The country’s robust resilience remains intact, putting the full-year growth target of 4.5 to 5 percent well within reach. Its ability to move forward ahead stems from a sound industrial structure: an ultra large domestic market combined with ample policy reserves.
The Political Bureau meeting held on July 30 set clear policy directions for China’s economy in the second half of the year—to ramp up counter-cyclical regulation, expand domestic demand, foster new quality productive forces, stabilize foreign trade and investment and fully safeguard people’s livelihoods.
In the kickoff year of its 15th Five-Year Plan (2026–30), China’s GDP reached nearly 70 trillion yuan in the first half of the year, registering a growth rate of 4.7 percent. Even though growth slowed to 4.3 percent in Q2, it still landed within the full-year target range of 4.5 to 5 percent.
Many worry that the economy lacks momentum under mounting pressure, but in reality, China’s growth does not rely on fleeting windfalls. Its ability to forge ahead against headwinds stems from a sound industrial structure: an ultra large domestic market combined with ample policy reserves.
Emerging growth drivers
The economic landscape for the second half of the year can be summed up as solid external demand, gradual recovery of domestic demand, stepped-up policy support and lasting growth resilience. The full-year growth target of 4.5 to 5 percent is well within reach, supported by three core pillars.
First is the country’s ultra large, integrated market, paired with a complete industrial chain. China’s 1.4 billion people contain vast consumption potential, supported by a full supply chain covering everything from basic components to high-end AI hardware. This makes China a linchpin of global supply chains. Faced with overseas trade barriers, external circulation maintains strong shock resistance. With ongoing domestic adjustments in real estate and infrastructure, household consumption, equipment upgrades and trade-in programs serve as effective buffers. The sheer scale of China’s market means that any emerging industry can quickly secure supporting suppliers, application scenarios and consumer bases.
The second pillar is the transition between old and new growth drivers, which has crossed a critical threshold. High-tech manufacturing and the digital economy contributed nearly half of total growth in the first six months. Exports of robotics, AI hardware, innovative pharmaceuticals—the “next three export items”—expanded rapidly, while electromechanical goods and vehicles remained solid export staples. The real estate sector continues to adjust, but emerging industries offset its slowdown at a faster pace. The shift between traditional and emerging sectors has unfolded smoothly with no risk of a hard landing.
The third pillar is that policymakers retain an extensive toolkit of macroeconomic levers. On the fiscal front, authorities can tap special-purpose bonds, ultra long-term special treasury bonds and funds for new infrastructure. On the monetary side, there remains room for cuts in reserve requirement ratios and interest rates, alongside various targeted re-lending instruments. Coordinated fiscal and monetary funds will further boost domestic demand.
Leveraging domestic policy certainty to counter global volatility is a unique strength of China’s macro governance. The International Monetary Fund cut its global growth forecast yet raised its outlook for China, specifically acknowledging its solid foundation.
Four major segments jointly underpin economic performance: services consumption outpaces goods consumption; diversified export markets offset frictions with Europe and the U.S.; multinational companies such as BASF, Volkswagen and Lilly continue to scale up investment; and steady progress is being made in employment, healthcare and eldercare. Interlinked and mutually reinforcing, these sectors enable the economy to rebound flexibly rather than merely endure downward pressure.
Avoiding fragmentation
A core takeaway from the Politburo meeting is the alignment of fiscal and monetary policies, a critical step to prevent disjointed, misaligned policy implementation across government departments.
I recommend unifying targets, timelines and project rosters across four priorities—boosting consumption, stabilizing foreign trade, attracting foreign investment and securing livelihoods—to coordinate fiscal and monetary tools. Piecemeal measures such as standalone consumption vouchers or one-off tax breaks should be avoided.
To lift consumption, authorities will accelerate disbursements from ultra long-term special treasury bonds and new infrastructure funds, while extending trade-in incentives for cars and home appliances. The central bank will allocate a pool of 100 billion-yuan of coordinated fiscal-monetary funds to subsidize interest rates on consumer and business loans, with targeted re-lending for the cultural, tourism and wellness sectors. This creates a closed loop of rising household incomes, improved product supply and lower financing costs, avoiding exclusive reliance on unsustainable short-term subsidies.
For foreign trade and investment stability, fiscal support covers export credit insurance subsidies to secure overseas orders, while monetary authorities use targeted re-lending so that tech and trade companies can cut financing costs. Three-pronged incentives for foreign investors include wider market access, improved industrial support chains and preferential tax policies.
In the first half of the year, high-tech foreign investment surged 33.2 percent, accounting for 42.4 percent of total inbound investment, while foreign investment in modern services made up 57 percent. This shows that multinationals value China not for low production costs alone, but for its vast consumer market, complete R&D ecosystem and digital industrial infrastructure.
To safeguard livelihoods, fiscal spending prioritizes core government obligations, with increased funding for eldercare, childcare and medical services. Monetary policy uses agriculture and micro-enterprise re-lending, plus inclusive lending rate cuts, to translate livelihood support into tangible household spending power. This corrects the disconnect between protecting living standards and stimulating consumption.
China’s policy rollout follows a clear sequence: deploy existing special-purpose bonds and re-lending first, then supplement with new special treasury bonds and interest rate cuts. Bond issuance schedules align with RRR cut windows, with all policy instruments consolidated under a unified project database for major national and new infrastructure initiatives. This synchronized approach delivers on the meeting’s call to speed up fiscal spending and refine coordinated fiscal-monetary policies to spur domestic demand.
Deepening external cooperation
Global cross-border investment remains sluggish amid rising protectionism, yet China maintains consistent pro-investment policies. Opening-up is shifting from loosening market access to optimizing operational environments, with balanced emphasis on inbound investment and outbound expansion.
Five priorities will upgrade the business climate: shortening the foreign investment negative list, facilitating cross-border data flows, setting up dedicated task forces for major foreign-funded projects, opening up emerging tracks such as AI, biotech and green manufacturing, and delivering consistent, transparent policies. This will embed the consensus among multinationals that investing in China means long-term certainty.
China’s export strategy has evolved from pure goods shipments to integrated goods and services exports. On the merchandise side, China will strengthen its advantages in robotics, AI and innovative pharmaceuticals to expand its footprint across ASEAN, Belt and Road economies, the Middle East and Latin America. Exports of services rose 15.9 percent in the first half of this year, driven by digital services, overseas licensing of new medicines and cross-border logistics. Hainan Free Trade Port will prioritize trade in services and digital trading. Light-asset, high-value services are largely insulated from tariff barriers, making them a core driver of export upgrading.
New quality productive forces are reshaping foreign investment configurations. Multinationals such as Siemens Energy and Airbus have built local R&D centers and full-lifecycle service hubs, shifting their role from simply manufacturing in China to innovating with China. Sectors including AI, the low-altitude economy and energy storage are upgrading exports beyond OEM manufacturing to integrated packages of hardware, systems, patents and full-cycle operation and maintenance revenue streams.
Domestic demand boasts multiple new growth engines: wellness, childcare and home services; digital consumption spanning AI terminals and instant retail; green consumption covering new energy vehicle aftermarket and smart homes; integrated business-tourism spending fueled by night economies and grassroots sports events; and lifestyle consumption involving pets, collectibles and outdoor wellness.
Digital technology is powering a two-way supply-and-demand cycle: Flexible AI manufacturing enables production tailored to real-time market demand, while large language models unlock latent consumption and draw down household precautionary savings. Services consumption features simultaneous production and consumption, strong job creation and a far larger economic multiplier effect than physical goods.
In summary, the second half of 2026 will require balanced focus on internal growth drivers and external partnerships. Coordination of fiscal and monetary policies will shore up the growth floor. New quality productive forces will unlock up-side potential; services consumption will offset slowing goods spending; and institutional opening-up will draw deeper multinational collaboration. As China’s economy navigates persistent headwinds, its robust resilience remains intact, putting the full-year growth target of 4.5 to 5 percent well within reach.
