With weak domestic demand still weighing on growth, China is likely to intensify policy efforts to boost investment and consumption in the coming months, economists said ahead of a highly anticipated mid-year meeting that will set the economic agenda for the remainder of the year.
The meeting, traditionally convened in late July, comes after a mixed first-half performance in which the economy grew 4.7 percent year-on-year — within the government's full-year target range of 4.5 to 5 percent — but lost momentum in the second quarter, slipping to 4.3 percent growth.
The economy has exhibited a pronounced K-shaped divergence as high-tech manufacturing and artificial intelligence-driven exports have outperformed, while consumption, real estate and traditional industries have lagged, said Robin Xing, chief China economist at Morgan Stanley.
While AI and high-tech sectors have been bright spots, Xing cautioned that their current scale "remains insufficient to fully offset the contraction in traditional industries".
The slowdown from 5 percent in the first quarter, the weakest quarterly reading since late 2022, has underscored the urgency of reviving domestic demand, analysts said.
"Based on keeping above a 4.5 percent perspective, second-half GDP growth only needs to be around 4.3 percent," a report from Guosheng Securities said, suggesting that broad-based stimulus is unlikely.
Instead, the focus will be on "making good use of existing policies" while preparing new measures as needed, the institution added.
On the investment front, the government is accelerating the "six networks" infrastructure, covering water, power, computing, next-generation communications, urban pipelines and logistics, with spending estimated to exceed 7 trillion yuan ($1.03 trillion) this year.
According to Ming Ming, chief economist at CITIC Securities, the plan is expected to be a "key driver of infrastructure investment recovery in the second half".
"With funding support strengthening and major projects accelerating, infrastructure investment is expected to stabilize and rebound in the second half, gradually bringing fixed-asset investment back to positive growth," Ming said.
Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International, also expected infrastructure investment to return to positive growth in the second half, reaching around 3 percent for the full year.
To this end, authorities are expected to speed up the use of ultra-long special treasury bonds, local government special-purpose bonds and central budget investment, while coordinating the rapid deployment of 800 billion yuan in policy-based financial instruments to ensure investment projects translate into tangible economic activity as soon as possible, according to a research note from Huatai Securities.
In addition to shoring up investment, Citi forecasts that China will also step up efforts to bolster consumption, with additional policy measures likely in the third and fourth quarters.
"Policymakers are likely to focus on raising household incomes and repairing household balance sheets to boost consumption," said Yu Xiangrong, chief China economist at Citi.
The State Council's recently approved plan to expand consumption during the 15th Five-Year Plan period (2026-30), China's first-ever national-level consumption plan, places "improving service consumption quality and delivering benefits to the people" at the top of its priority list. The plan targets 60 trillion yuan in total retail sales of consumer goods by 2030.
Key measures for the second half include implementing the "urban and rural household income growth plan" through raising minimum wages, expanding individual income tax deductions, and increasing pensions and healthcare, said Wen Bin, chief economist at China Minsheng Bank.
The deeper logic is "expanding domestic demand through improving people's livelihoods" — reducing households' future worries through better public services, stabilizing income expectations through steady employment and business confidence, and enhancing long-term spending capacity through investment in human capital, Wen added.