Summary of Key Points
In August 2026, the Chief Economist Confidence Index rose to 49.9, approaching the 50 threshold that indicates economic expansion, reflecting confidence in policy support. The July Politburo meeting set a tone for proactive fiscal policies and moderately loose monetary measures, emphasizing the transition between old and new growth drivers and boosting domestic demand. Economists expect a moderate economic recovery, although short-term disruptions such as fluctuating oil prices and extreme weather conditions may arise. Various data forecasts indicate the following trends: inflation (CPI and PPI) is declining year-on-year; consumer spending has slightly picked up, but there are structural issues with the supply of services; industrial production and investment growth have slowed down; the trade surplus remains high; financial data show a seasonal decline; and exchange rate expectations are stable.
I. Economic Confidence and Policy Direction: Policy Support for a Moderate Recovery
The August confidence index of 49.9 indicates a slight improvement from the previous month, although it has not crossed the 50 mark. Economists believe that the policy signals from the July Politburo meeting provide crucial support.
- Key Policies: Proactive fiscal measures (accelerating spending and issuing special bonds) and moderately loose monetary policies (maintaining liquidity without immediate interest rate cuts or reserve requirement ratio reductions). For example, the government is expected to speed up the use of bond funds, and there may be an increase in government bond issuance in August and September to drive project implementation. The monetary policy will coordinate with fiscal efforts to ensure that businesses and the government can easily access funds.
- Short-Term Disruptions: Fluctuating oil prices (due to tensions between the US and Iran) and extreme weather events (such as typhoons and heatwaves) may affect economic activities, but policies are in place to mitigate these impacts. Overall, the economy is expected to recover moderately without significant fluctuations.
II. Inflation Trends: Moderate Growth with No Inflation Pressure
The forecast for July's CPI is 0.7% (down from 1.0% the previous month), and PPI is 3.9% (down from 4.1%), indicating slower price increases.
- Reasons for Low Inflation: Consumer demand has not fully recovered, especially in the service sector where supply falls short of demand.
- Impact on Prices: Global trends such as declining prices of AI-related goods (e.g., chips) and reduced oil prices have lowered the cost of raw materials for businesses.
- Expert Analysis: Inflation is expected to decline further throughout the second half of the year, with limited impact on GDP and household incomes.
III. Consumption and Investment: Consumption Is Improving, but There Are Challenges; Investment Still Needs Boost
- Consumer Spending: Retail sales grew by 1.6% (up from 1.0% the previous month), but there is a mismatch in the supply of high-quality services.
- Challenges: There is a lack of high-quality elderly care and childcare services, while some low-quality, homogeneous services are over-supplied in rural areas. Experts suggest addressing these issues by:
- Increasing the number of elderly care and childcare facilities,
- Relaxing entry barriers for private capital in healthcare and education,
- Utilizing technology (e.g., smart shopping districts and AI-driven consumer services),
- Establishing standards for domestic service quality,
- Improving policies (e.g., introducing spring and autumn holidays and extending business hours in tourist areas).
- Investment: Fixed asset investment decreased by 5.9% year-on-year (down from -5.7% the previous month), with real estate being a major drag. Real estate developers are cautious about land acquisitions, focusing on high-quality sites in core cities. Sales have improved slightly, but their sustainability remains uncertain.
- Infrastructure: Policies are promoting increased fiscal spending, leading to higher asphalt production and cement shipments. However, overall investment growth remains weak.
IV. Foreign Trade and Finance: High Trade Surplus, Seasonal Decline in Financial Data
- Trade: The trade surplus is $112.5 billion, with China still maintaining a competitive edge in exports.
- Export Trends: Export growth slowed in July compared to June, but this is in line with expectations. Strong global economic recovery and the demand for new energy technologies (e.g., electric vehicles) are driving export performance. Import growth reflects an increase in imports of high-tech products.
- Finance: July was a quieter month for loans, with forecasted new lending at 130 billion yuan (down from 1.61 trillion yuan the previous month). Businesses and individuals are less inclined to borrow due to limited demand for new investments and lower appetite for home purchases.
- Social Financing: Total social financing amounted to 1.4 trillion yuan (down from 3.4 trillion yuan), mainly supported by government bond issuance. The M2 money supply grew by 7.9% (down from 8.0%), indicating a slight slowdown in market liquidity, but overall liquidity remains adequate.
V. Exchange Rate and Policy Outlook: Stable Exchange Rate, Focus on Boosting Domestic Demand
- Exchange Rate: The RMB exchanged at 6.7894 against the USD at the end of July, with expectations for stability (around 6.8) in August and a possible decline to 6.72 by the end of the year, reflecting confidence in the RMB.
- Policy Focus: The focus for the second half of the year is on boosting domestic demand. Measures include implementing the "15th Five-Year Plan" for expanding consumer spending (aiming for retail sales of 60 trillion yuan by 2030) and accelerating the issuance of special bonds and policy-based financial instruments (e.g., 800 billion yuan). There may be a reserve requirement ratio reduction, but more emphasis will be placed on using targeted structural tools to support specific industries.
In summary: Although the economy faces short-term challenges, clear policy support indicates a moderate recovery. The key is to address structural issues in service consumption and real estate investment to ensure a more robust economic recovery.