Saving China's Economy: A Six-Point Policy Blueprint for Stability

Despite a seemingly robust performance in the first half of 2025, with GDP growth reaching 5.3%, the Chinese economy continues to grapple with significant internal and external challenges. Lian Ping, a prominent economist and director of the China Chief Economist Forum, has unveiled a comprehensive six-point policy blueprint aimed at safeguarding the nation's economic stability and preventing a potential "landslide" decline. His recommendations call for intensified intervention from Beijing, particularly in the fourth quarter, to navigate upcoming uncertainties and ensure sustained growth.

China's Economic Landscape: Navigating Challenges

While the initial half of 2025 showcased resilience in China's economy, registering an average year-on-year GDP growth of 5.3% and bringing total GDP to approximately 66.05 trillion yuan (US$9.24 trillion), underlying fragilities persist. This performance, which has prompted the World Bank to revise its 2025 growth forecast for China upward to 4.8%, masks deep-seated issues that threaten long-term stability.

External Pressures: Global Disturbances

Lian Ping underscores the inevitability of mounting global economic recovery pressures. He points to a projected rebound in tariff-driven inflation in the US, anticipating further rate cuts from the Federal Reserve. Furthermore, ongoing Sino-US tariff negotiations, geopolitical conflicts in Eastern Europe and the Middle East, and the unpredictable frequency of the Fed's interest rate adjustments all contribute to a volatile global environment. These factors, as Lian highlights, could collectively disrupt international capital flows, currency exchange rates, and the foreign trade landscape, subsequently imposing structural strains on the Chinese economy.

Domestic Vulnerabilities: Core Issues

Domestically, China faces several critical weaknesses that predate external uncertainties. These include a protracted property market slump, decelerating credit growth driven by subdued domestic demand, and persistent deflationary pressures stemming from industrial overcapacity.

Property Market Downturn

The real estate sector remains a significant concern. Commercial housing sales experienced an 11% year-on-year decline in August, marking an exacerbated contraction compared to July. Real estate investment also fell by 12.9% from January to August, a rate of decline not observed since early 2020. This sustained weakness in the property sector places considerable pressure on overall fixed asset investment.

Tepid Credit Expansion

Weak demand for financing from China's real economy has led to sluggish credit growth. Central bank data reveals a 50 billion yuan (US$7 billion) fall in China's loan balance in July, the first such decline since 2005. August saw new lending at a mere 590 billion yuan, falling below the previous year's low baseline. Cumulatively, new lending from January to August was 1.34 trillion yuan, the lowest for this period since the COVID-19 pandemic began. Chinese households, in particular, continue to deleverage, with new short-term loans decreasing by 372.5 billion yuan year-on-year during the same period.

Deflationary Concerns and Overcapacity

Unlike many global economies battling inflation, China confronts ongoing deflationary pressure. Lian attributes this to both weak domestic demand and industrial overcapacity. While core CPI saw a slight recovery in August, overall CPI fell to -0.4% year-on-year. Producer Price Index (PPI) growth was -2.9%, underscoring the imbalance between oversupply in certain industries and insufficient market demand.

Lian Ping's Six-Point Blueprint for Economic Stability

To counteract these multifaceted challenges and avert a "landslide" economic decline, Lian Ping proposes a detailed six-point policy agenda, advocating for robust fiscal measures, targeted monetary easing, capital market support, real estate sector reforms, enhanced consumption stimulus, and focused aid for the export industry.

1. Proactive Fiscal Resource Deployment

Lian calls for the swift and large-scale advance allocation of the following year's government investment and financing quotas. Specifically, he recommends deploying 1.5 to 2 trillion yuan (US$280.9 billion) in the fourth quarter of the current year. He also urges accelerated issuance and deployment of local government bonds, normal government bonds, and ultra-long-term special government bonds to rapidly expand domestic demand. For 2026, he advocates increasing the new local special-purpose bond quota to at least 4.5 trillion yuan (US$632.07 billion).

2. Fourth Quarter Monetary Policy Loosening

Lian suggests that the People's Bank of China (PBOC) expand its counter-cyclical adjustments by implementing a 0.5 percentage point cut to the required reserve ratio (RRR) and a 0.2 percentage point cut to the policy interest rate in the fourth quarter. An RRR cut could release up to one trillion yuan in liquidity, supporting government bond issuance. A policy rate cut would reduce commercial lenders' funding costs and encourage credit growth to stimulate consumption and investment. Additionally, he proposes 0.2 to 0.5 percentage point cuts to rates for special re-loans, directing funds to small businesses, agriculture, technological innovation, services, and aged care. Lian also recommends the PBOC resume government bond purchases, injecting 500 billion to one trillion yuan directly into the market.

3. Bolstering Capital Markets

Recognizing the central bank's previous 800 billion yuan support for capital markets, Lian argues for reducing the rates for existing support instruments, which target share buybacks and purchases by key shareholders, from 1.75% to 1.5% or less. He also advocates loosening requirements for financial institutions extending these loans. Furthermore, Lian calls for state-owned investors, particularly sovereign fund Central Huijin, to expand their role as "stabilization funds" for the stock market. He suggests allowing Central Huijin to enlarge its balance sheet, with the PBOC providing backup liquidity support via special structured financial instruments.

4. Revitalizing the Real Estate Sector

To revive the property market, Lian proposes targeted home loan rate reductions and increased lending from commercial banks to developers. He recommends a 25 basis point cut to long-term housing provident fund loan rates and allowing commercial banks in major cities to reduce the premium on second home mortgages by about 0.2 percentage points. Fiscal measures include moderate cuts to taxes and fees for affordable rental housing, as well as stamp duties and personal income taxes for larger residential properties. To diversify developer financing, Lian supports accelerating the growth of real estate investment trusts (REITs) and encourages large national real estate companies with risk issues to utilize non-bank financing channels.

5. Intensifying Domestic Consumption Support

Central to boosting consumption is the expansion of the "old-for-new" consumer subsidy campaign. Lian suggests increasing the quota by 100 billion yuan (US$14 billion) and broadening the scheme's scope to include fitness and cultural equipment, all home appliances, digital goods, high-end jewelry, luxury watches, and motorcycles. To complement this, he advocates for banks to offer low-interest and zero-deposit consumer loans. Local governments, supported by central government transfer payments, should also issue more consumer vouchers during holidays and themed campaigns.

6. Transitional Aid for the Export Sector

Acknowledging the uncertainties posed by the US trade war, Lian emphasizes the need for intensified government support for China's export sector during its transition. He proposes establishing specialized emergency funds for export-oriented businesses in major coastal provinces, providing low-interest loans to struggling enterprises, and implementing fiscal subsidies to ensure worker payments and business continuity. Additionally, Beijing should encourage Chinese banks to adopt "trade stabilization policies" to facilitate easier credit access for export-related firms.