China's Premier Li Qiang is calling for stronger economic support measures as fresh data is expected to show the world's second-largest economy losing steam. According to state broadcaster CCTV, Li urged officials to 'step up counter-cyclical adjustment' — a term that means deploying policy tools to smooth out the ups and downs of the economic cycle.
The move comes as analysts forecast that China's gross domestic product (GDP) growth slowed to 4.5% in the April-to-June quarter, down from 5% in the first three months of the year. That would put the economy on a weaker trajectory than Beijing's official annual growth target of around 5%.
What Is Counter-Cyclical Adjustment?
Counter-cyclical adjustment is a phrase often used by Chinese policymakers to describe measures that run against the prevailing economic trend. When growth is slowing, it typically means more government spending, lower interest rates, or easier lending conditions to stimulate activity. When the economy is overheating, the opposite — tightening — would apply.
In practice, this could translate into faster infrastructure spending, additional cuts to banks' reserve requirements (the amount of cash they must hold in reserve), or further reductions in benchmark lending rates. China has already taken several steps this year to support the economy, including a cut to the five-year loan prime rate, which influences mortgage costs, and increased fiscal spending on manufacturing and technology.
Why Growth Is Cooling
The expected slowdown reflects a mix of persistent headwinds. The property sector, once a key driver of growth, remains in a prolonged slump despite repeated government efforts to stabilize it. Consumer confidence has been weak, with households cautious about spending amid a sluggish job market and falling home prices. Exports, which had been a bright spot, are also facing uncertainty as trade tensions with the US and Europe escalate.
China's economy grew 5.3% in the first quarter of 2024, beating expectations, but that momentum appears to have faded. The second-quarter slowdown would bring the first-half average to around 4.75%, still below the full-year target. That gap is likely why Li is now pushing for more aggressive action.
Investors have already been pricing in a weaker outlook. Chinese stocks recently hit three-month lows, as profit-taking hit AI and defense shares, reflecting broader concerns about the economy's trajectory.
What It Means for Investors
For everyday investors, the key takeaway is that Chinese authorities are signaling they will do more to support growth. That could provide a floor under asset prices in the near term, especially for Chinese equities and the yuan. However, the effectiveness of past stimulus measures has been mixed, and markets may need to see concrete action — not just words — before they turn more bullish.
Investors with exposure to Chinese stocks or exchange-traded funds (ETFs) should watch for announcements on fiscal spending, interest rate moves, or property sector support in the coming weeks. The upcoming release of China's GDP and trade data will be a critical test, as it will show whether the economy is stabilizing or deteriorating further.
Commodity markets could also be affected. China is the world's largest consumer of many raw materials, from copper to oil. If stimulus measures succeed in boosting industrial activity, demand for these commodities could rise, potentially lifting prices. Conversely, if growth continues to disappoint, commodity prices may face headwinds. Rubber prices, for instance, have already been influenced by China's tire demand.
Geopolitical risks add another layer of uncertainty. Tensions in the Middle East have recently rattled Chinese stocks, and any escalation could complicate the economic outlook.
The Bigger Picture
China's growth slowdown is not just a domestic issue — it has global implications. A weaker Chinese economy means less demand for exports from other countries, particularly in Asia and Europe. It also affects multinational companies that rely on China for sales or supply chains. For example, companies like Create SD have reported profit growth, but broader demand trends remain uncertain.
At the same time, China's policy response could influence global interest rates and capital flows. If Beijing eases aggressively, it might put downward pressure on the yuan, which could in turn affect currencies in emerging markets and even the dollar.
For now, the message from Premier Li is clear: Beijing is aware of the risks and is prepared to act. Whether those actions will be enough to revive growth remains the big question for investors watching the world's second-largest economy.
