Nomura believes China’s policy focus in H2 may shift toward stronger fiscal support

Overview

This report analyzes the symposium of economic experts and entrepreneurs chaired by Premier Li Qiang on July 13, 2026. Nomura believes the premier’s renewed emphasis on countercyclical policy adjustment is a signal that policy support may strengthen in the second half of the year, especially against the backdrop of weaker domestic demand, retail sales, and investment performance in the second quarter. The report also notes that the probability of high-profile monetary easing by the PBOC in the short term remains low, with the policy focus more likely shifting toward stronger fiscal support and stabilizing investment.

Core views

The core views include: first, the return of the term countercyclical indicates deeper concern among policymakers about downward growth pressure; second, the PBOC’s Q2 Monetary Policy Committee statement still retained the term inter-cyclical and removed language such as using multiple tools to step up monetary policy support, so the likelihood of near-term rate cuts or RRR cuts is low; third, fiscal policy may become the main lever in the second half of the year, including accelerating net issuance of local government special bonds, increasing the pace of fiscal spending, and promoting a recovery in infrastructure investment; fourth, the AI industry chain and technological self-reliance may receive higher strategic policy weight.

Analysis framework

The report uses a combination of policy text analysis and high-frequency macro data: on the one hand, it compares changes in the wording of the premier’s symposiums in October 2025, April 2026, and July 2026; on the other hand, it combines the wording of the PBOC’s Q2 Monetary Policy Committee meeting with fixed asset investment, infrastructure investment, fiscal spending, and the pace of local government special bond issuance to assess the direction of the policy mix in the second half of the year.

Methodology notes

• Macro Policy TrackingPolicy Wording Comparison

  By comparing the appearance and disappearance of keywords such as countercyclical and inter-cyclical across different high-level meetings, infer changes in policy orientation.

  The report believes that the renewed emphasis on countercyclical in the premier’s July 2026 symposium, while the PBOC’s Q2 meeting still mentioned inter-cyclical, indicates stronger willingness to support the economy, but this is more likely to first be reflected in fiscal rather than major monetary policy easing.

• Fiscal Cycle AnalysisObservation of Fiscal Spending and Bond Issuance Pace

  Use fiscal spending growth, government fund spending, and the pace of net issuance of local government special bonds to gauge the strength of fiscal support.

  The report points out that fiscal spending and local government special bond issuance slowed significantly in Q2, dragging on infrastructure and fixed asset investment; therefore, investment may be stabilized in the second half through faster bond issuance and fiscal spending.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese Government Bonds and Local Government Special Bonds

  Vehicles for fiscal support

  Strengths

  Accelerated government bond issuance can provide funding for infrastructure and stabilizing investment.

  Weaknesses

  The pace of issuance and fiscal spending in Q2 was relatively slow, indicating a lag in policy transmission.

  Comparison

  Average monthly net issuance of local government special bonds was RMB398bn in April-May, below RMB717bn in Q1.

  Risks

  If issuance continues to be slow, the effect of stabilizing investment may be weaker than expected; if issuance accelerates significantly, bond supply pressure may rise.

• China Interest Rate and Reserve Requirement Ratio Policy

  Monetary policy observation target

  Strengths

  The PBOC can still maintain policy flexibility and coordinate with fiscal policy.

  Weaknesses

  The report believes the probability of a short-term policy rate cut or RRR cut is low, so the direct stimulus from monetary policy to growth may be limited.

  Comparison

  The Q2 Monetary Policy Committee still mentioned both countercyclical and inter-cyclical policy, showing no major shift in stance.

  Risks

  If growth pressure exceeds expectations, the monetary policy path may differ from the report’s judgment.

• Infrastructure Investment Chain

  Potential beneficiary direction

  Strengths

  Faster fiscal spending and special bond issuance may improve infrastructure investment.

  Weaknesses

  Infrastructure investment growth turned to -7.3% YoY in April-May, showing that current momentum is weak.

  Comparison

  Infrastructure investment grew 9.2% YoY in Q1 but fell sharply to -7.3% in April-May.

  Risks

  Insufficient fiscal fund disbursement, project reserves, and local execution capacity may weaken policy effectiveness.

• AI Industry Chain

  Strategic policy priority

  Strengths

  The report believes AI may become a more strategically significant policy direction, benefiting from China’s push for a complete AI supply chain and technological self-reliance.

  Weaknesses

  The report does not provide specific companies, industry subsegments, or quantified benefit estimates.

  Comparison

  Compared with traditional stabilizing-investment directions, AI is more of a long-term industrial policy and technological self-reliance theme.

  Risks

  The pace of policy implementation, supply chain bottlenecks, and external technology restrictions may affect actual outcomes.

Key data

• Meeting Date2026-07-13Premier Li Qiang chaired the quarterly symposium with economic experts and entrepreneurs to discuss the current economic situation and economic work in the second half of the year.
• Report Completion Time2026-07-14 08:27 UTCProduction Complete time disclosed on the report cover page.
• Official Fiscal Deficit Ratio2025-26年为GDP的4.0%The report states that this ratio is significantly above the long-term traditional level of 3.0%, reflecting an important shift in the fiscal policy stance after September 2024.
• Fixed Asset Investment Growth2026年4-5月同比-9.4%，一季度为1.7%The report uses this data to show that investment weakened significantly in Q2.
• Infrastructure Investment Growth2026年4-5月同比-7.3%，一季度为9.2%The report believes the decline was mainly affected by slower fiscal spending and slower issuance of local government special bonds.
• General Public Budget Expenditure Growth2026年4-5月同比-2.4%，一季度为2.6%The slower pace of fiscal spending is an important basis for the report’s judgment that fiscal support may strengthen again in the second half of the year.
• Infrastructure-related Fiscal Spending Growth2026年4-5月同比-14.5%，一季度为-1.8%This shows that fiscal support for infrastructure weakened further in Q2.
• Government Fund Expenditure Growth2026年4-5月同比-16.0%，一季度为3.1%The report believes government fund expenditure slowed noticeably.
• Net Issuance of Local Government Special Bonds2026年4-5月月均RMB398bn，一季度月均RMB717bnThe report estimates this level was below RMB461bn in April-May 2025.
• NPFT QuotaRMB800bnThe report mentions that Beijing increased the quota from RMB500bn last year to RMB800bn this year.

Impact & implications

If Nomura’s judgment is correct, China’s macro policy mix in the second half of the year may feature marginal acceleration on the fiscal side, support for the investment chain, and increased government bond supply, while the monetary side remains more flexible and supportive, without necessarily sending a strong signal through rate cuts or RRR cuts in the short term. For asset pricing, improved policy expectations may benefit themes related to infrastructure, government investment, and domestic AI supply chains, although faster bond supply and policy language on the renminbi still warrant attention.

Risks

• Signals released by high-level policy meetings may be weaker than expected.
• Acceleration in fiscal spending and government bond issuance may fall short of expectations, resulting in a limited investment recovery.
• The PBOC’s policy stance may adjust with changes in the economy and exchange rate, so the short-term monetary easing view is uncertain.
• If the deterioration in domestic demand in Q2 continues to widen, the current policy mix may be insufficient to stabilize growth.
• Some parts of the original report may contain recognition omissions, and the names and wording of certain fiscal tools may need to be checked against the original PDF.

What to watch

• Policy wording in late-July State Council meetings and the mid-year Politburo meeting.
• The PBOC press conference on July 15, 2026 regarding H1 financial statistics, monetary policy implementation, and the renminbi outlook.
• Whether the pace of net issuance of local government special bonds accelerates from the low levels seen in April-May.
• Whether growth in the general public budget, government fund expenditure, and infrastructure-related fiscal spending improves.
• Whether fixed asset investment and infrastructure investment can stabilize in the second half of the year.
• Whether more explicit incremental policy measures emerge for the AI industry chain and technological self-reliance.