Summary of Key Points
In July 2026, the Chief Economist Confidence Index declined slightly to 49.7, reflecting that the economy is in a period of transition between old and new growth drivers. The decline in old drivers (real estate, traditional infrastructure) has been faster than the emergence of new drivers (AI, high technology, green consumption), although the new drivers show significant potential. Experts expect policy measures to be intensified in the second half of the year to stabilize growth, with a focus on employment, consumer demand, and expanding effective investment. The GDP growth rate for the second quarter was 4.5%, and the annual target is set at 4.7%. Consumer spending remains weak, but there is strong demand for quality-enhanced products; investment (especially in real estate) continues to be sluggish. The trade surplus remains high, and it is unlikely that interest rates or reserve requirements will be lowered in the short term to adjust monetary policy; however, the exchange rate is expected to remain stable.
I. Slightly Lowered Confidence: The Economy is "Changing Engines," but New Drivers Have Not Fully Taken Over
The confidence index of 49.7 is slightly lower than last month, indicating a gap between old and new growth drivers:
- Highlights of New Drivers: High-tech industries (AI, smart devices) are performing exceptionally well. For example, sales of smart wearable devices doubled in the first five months, and the penetration rate of new energy vehicles exceeded 60%, demonstrating the power of innovation-driven growth.
- Drag from Old Drivers: The real estate and traditional infrastructure sectors continue to be weak, with fixed asset investment declining by 4.7% year-on-year, and real estate development investment dropping by 17.5%. The gap created by these old drivers has not yet been filled by new ones.
- Risk Warning: The economy is highly dependent on the performance of the AI sector. If the AI boom fades or the external environment changes, there could be fluctuations. Experts recommend preparing policies in advance to mitigate uncertainties.
II. Growth and Inflation: GDP is Stable, but Consumption and Investment Vary Unevenly
1. GDP: The Annual Target of 4.7% is Feasible, but There Are Challenges in the Second Quarter
- The forecast for the second quarter's growth rate is 4.5%, slightly lower than the first quarter's 5.0%. This is due to slower recovery in domestic demand (weak consumption and investment), although external demand (exports) and the manufacturing sector (especially AI-related industries) are providing support.
- The annual growth target of 4.7% remains unchanged, mainly driven by new drivers (high technology, exports), as well as supportive policies.
2. Consumption: Overall Weak, but There is Strong Demand for Quality-Enhanced Products
- Reasons for Weakness: Residents' income expectations are low, leading to caution in spending; last year's policy of replacing old products with new ones has exhausted demand for durable goods; the sluggish real estate market has also dampened consumer spending. The growth rate of retail sales in June was only 0.2%, although it improved from -0.6% the previous month.
- Highlights: Digital consumption (online services and retail) grew by 7.6%, green consumption (energy-efficient appliances) increased by 30%, and service consumption (cultural tourism, events) performed well, indicating that residents are willing to spend on quality products.
3. Inflation: CPI is Stable, but PPI is Rising
- CPI at 1.2% (unchanged from last month): Food prices have dropped due to oversupply (fruits, pork), and energy costs have decreased (lower oil prices); however, service prices have remained stable (increased demand for rental housing during the graduation season).
- PPI at 4.2% (up 0.3% from last month): Strong demand in the AI industry and manufacturing has driven up industrial product prices.
III. Policy Direction: Intensified Measures in the Second Half of the Year, but Without Excessive Relaxation
Experts agree that policies will be "proactive yet not overly stimulative," focusing on addressing issues such as weak domestic demand and structural imbalances:
- Fiscal Policy: Accelerating the issuance of 1.3 trillion yuan in special treasury bonds and 4.4 trillion yuan in targeted bonds to support major projects (such as the 14th Five-Year Plan) and offset the negative impact on the real estate sector.
- Monetary Policy: It is unlikely that there will be changes to the LPR or reserve requirements in July (to avoid excessive liquidity); however, reserve requirement cuts may follow (before interest rate reductions), with a focus on using structural tools to support new drivers (e.g., AI, green industries).
- Consumer Policies: ① Speed up the distribution of funds for replacing old products with new ones; ② Expand the supply of high-quality goods and services (e.g., AI-enabled consumer products, premium services); ③ Stabilize housing prices to improve residents' financial situations and encourage spending.
- Employment Policies: Implement employment-first strategies to enhance residents' income expectations, which is crucial for restoring consumer confidence.
IV. Finance and Exchange Rate: Sufficient Funds but No Excessive Relaxation; the RMB Remains Stable
1. Financial Data: Seasonal Recovery, but No Sign of Loose Monetary Policy
- New loans in June are expected to reach 1.98 trillion yuan (a significant increase from 530 billion yuan the previous month), and total social financing amounted to 3.7 trillion yuan, mainly due to seasonal bank lending activities at the end of the quarter, not indicative of broader policy easing.
- M2 growth rate at 8.5% (slightly lower): The pace of residents moving their savings to other investments has slowed down, maintaining a moderately loose financial environment.
2. Exchange Rate: Stability is the Priority
- The RMB's exchange rate against the US dollar is expected to be around 6.8 in July and around 6.74 by the end of the year (a slight appreciation).
- Supporting factors include strong export performance (demand for AI and new energy products), favorable foreign investment policies (e.g., expanded market access), and a stable foreign exchange reserve (3.4 trillion yuan).
Conclusion
The core issue in the current economy is the transition between old and new growth drivers. Policy efforts will focus on addressing weaknesses in consumption and investment, as well as strengthening new drivers (AI, green technologies). Individuals can look for opportunities in quality-enhanced products (smart, green goods) and signals of improved employment and income resulting from policy implementation. Overall, the economy is not expected to experience significant fluctuations, but recovery will take time.