Additional policy stimulus measures are likely in the second half to anchor China's economic growth and reinforce the ongoing recovery of the A-share market, international investment banks said as markets await a potential regular top-level meeting to set the macroeconomic policy tone for the coming months.
They increasingly see the meeting as a potential window for policymakers to fine-tune macroeconomic policies, with a possible shift toward policy easing resembling the adjustments introduced in late 2024, which helped trigger a rally in China's equity market, although any policy response this time is likely to be more measured and phased.
Song Yu, chief China economist at UBS Securities, said that while the first-quarter growth of 5 percent surprised on the upside, weakness in consumption and investment has dragged down second-quarter growth — which came in at 4.3 percent year-on-year and below the annual target range of 4.5 to 5 percent — which likely necessitates additional policy support.
The room to act is ample, Song said, adding that subdued consumer inflation leaves scope for further cuts to interest rates and the reserve requirement ratio, while fiscal policy could become more supportive through faster government bond issuances and possible adjustments to the annual issuance quota.
