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China signals proactive fiscal support and moderately loose monetary policy
HSBC says policy guidance implies faster bond funded spending and more targeted liquidity tools, rather than broad rate or reserve cuts.
HSBC strategists reviewed July economic data and the latest guidance from China’s Politburo, concluding that policymakers are maintaining a proactive fiscal stance and a moderately loose monetary approach. They pointed to some softness in retail sales and fixed asset investment, while noting industrial production and exports have received support from demand tied to AI-related and green technology.
The Politburo guidance highlighted a plan for faster fiscal spending, with an emphasis on greater bond utilization starting from the deployment of existing annual quotas. HSBC cited Special Local Government Bond issuance at 55% year to date versus 63% over the same period last year, and said refinancing bond issuance has reached 84% of the annual quota, suggesting tighter local fiscal capacity and a preference for refinancing rather than new investment.
On the monetary side, HSBC said the policy signals less urgency for broad interest rate cuts or reserve requirement ratio reductions. Instead, support is expected to come through targeted structural measures and liquidity operations, including open market operations and treasury bond purchases, to address weaker domestic momentum.
HSBC also connected the fiscal approach to investment in the “six networks,” spanning power, water, computing, information and communications technology, urban infrastructure, and logistics. It said the National Development and Reform Commission has cited more than RMB7trn of investment this year, while noting detailed plans were not yet fully unveiled, and that consumption support remains focused on services and human capital investment.