The six-point plan to save China's economy from "landslide" decline
Lian Ping says China's economic woes are far from over...
One of China’s leading economists has assembled a detailed policy plan to rescue the national economy from the perils that besiege it on multiple fronts as 2026 fast approaches.
Lian Ping (连平), director of the China Chief Economist Forum, argues that the health of the Chinese economy remains precarious, despite GDP growth posting a surprisingly strong performance for the first half of 2025,
He’s calling for greater policy intervention from Beijing in the fourth quarter, to keep China’s economic health on an even keel as it advances into the uncertain conditions of the upcoming year.
China’s economic troubles far from over
China’s economy has posted a robust performance since the start of 2025, despite the turmoil unleashed by Trump’s Liberation Day tariff war, and the fallout from geopolitical strife in Eastern Europe and the Middle East.
The average year-on-year GDP growth rate in the first half of 2025 came in at 5.3%, bringing total GDP to around 66.05 trillion yuan (US$9.24 trillion). This figure puts China well on its way to achieving the annual GDP growth target of around 5% set by Beijing in March.
The first half’s surprisingly strong performance has also prompted the World Bank to raise its 2025 growth forecast for China to 4.8%, from a prior estimate of 4.0%.
In spite of this impressive performance, Lian Ping, director of the China Chief Economist Forum and chief economist at the Guangkai Industrial Research Institute, argues that China continues to face risks and perils on multiple fronts, all of which threaten to undermine its economic growth prospects.
Foreign disturbances
Lian considers rising pressure on global economic recovery to be an inevitability, with the US set to see a rebound in tariff-driven inflation and the Fed sure to launch another round of rate cuts.
Uncertainties also abound when it comes to Sino-US tariff negotiations, geopolitical risk in Ukraine and Israel, as well as the frequency and scale of the Fed’s future reductions to interest rates.
In a recent opinion piece (“连平：四季度还能实施哪些稳增长举措”), Lian wrote that these factors could collectively “roil global capital flows, market exchange rates and the environment for foreign trade.”
This in turn will “bring structural pressure and challenges for the Chinese economy to varying degrees.”
Domestic vulnerabilities
Lian sees a slew of weaknesses in China’s domestic economy, even prior to the potential upsets created by offshore risks and uncertainties.
These include:
China’s property market slump.
Ailing credit growth due to weak domestic demand.
Unresolved deflationary pressure due to excess capacity.
Property market still ailing
The outlook for China’s real estate market remains weak. Nationwide commercial housing sales floor space fell 11% year-on-year in August, for an expansion of 2.6 percentage points compared to decline in July.
China’s real estate investment continues to drop as well, posting a 12.9% decline for the period from January to August compared to the same period last year. This marks an expansion of 0.9 percentage points compared to the decline for the period from January to July.
Lian notes that this rate of decline was last seen in early 2020, during the opening phase of the Covid pandemic. The weakness of the Chinese real estate sector continues to put heavy pressure on levels of fixed asset investment.
Credit growth remains weak
Lian highlights low demand for financing from China’s real economy, leading to tepid growth in credit.
Central bank data indicates that China’s loan balance fell by 50 billion yuan (US$7 billion) in July of this year, for its first decline since July 2005.
In August, new lending was just 590 billion yuan, falling beneath the low baseline set by the same period last year.
New lending for the period from January to August was 1.34 trillion yuan - the lowest print for this period since the start of the Covid pandemic.
Chinese households in particular are still deleveraging, despite a concerted push from Beijing to drive growth in consumer spending.
New short-term loans by Chinese households fell 372.5 billion yuan year-on-year during the period from January to August.
Deflationary pressure due to excess capacity
In stark contrast to other major economies that have recently grappled with breakneck inflation, China faces the opposite problem of ongoing deflationary pressure.
Lian imputes theses issues to both the weakness of China’s domestic demand and the problem of industrial overcapacity.
In August, China’s core CPI saw a slight recovery compared to the same period last year, yet CPI overall fell to -0.4% in year-on-year terms.
Year-on-year growth in PPI was -2.9%, with Lian pointing to “some industries having excess capacity while at the same time market demand remains inadequate.”
A six point plan for saving China’s economy
In order to maintain steady growth and prevent China’s economy from succumbing to a “landslide” decline, Lian has put together a six-point plan of detailed policy recommendations.
In addition to greater fiscal spending and monetary policy loosening, Lian plan involves greater central bank support for capital markets, targeted cuts to home loan rate, the expanded use of consumer subsidies, and bespoke support for struggling companies in the export sector.
One: Preemptive deployment of fiscal resources
Lian calls for the “ large-scale advance allocation of next year’s government investment and financing quotas.”
He recommends bringing forward a quota of 1.5 - 2 trillion yuan (US$280.9 billion) for allocation by Beijing in the fourth quarter of this year.
Lian also calls for accelerating the issuance and deployment of local government bonds, normal government bonds and ultra-long-term special government bonds, in order to “achieve the real policy effects of expanding domestic demand as soon as possible”
Looking ahead to 2026, Lian advocates increasing the new local special-purpose bond quota to at least 4.5 trillion yuan (US$632.07 billion).
Two: Further loosening of monetary policy in the fourth quarter
Lian wants the Chinese central bank to expand the scope of its counter-cyclical adjustments, by cutting the required reserve ratio by 0.5 percentage points and the policy interest rate by 0.2 percentage points in the fourth quarter.
According to Lian, a 0.5 percentage point cut to the required reserve ratio (funds that commercial banks must stow with the central bank) could unleash up to one trillion yuan in liquidity, helping to support the advance issuance of government bonds.
A 0.2 percentage point cut to the Chinese central bank’s policy rate will reduce the cost of funds for commercial lenders, easing their operating pressure.
It will also drive “rational growth” in credit, to spur expansions in consumption and investment demand.
Lian wants 0.2 - 0.5 percentage point cuts to the rates for the special re-loans that the central bank provides to commercial lenders, in order to channel funds to small businesses, the agricultural sector, scientific and technological innovation, services consumption and aged care.
He also recommends that the central bank consider the resumption of government bond purchases in the fourth quarter, buying anywhere from 500 billion to one trillion yuan to directly inject liquidity into the market.
Three: Propping up the stock market with central bank support and state-owned investors
Since the start of the year, China’s stock market boom has been abetted by the central bank’s provision of 800 billion yuan in capital market support, via two instruments that target share buybacks and stock purchases by key shareholders.
Lian believes the rates for these instruments are too high, and should be reduced to 1.5% or less from 1.75% at present.
He also calls for loosening the requirements and benchmarks for financial institutions to make such loans to the key shareholders in listed companies.
In addition to central bank credit support, Lian wants state-owned investors to play a greater role as “stabilisation funds” for the Chinese stock market.
He points in particular to sovereign fund Central Huijin, which received orders from Beijing to swoop in and buy up A-share ETFs just after Trump’s Liberation Day in order to stabilise share prices.
Lian wants Beijing to allow Central Huijin to further expand its balance sheet, giving it a bigger ammo holder for the stabilisation of capital markets.
The Chinese central bank will in turn play a back-up role for Central Huijin in its role as stock market stabilisation fund, by providing it with liquidity support via special structured financial instruments.
Four: Rescuing the real estate market with lower home loan rates
In order to drive a recovery in China’s long-ailing property sector, Lian calls for targeted cuts to home loan rates, and encouraging commercial banks to step up their lending to real estate developers.
Lian wants a 25 basis point cut to the rates for long-term loans extended by China’s housing provident funds, to complement an anticipated decline in the benchmark loan prime rate.
He also wants to allow commercial banks in major cities to reduce the premium applied to the interest rates on second home mortgages by around 0.2 percentage points, in order to tap the large volume of demand for houses and home improvements in urban areas.
On the fiscal policy front, Lian calls for moderate cuts to taxes and government fees for affordable rental housing, as well as stamp duties and personal income taxes for residential properties with floor space in excess of 140 square metres.
In order to better fund real estate developers and reduce their dependence on bank loans and bond financing, Lian wants to accelerate the growth of real estate investment trusts (REITs).
He sees them serving a a convenient source of direct financing for real estate developers, reduces their cash flow pressure as well as long-term need for operating capital.
In order to mitigate systemic risk, Lian wants large-scale national real estate companies with potential risk issues to make greater use of non-bank financing channels.
Five: Intensifying support for domestic consumption
The cash-for-clunkers - or “old-for-new” (以旧换新) consumer subsidy campaign lies at the heart of Beijing’s campaign to expand China’s laggard levels of domestic consumption.
Lian wants to expand the quota for the cash-for-clunkers scheme by 100 billion yuan (US$14 billion), as well as the scope of goods covered by the scheme to include fitness and cultural equipment, all home appliances and digital goods, high-end jewellery, high-end wrist watches and motorcycles.
In order to complement the effects of the scheme on household, Lian advocates that banks provide low-interest and zero-deposit consumer loans.
He also wants local governments to issue more consumer vouchers during major holidays and special theme-based consumption campaigns, which can be funded by transfer payments from the Chinese central government.
Six: Stepping up transitional support for the export sector
The US - as the world’s biggest economy in nominal terms - has become an increasingly uncertain destination for Chinese goods in the wake of Trump’s trade war.
Lian argues that Beijing should step up government support for China’s export sector as it makes the transition towards a “new state of development” using both fiscal and financial policy.
He calls for establishing specialist emergency funds for the export sectors of the major coastal provinces, providing low-interest loans to beleaguered enterprises, and implementing fiscal subsidy policies to ensure workers are paid and companies can maintain their business operations.
Lian also wants Beijing to push Chinese banks to implement “trade stabilisation policies” that makes it easier for export-related firms to obtain credit.