Lin also pointed out that attention should be paid to potential fluctuations in export data in the future. He noted that in terms of aggregate volume, as export scales repeatedly hit new highs, the contribution of exports to growth has continuously exceeded 30% in the past three years, a first in history. The dependence on exports and external demand has reached a peak, which while helping alleviate the current fundamental contradiction of strong domestic supply and weak demand, also amplifies the geopolitical risks facing China's economy, and the negative impact of external demand fluctuations on the domestic economy is consequently magnified.

New Policies in the Pipeline

Earlier this year, the "Government Work Report" set the 2026 China GDP growth target at 4.5%–5%, while emphasizing efforts to achieve better results in practical work. At the State Council Information Office briefing following the target announcement, Shen Danyang, Head of the Government Work Report Drafting Group and Director of the State Council Research Office, mentioned that the GDP growth target was formulated with comprehensive consideration of domestic economic operations and external environment changes, balancing necessity and feasibility, making it a proactive and pragmatic goal that "requires efforts to reach new heights while maintaining stable progress".

Looking back, in the first three quarters of 2024, GDP growth showed a quarterly declining trend. However, following the introduction of the "924 New Deal" that year, the fourth-quarter 2024 GDP growth rose to 5.4%, 0.8 percentage points higher than the third quarter; in 2025, GDP growth again demonstrated a quarterly downward trajectory.

In the first half of this year, the GDP growth rate continued the quarterly declining trend, with year-on-year GDP growth rates of 5.0% and 4.3% in the first and second quarters respectively.

At the press conference, in response to the question "What will the overall economic trend be in the second half of the year?", Mao Shengyong stated that all regions and departments will introduce more targeted and precise policies in accordance with changing conditions to promote stable, innovative, and high-quality economic development.

The symposium for economists and entrepreneurs on the economic situation held on July 13 noted that effectively advancing economic work in the second half of the year is directly related to achieving the full-year development goals and securing a good start for the 15th Five-Year Plan. It is necessary to follow the decisions and arrangements of the Central Committee of the Communist Party of China, maintain strategic resolve for high-quality development, increase counter-cyclical adjustment, fully utilize existing policies, pre-research and reserve incremental policies, and effectively consolidate and expand the steady and positive momentum of the economy.

Zhang Lin stated that the latest wording from the National Bureau of Statistics itself conveys two layers of meaning: first, the policy direction is clear, with only differences in implementation pace; second, policies will focus on effectiveness and precisely target structural contradictions, rather than simply implementing aggregate stimulus.

Liao Bo said that combining policy signals released from various recent meetings, there is still an expected possibility of reserve requirement ratio cuts to promote credit expansion and improve corporate access to funding. Secondly, structural monetary policy tools are expected to continue to play a key role, with particular attention to the "quasi-fiscal" function of new policy-based financial instruments. "We believe that while maintaining an accommodative stance, the central bank will simultaneously emphasize preventing idling of funds, guide capital flows into the real economy, and thus enhance the efficiency of stable growth."

Regarding the potential timing window for policy rollouts, Zhang Lin noted that the Political Bureau meeting at the end of July this year is a critical observation window, which typically sets the tone for second-half economic work. In addition, the end of the third quarter is the timeline when the issuance and utilization of special bond and special treasury bond quotas are largely completed, and it is also the window where policy effects emerge in a concentrated manner.

"Overall judgment suggests that incremental policies will most likely be rolled out sequentially in the third quarter. The external variable to watch is the direction after the Sino-US tariff suspension arrangement expires on November 10. If no new extension agreement is reached through consultations by then, external demand in the fourth quarter may face certain disruptions, which is the hedging space that domestic demand policies in the second half of the year need to reserve in advance," Zhang Lin said.

In terms of specific policy directions, Zhang Lin stated that fiscal policy will be the most direct lever. The shift of infrastructure investment to negative growth in the first half and the ongoing pressure on local fiscal revenues mean that the pace of issuing and utilizing special bonds and ultra-long-term special treasury bonds needs to be accelerated to form tangible workloads as soon as possible. Meanwhile, new policy-based and development-oriented financial instruments can be established or expanded appropriately to supplement capital for major projects and address the shortfall in local supporting funds. There is still certain room for the central government to increase debt issuance and raise the deficit ratio, and the possibility of further raising the deficit ratio and issuing additional special treasury bonds in the fourth quarter cannot be ruled out.

During interviews, multiple macroeconomic experts unanimously mentioned that further efforts are needed to boost consumption in the second half of the year. In the first half of 2026, the year-on-year growth rate of social retail stood at 1.3%, still at a historically low level.

Zhang Liqun said that some consumption and investment data in the first half still showed a downward trend, and the pressure of supply-demand imbalance cannot be ignored. Going forward, it is necessary to increase counter-cyclical and cross-cyclical adjustment of macro policies, and through efficient macroeconomic governance, reverse the market-driven supply-demand imbalance at an early date.

In Zhang Lin's view, consumption-side policies in the second half of the year need to continue to play their role to hedge against the gap caused by the phase-out of the "trade-in" policy. Without new follow-up policies, the year-on-year growth rate of social retail in the fourth quarter of this year may face considerable pressure.

Liao Bo stated that expanding consumption and domestic demand is the priority of economic construction, and subsequent policies are expected to continue focusing on removing constraints on consumption and enhancing the inherent stability of the capital market. Macroeconomic regulation policies will likely focus on boosting consumer confidence and increasing residents' disposable income through multiple channels.

Zhang Lin projected that GDP growth in the third and fourth quarters could rebound to 4.6%–4.8%, with the full-year growth rate around 4.7%. Liao Bo judged that the domestic economy in the third quarter may continue a weak recovery trend, with the actual GDP growth rate most likely staying at 4.5%. Overall, achieving the annual economic growth target of 4.5%–5% will not be difficult.

At the press conference, Mao Shengyong stated that the second-quarter economic growth rate of 4.3%, a 0.7 percentage point decline from the first quarter, was mainly caused by certain short-term factors and external influences. On the whole, there are solid conditions and support for achieving the main expected targets for the whole year, especially the economic growth target.

This article is from the WeChat official account "Economic Observer", written by Tian Jin, and published with authorization from 36Kr.