China Policy:Politburo signals more accommodative policy support

Frank Liu(852) 3761 8957frankliu@cmbi.com.hk The Politburo meeting yesterday signals a mildly more accommodative policystance in 2H26 as the leadershipexplicitly acknowledged mounting economicdifficulties and called for stronger countercyclical adjustments. Fiscal spendingmayaccelerate,shifting from de facto tightening in 1H26 to a moreexpansionary stance in 2H26in our view. Consumption support remains moresupply-side and services-oriented thanbeingdemand-driven, while support onproperty should remain moderate. Technology remains a key policy priority andwe expect policymakers to continue allocating fiscal resources towards AI andadvancedmanufacturing.Leadership remains attentive to capital-marketstability, suggesting potentially more active state-backed buying during periodsof volatility. The re-mentioning of “regulated platform economy” points topossible additional targeted regulationin 2H26, but we don’t see this as a returntothefull-blown regulatory cycle. Risk appetite in AI, advanced manufacturing,services consumption, and policy-linked infrastructure should improve, whileproperty and discretionary consumption may remain underperforming. TheHong Kong equity market supported by earnings rebounds, stronger policysupport,and easing liquidity headwinds from the Fed may see betterperformance in 2H26. Looking forward, we expect GDP growth to slow from5.0% in 2025 to 4.6% in 2026, with growth moderating from 4.7% in 1H26 to4.6% in 2H26. Wethinka modest rate cut is possible in 4Q26 as economicmomentum continuesto soften. Major tone changeand 2H26policyoutlook:The July 2026 Politburomeeting represents a clear shiftfrom April’s “good start” assessmenttoward a more realistic and pro-growth stance. The leadership explicitlyacknowledgedmounting economic difficulties,called for strongercountercyclical adjustments andemphasized both using existing policytools more effectively and preparing practical incremental measures. Weshould seemildly moreaccommodativepolicy support in 2H26 byfasterfiscalexecution,monetary easing,selective demand support,andconfidence repairin capital market.We believethe preferred approachremainstargeted, measured, and implementation-heavystructuraleasingrather than a largebazooka-stylestimulus,aimedat preventing a furtherslowdown, stabilizing expectations, and securing a credible start to the 15thFive-Year Planperiod. Fiscaland monetary policy:The meeting’s call to accelerate fiscalspending and the use of bond proceeds suggests that fiscal support couldshift from de facto tightening in 1H26 to a more expansionary stance in2H26. In1H26,local fiscal stress and a shortage of high-quality investableprojects appear to have slowed spending and bond-fund deployment,weighingon fixed-asset investment.In the second half,faster fiscalexecution, the implementation of the800 billion yuan in new policy-basedfinancialinstruments and coordinated investment in six strategicinfrastructure networksshould help reverse that drag and improve thechances of bringing FAI growth backto positive territory.Monetary policywas given more flexibility through“timely adjustment of policy tools andbetterfiscal-financial coordination”to support domestic demandwhilethemeetingdidn’t directly mention cutson RRR and policy rate. We see amodest rate cutaspossiblein 4Q26 as economic momentum continuestosoften. Overall,monetary policy would focus onexecution and targetedfinancing rather than broad monetary stimulus. Consumptionand real estate:Consumption support remains moresupply-side and services-oriented than being demand-driven,with emphasis on quality supply, services consumptionand infrastructure thatimproves household willingness to spend.We expect modestsupportonconsumption, as the2030 target of RMB60tn social retail sales onlyrequires maintaining current consumption trends.For real estate, thewording shifted more explicitly to “stabilizing the property market,” but theimplied approach is still targeted stabilization through funding coordination,urban renewal, mortgage-cost relief possibilities and risk containment,instead of a more forceful easingcycle. Technology andcapital markets:Technology remains a key policypriority and a core growth engine,with support for basic research, AI+,intelligenteconomy development,frontier technology,and traditional-sector upgrading.We expect policymakers to continue allocating resourcestowardtechnology and advanced manufacturing,as Beijing seeks tostrengthen tech self-reliance and compete more effectively in the global AIrace.On capital markets, the meeting went beyond generic confidencelanguageand called for deeper investment-and-financing reform andstronger market resilience, indicating theleadership remains attentive tocapital-market stability and confidence.This suggests support for bettercapital formationaround technology, longer-term funding, improved listingsandexits,and continued policy efforts to stabilize secondary-marketsentiment,potentially including more active state-b