Premier Li Qiang reintroduces countercyclical policy; Nomura expects fiscal expansion to be the key growth stabilizer in the second half

Overview

This report analyzed the July 13 meeting chaired by Premier Li Qiang with economic experts and entrepreneurs. Nomura argues that in this meeting the premier re-emphasized "strengthening countercyclical policy calibration," unlike the July 2026? April meeting where this wording was not mentioned, which may be a leading signal that Beijing’s policy stance is becoming more growth-supportive in the second half. The report focuses on policy signals, the likelihood of monetary easing, fiscal policy timing, and implications for investment and the AI industry.

Core views

The core view is that with worsening total demand in Q2 and weakening retail and investment, Beijing’s concerns about growth pressure are rising. Although the "countercyclical" wording has returned, Nomura believes that overt monetary easing is still unlikely in the short term, and the PBOC is more likely to maintain the current policy framework. By contrast, fiscal policy is expected to become the focus for growth support in the second half, including faster issuance of local government special bonds, central government debt issuance, and fiscal spending pace to offset the investment slowdown.

Analysis framework

The report uses a policy-text and wording-shift tracking approach, comparing the July 2026 consultation with the April 2026 and October 2025 consultations, as well as with wording in the PBOC’s Q2 monetary policy committee meeting, and combines this with Q2 data on fixed-asset investment, infrastructure investment, fiscal spending, and government bond issuance to assess whether the policy emphasis may be shifting from monetary to fiscal levers.

Methodology notes

• Policy-signal analysisTop-level meeting wording comparison

  Changes in countercyclical versus intercycle policy phrasing

  By comparing the occurrence and absence of terms such as "countercyclical" and "intercycle" in the premier’s consultation meetings and the PBOC monetary policy committee meetings, the report infers marginal changes in policy-makers’ assessment of downside risk and policy tool mix.

• Macroeconomic data validationFiscal and investment pace tracking

  Fiscal spending, government bond issuance, and fixed-asset investment linkage

  The report combines fixed-asset investment, infrastructure investment, fiscal spending, and the net issuance pace of local government special bonds to assess whether weaker fiscal momentum is amplifying weak domestic demand and to infer likely directions for renewed fiscal support.

Asset mapping & comparison

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

• China macroeconomy

  Directly related

  Strengths

  Reemphasis of countercyclical policy adjustment at the policy level may help stabilize growth expectations and offset weak domestic demand in Q2.

  Weaknesses

  Current weakness in retail, investment, and fiscal spending data indicates that total-demand pressure remains meaningful.

  Comparison

  Compared with the April 2026 meeting, the July meeting’s language is more supportive of growth; compared with monetary policy, the marginal effect of fiscal policy is more prominent.

  Risks

  Policy implementation lags expectations, low efficiency in fiscal fund usage, and continued deterioration of domestic demand.

• China interest rates and monetary policy

  Indirectly related

  Strengths

  The PBOC is preserving policy flexibility, and future briefings may provide additional clues on policy stance.

  Weaknesses

  The report views the probability of short-term policy-rate cuts or reserve requirement cuts as low, with monetary policy unlikely to be an immediate strong stimulus.

  Comparison

  Despite the return of the "countercyclical" wording, the PBOC’s Q2 meeting still referenced "intercycle," indicating monetary policy has not clearly shifted to strong easing.

  Risks

  If growth pressure deteriorates more than expected, markets may reprice the probability of monetary easing; rising RMB pressure could also limit monetary space.

• Government and local government special bonds

  Directly related

  Strengths

  Expectations of fiscal strengthening point toward faster government debt issuance and increased use of special bonds.

  Weaknesses

  Q2 issuance and spending have already slowed materially, requiring stronger follow-through for actual execution momentum to materialize.

  Comparison

  Monthly average net issuance of local government special bonds in Apr-May 2026 was lower than in Q1 and below the same period in 2025, leaving room for catch-up.

  Risks

  Even if bond issuance accelerates, delays in fund disbursement or project rollout could weaken investment pull-through.

• Infrastructure and fixed-asset investment chain

  Highly related

  Strengths

  If fiscal spending speeds up, demand in infrastructure and investment-related links could receive support.

  Weaknesses

  Both fixed-asset and infrastructure investment growth turned strongly negative in Apr-May, with weak short-term momentum.

  Comparison

  The magnitude of the investment slowdown is much larger than in Q1, making it the principal trigger for renewed policy support.

  Risks

  Weakness in real estate and private investment persists, and infrastructure offsetting capacity remains insufficient.

• AI value chain

  Policy theme related

  Strengths

  The report sees AI becoming an even more strategic policy priority, supported by demand for an independent supply chain and technological self-reliance.

  Weaknesses

  The report does not provide company-level, valuation, or order-book evidence.

  Comparison

  Compared with traditional growth-support sectors, AI appears more a medium- to long-term strategic policy theme.

  Risks

  Uncertainty remains around whether policy support translates into company profitability; pace of supply-chain localization and capex can be volatile.

Key data

• Meeting date2026-07-13Premier Li Qiang chaired the quarterly economic experts and entrepreneurs consultation, discussing the current economic situation and work priorities for the second half.
• Report release time2026-07-14 08:27 UTCNomura report generation time.
• Official fiscal deficit ratio4.0% of GDP in 2025-26The report says this ratio is clearly higher than the long-term historical norm of 3.0%, reflecting a fiscal stance that shifted toward growth support after September 2024.
• Fixed-asset investment growthYoY -9.4% in Apr-May 2026, 1.7% in Q1The report views the sharp investment contraction as a key reason for renewed fiscal support.
• Infrastructure investment growthYoY -7.3% in Apr-May 2026, 9.2% in Q1The slowdown in infrastructure investment is seen as related to slower fiscal spending and local government special bond issuance.
• General public budget expenditure growthYoY -2.4% in Apr-May 2026, 2.6% in Q1The pace of fiscal spending is clearly weakening.
• Infrastructure-related fiscal spending growthYoY -14.5% in Apr-May 2026, -1.8% in Q1The decline in infrastructure fiscal spending has widened.
• Government fund expenditure growthYoY -16.0% in Apr-May 2026, 3.1% in Q1Government-funded expenditure has shifted from positive growth to marked contraction.
• Net issuance of local government special bondsMonthly average of RMB398bn in Apr-May 2026, RMB717bn in Q1, RMB461bn in Apr-May 2025The report estimates a clear slowdown in local special bond issuance, below the same period last year.
• NPFT quotaRMB800bn in 2026, RMB500bn in 2025The report believes Beijing may accelerate use of these funds to stabilize investment.

Impact & implications

For asset and macro expectations, the implication is that China’s growth-supportive policy mix in the second half is likely to be more fiscally expansionary, with emphasis on government bond issuance, fiscal spending, infrastructure, and investment stabilization rather than relying on near-term rate cuts or reserve-ratio reductions. If subsequent State Council meetings, the late-July CCP Politburo meeting, and PBOC briefings confirm a more constructive policy signal, expectations for China growth and policy-support beneficiaries may improve, particularly in infrastructure-linked chains and AI self-reliance policy directions.

Risks

• The growth-support signal from top-level policy meetings is weaker than expected.
• Insufficient acceleration of fiscal spending and government bond issuance fails to stabilize investment in time.
• Monetary policy remains contained and cannot quickly ease financing and confidence pressures.
• Domestic demand, retail, and fixed-asset investment continue to deteriorate, offsetting policy backstop effects.
• RMB and external environment pressures may constrain policy space.

What to watch

• Growth-support policy signals from the State Council meeting in late July.
• The mid-year Politburo meeting at the end of July and its tone on second-half economic work.
• The PBOC briefing on July 15, 2026, covering H1 financial data and monetary policy implementation.
• The subsequent issuance pace of local government special bonds and other government debt.
• Fiscal spending, especially year-on-year changes in infrastructure-related spending.
• AI industry policy and supportive measures for self-reliant supply chains and technological self-reliance.