China policy loosening and macroeconomic outlook: UBS sees China entering a third phase of policy loosening aimed at securing the annual growth target.

Overview

UBS interprets the latest State Council policy meeting as evidence that China may be moving into a third stage of easing in 2026. It expects additional 4Q measures focused relatively more on fiscal support and investment, while stressing that implementation must be monitored closely.

Core views

UBS reads the State Council meeting, chaired by Premier Li Qiang, as a meaningful shift in policy tone. The statement called for stepped-up counter-cyclical support because of problems that have emerged in the economy and to achieve the annual economic targets. UBS notes that recent official commentary had generally been more benign; a less benign assessment suggests policymakers have a greater sense of urgency. The report says that weaker macro data and weak equity-market performance can contribute to that urgency. The meeting also pointed to a practical policy toolkit: greater use of interest-subsidy programs to expand fixed-asset investment and consumption, a higher relending quota for technology innovation and equipment upgrading, measures to stabilize the real-estate market, and encouragement for local authorities to launch pilot programs. UBS characterizes these as potential incremental measures rather than a single high-profile package. UBS frames 2026 easing in three stages. The first began in late July, when the Politburo meeting sent loosening signals but produced limited follow-up for about a month. The second started in late August, when state media published prominent economic articles and ministries emphasized using funds already held by government entities to accelerate existing fixed-investment projects before the end of 3Q. UBS believes the final stage will occur in 4Q, when new measures should be rolled out to help ensure that the 4.5% lower bound of the target range is reached. Relative to the September 2024 easing, UBS expects this year's effort to be less high-profile and more incremental, relatively more fiscally focused, and more investment-focused, although the latest meeting also mentioned adjustments to monetary-policy tools. The report expects some September and 4Q macro indicators, particularly industrial production and the Service Output Index, to improve. It is less confident that fixed-asset-investment growth will rise, even though a low base and additional support should help, because UBS sees FAI as having a weaker relationship with GDP. The report cautions that policy statements do not always translate closely into implementation. It therefore emphasizes monitoring whether the stated signals become concrete actions, potentially before the week-long October 1 National Day holiday.

Analysis framework

UBS interprets changes in official policy language as signals of policymakers' urgency, compares the current sequence with earlier 2026 easing stages and September 2024, then links proposed fiscal, credit, investment and property measures to the annual growth objective and near-term macro indicators.

Key data

• Annual growth target-range lower bound4.5%UBS expects new 4Q measures to help ensure this lower bound is reached.
• Policy-loosening stages in 2026ThreeUBS identifies late July as the first stage, late August as the second, and expects the final stage in 4Q.
• Expected data timingSeptember and 4QUBS expects improvement especially in industrial production and the Service Output Index.

Impact & implications

The report indicates that policy support may increasingly rely on fiscal and investment channels, alongside adjustments to monetary tools, to support growth and stabilize the property market. UBS expects the clearest confirmation to come from concrete implementation rather than meeting language alone.

Risks

• Official policy language may not translate closely into implemented measures.
• UBS has lower conviction that fixed-asset-investment growth will improve because it sees FAI as less closely related to GDP.

What to watch

• Whether announced policy signals translate into concrete actions, potentially before the October 1 National Day holiday.
• Rollout of interest subsidies, expanded relending for technology innovation and equipment upgrades, property stabilization measures, and local pilot programs.
• September and 4Q industrial production, the Service Output Index, and fixed-asset-investment growth.