China: Policy support and structural shifts – HSBC

HSBC analysts examined July data and the recent China Politburo guidance to assess China's economic landscape. Retail sales and fixed asset investment showed signs of deceleration, while industrial production and exports benefited from increased demand for AI and green technology. Policymakers opted for a proactive fiscal approach and moderately loose monetary policy, which aimed to boost bond-funded spending and target liquidity tools, with a focus on infrastructure in the "six networks."

This shift indicated a services-led consumption strategy. While exporters provided some support, the need for additional policy assistance grew as domestic momentum weakened. The Politburo emphasized the urgency of faster spending and higher bond utilization, with current bond issuance lagging compared to the previous year. Monetary policy remained cautious, with little emphasis on interest rate cuts or reserve requirement ratio changes.

Instead, targeted structural tools and liquidity operations were favored. The emphasis on fiscal spending should bolster "six network" investments outlined in the 15th Five-Year Plan, including power, water, computing, information and communications technology, urban infrastructure, and logistics. As China's policymakers strive to strengthen counter-cyclical support, the focus on services and human capital investment, as part of the 15th Five-Year Plan, suggests a potential shift toward targeted support for services over durable goods.