China's cabinet has signaled a greater urgency in shoring up economic growth by pledging increased counter-cyclical policy support to address rising economic strains. A meeting chaired by Premier Li Qiang on Monday emphasized the need for more effective implementation of existing policy measures and accelerated issuance and use of government bonds. This move is aimed at keeping the economy on track to meet its 2026 growth target, which some analysts believe will require additional policy support in the fourth quarter.
Analysts at ING Bank and BNP Paribas anticipate further policy support in the coming weeks, with some suggesting a modest stimulus will be sufficient to bridge the gap between underlying growth and the 4.5% goal. The new stimulus is expected to focus primarily on fiscal policy, including tapping unused local government bond quotas from previous years and increasing the central bank’s relending allowance for innovation, technology upgrades, small businesses, and agriculture.
Despite concerns over local government debt, authorities have largely avoided major stimulus efforts targeting domestic demand, instead focusing on supply-side issues such as industrial overcapacity. While Citigroup recommended buying China's 30-year government bonds due to anticipated persistent economic weakness and limited availability of extended-maturity debt, others warn that higher levels of bond issuance and a potential turnaround in risk appetite could reverse the multi-year bond bull market. Some market participants, including ING, expect Chinese government bond yields to rise, contrasting with Citi's projection of a gradual decline in 10-year yields towards 1.60%.
