Communist Party set to accelerate credit growth in the second half
China's Politburo lays out its macroeconomic policy goals for the second half.
The top executive body of the Communist Party just laid down its core macroeconomic policy goals for the second half of 2025.
On 30 July, the Politburo convened its customary third-quarter meeting on prevailing economic conditions, as well as macroeconomic policy arrangements for the remainder of the year.
In light of China's comparatively strong economic performance in the first half of 2025, domestic observers say the meeting signalled the continuation of key fiscal policy themes established at the end of 2024.
They also expect money supply and credit growth to further accelerate in the second half, following a robust showing across the first two quarters.
This will be driven by further loosening of monetary policy by the Chinese central bank, to complement active fiscal policy and reduce financing costs for enterprises in the real economy.
Strong H1 growth creates breathing room for Beijing
China's economy posted a relatively strong first half economic performance, despite the turmoil wreaked by Trump's Liberation Day tariffs, the ongoing weakness of the domestic property market and enervated price growth.
H1 GDP growth came in at 5.3% year-on-year (YoY), 0.3 percentage points ahead of both full-year growth in 2024 and the full-year growth target of 5% set by Beijing for 2025.
The strength of the first half results prompted the International Monetary Fund to raise its growth forecast for China by 0.8 percentage points from April, bringing it up to 4.8% in its updated World Economic Outlook released at the end of July.
Leading Chinese economists say the strong GDP figure for the first half mean Beijing retains a considerable margin for under-performance in the second half before compromising the full-year growth target of 5%.
The Politburo's July meeting nonetheless signalled a continued focus on active fiscal and monetary policy in the second half, as China’s economy "continues to face no small number of risks and challenges."
The Communique from the meeting called for "macro-economic policy to continue to exert itself, and when appropriate intensify."
"[We] must fully and finely implement even more active fiscal policy and moderately loose monetary policy, and fully unleash the effects of policy," the Communique read.
"[We] must accelerate government bond issuance and usage, and raise the efficiency of funds.
"Monetary policy must maintain ample liquidity and spur a reduction in society's overall financing costs.
Guan Tao (管涛), chief economist at Bank of China's investment banking wing, said the Communique serves as a signal that Beijing will "preserve its policy focus" in the second half ("管涛：经济不只是财政货币政策那点事儿").
“Even more active” fiscal policy still on track
Li Xunlei (李迅雷), chief economist at Zhongtai International, said Beijing is highly unlikely to unveil any major or unexpected fiscal policy changes in the second half, given the solid performance of the Chinese economy in the first half and the announcement of the 1.2 trillion yuan Yajiang Hydropower Plant slated for development in Tibet.
It will instead opt to maintain or further step up fiscal policies that are already well-established - chief amongst them the "Two New" (两新) policies that subsidise consumption and capital equipment upgrades, and the Two Keys (两重) policies to drive investment in large-scale government projects.
"Given that in the first half of the year economic growth has already set excellent foundations for achieving the full-year target, and various pre-established policy arrangements are in the process of orderly progress, in the second half of the year GDP only needs to be 4.7% in order to achieve the full-year target," Li said.
"For this reason, there is no great need right now to unveil new large-scale stimulus policies."
The "Two Keys" Policy
The "Two Keys" policy officially refers to "the implementation of key national strategies and the development of security capabilities in key areas."
In practice, it refers to the use of ultra-long-term treasuries to fund government investment projects deemed to be of major strategic importance by Beijing.
The National Development and Reform Commission (NDRC) recently outlined plans for more than 300 billion in funds to support a third round of Two Keys development projects.
Since the start of 2025, a total of 800 billion yuan has been dispatched to Two Keys projects around China.
Wang Qing (王青), chief macro-economic analyst with Golden Credit Rating, said the second half could see Beijing dial up the scale of ultra-long-term treasury issuance to give further support to Two Keys projects.
China's top policymakers could also increase the quotas for local government special-purpose bonds and state-owned enterprise special bonds, in order to ensure the ample availability of funds to accelerate infrastructure investment.
Consumer subsidies and baby bonuses
China's top policymakers signalled their focus on boosting domestic consumption several years ago, with the release of the "Strategic Framework for Expanding Domestic Demand (2022 - 2035)" (扩大内需战略规划纲要（2022~2035年）) at the end of 2022.
The Framework outlined a total of eight key missions for expanding domestic demand, including the goal of "comprehensively spurring upgrades in consumption."
While the Framework was released when the global economy was still in the grip of the Covid pandemic, the measures for boosting domestic demand - and consumption in particular - remain a top priority for Beijing following the resurgence of trade tensions between China and the US.
"Confronted with complex and severe external risk and challenges, the expansion of domestic demand is critical," said Luo Zhiheng (罗志恒), chief economist with Yuekai Securities.
"This will involve the deep implementation of special consumer stimulus campaigns.
"In addition to expanding consumption of goods, it will also mean nurturing services consumption as a new growth point.”
China's cash-for-clunkers consumer subsidy program - launched at the start of 2024, remains Beijing's centrepiece initiative for boosting domestic consumption.
The NDRC and the Ministry of Finance recently announced that they had dispatched 69 billion yuan in funds from this year's third round of ultra-long-term treasury issues to support the cash-for-clunkers scheme.
They also plan to allocate a further 69 billion yuan in funds, raised from a fourth issue of ultra-long-term treasuries in October, to "continue to support the regional implementation of cash-for-clunkers policies."
Luo Zhiheng points out that efforts to spur domestic consumption will be combined with Beijing's long-vaunted policy goal of "improving living standards" and nurturing services consumption.
In this regard, he views the launch of China's baby bonus initiative at the end of July as part of efforts to spur domestic demand as well as reverse adverse demographic trends.
Starting from 1 January 2025, all children in China - irrespective of family size - will be eligible for an annual subsidy of 3600 yuan until they turn three years of age.
Loose monetary policy to complement active fiscal policy
As Beijing continues its "even more active" fiscal policy program into the second half, Chinese economists expect further loosening of monetary policy to complement ongoing government spending.
Luo Zhiheng anticipates further reductions in both the central bank's policy interest rate and the reserve ratio for commercial lenders, as well as further reductions to mortgage rates.
Prominent economist Mo Kaiwei (莫开伟) expects the Chinese central bank to cut its short-term policy rate on at least one to two more occasions in the second half, leading to a 20 - 30 basis point decline in the benchmark loan prime rates (LPR).
The one-year LPR is expected to fall from 3.0% to around 2.8%, while the five-year LPR is seen falling from 3.5% to 3.2%.
To maintain the "moderately loose market liquidity" needed for China's economy to stay in sound health, Mo also expects the central bank to make one to two cuts to the required reserve ratio.
This will result in a cumulative reduction of 50 - 100 basis points, serving to unleash one to two trillion yuan in market liquidity.
In addition to supporting fiscal spending, Mo says the "moderate" loosening of monetary policy will help to bring down the financing costs for Chinese enterprise.
"This will further solve the challenge of finance being expensive,” Mo wrote. “The overall profitability of real enterprises will further increase, and operating vitality will become apparent."
The weighted average interest rate for enterprise loans was 2.52% in 2024, according to Chinese central bank data cited by Mo.
Mo expects the Chinese central bank's cuts to the policy rate to bring these rates even lower, to a weighted average of 2.32% for full-year 2025.
Money supply and credit growth set to accelerate
China’s money supply and credit levels are both expected to see accelerated growth, on the back of the central bank's cuts to interest rates that will reduce borrowing costs, in combination with reductions to the required reserve ratio that will swell liquidity.
Mo points out that renminbi loans in the first half increased 12.92 trillion yuan, as compared to an increase of just 18.09 trillion yuan for full-year 2024.
He forecasts that renminbi loans could further increase by 20 trillion yuan in the second half, more than 10% ahead of the full-year figure for 2024.
China's money supply is similarly on track to further accelerate following a pick up in growth during the first half.
As of the end of 2024 the broad M2 money balance was 313.53 trillion yuan, for YoY growth of 7.3%.
By the end of June 2025, the M2 balance had risen to 330.29 trillion yuan, for YoY growth of 8.3% and an acceleration of one percentage point.
Mo forecasts that by the end of 2025 the M2 balance will reach 360 trillion yuan, for YoY growth of 9%.
In addition to bank loans and the money supply, aggregate social financing - a broad measure of credit extension throughout the Chinese economy, is expected to post an accelerated increase.
Aggregate social financing for full-year 2024 was 32.26 trillion, for a contraction of 3.32 trillion yuan compared to the preceding year.
In the first half of 2025, aggregate social financing came in at 22.83 trillion yuan, 4.74 trillion yuan ahead of the figure for the first half of 2024.
Mo forecasts that full-year aggregate social financing in 2025 will reach 40 trillion yuan, for an increase of 7.74 trillion yuan compared to 2024.