Overview
China’s economy is projected to lose steam during the next six to nine months, with weak credit demand, a sustained property-sector downturn and cooling export support offsetting faster fiscal spending, according to BCA Research. Economic activity slowed notably in the second quarter as investment and domestic demand softened, the research house says.
Policy stance - fiscal over broad stimulus
Officials are expected to focus on accelerating measures that have already been authorised rather than unveiling a sweeping stimulus package at the Politburo meeting scheduled for late July. By the end of June, only 43% of China’s 11.9 trillion yuan government bond quota had been deployed, leaving roughly 6.8 trillion yuan available for use in the second half of the year. In addition, about 800 billion yuan in policy-based financing is earmarked to support spending on AI infrastructure, advanced manufacturing and power grids.
Local finances and property sector constraints
Local government finances present a material constraint on near-term spending plans. Land-sale revenue fell nearly 30% in the first five months of 2026, increasing the probability that local expenditure will undershoot budgeted levels. The property sector is expected to remain a drag on investment through 2026. Although prices have stabilised in several major cities, nationwide recovery prospects are limited by high inventories, strained developer balance sheets and subdued household income expectations.
Monetary policy and credit dynamics
Monetary policy is likely to remain on hold, with no further interest-rate or reserve-requirement cuts anticipated this year. BCA Research notes that weak credit growth reflects constrained borrowing demand rather than a lack of liquidity. At the same time, record-low bank margins constrain the central bank’s latitude to pursue rate cuts.
External-demand contribution
Exports are expected to continue providing support to growth, but their contribution is likely to wane as global manufacturing orders slow and tariffs on Chinese electric vehicles, batteries and other strategic goods increase.
AI and technology investment
One bright spot highlighted by BCA Research is improving AI capability in China. Moonshot AI’s Kimi K3 model reportedly ranks third globally, and leading Chinese models are priced 40% to 70% below comparable U.S. products. Lower inference costs could bolster cloud providers and AI applications, though they may compress margins for model developers.
Market positioning and FX outlook
The research house retains an overweight stance on A-shares within emerging-market and global portfolios over a six- to 12-month horizon, while cautioning against adding exposure at current valuations. Offshore Chinese equities are viewed as neutral. BCA Research expects USD/CNY to trade in a band between 6.70 and 6.85 through year-end.
Conclusion
Overall, BCA Research anticipates a cooling of China’s economic momentum in the second half of the year as structural and demand-side weaknesses - particularly in credit and property - offset targeted fiscal acceleration. Policy action is expected to be incremental and focused on already-authorised measures rather than a broad-based stimulus push.