(Yicai) July 30 -- "Overall, China’s economy is currently showing strong momentum on the supply side, but demand has not yet fully caught up. If external demand and fiscal projects continue to absorb output in the second half, the economy is likely to achieve moderate stabilization," according to the chief China economist at US investment bank JPMorgan Chase.

"China’s economic trajectory in the second half is expected to be a controlled recovery,” Zhu Feng said at a macroeconomic outlook conference on July 28. "To meet the country’s annual growth target, the key lies in accelerating the implementation of fiscal policies and introducing additional fiscal measures when necessary. At the same time, it is crucial to better convert policy resources into job creation and income growth for households, thereby boosting consumption and private investment.”

Zhu expects China’s economic momentum to improve in the second half from the second quarter, driven mainly by policy support, particularly the faster rollout of proactive fiscal measures. At the same time, resilient external demand and continued support from high-tech and advanced manufacturing sectors will remain important growth drivers.

"The core imbalance in China’s economy today is that supply remains resilient but demand is still insufficient," Zhu told Yicai.

K-Shaped Recovery

China's economic growth is likely to continue experiencing a "K-shaped recovery" in the second half, Zhu said. On one hand, emerging growth drivers remain strong. The rise of the smart economy, led by artificial intelligence, continues to drive related investment and support growth in high-tech manufacturing, while some export sectors remain resilient.

On the other hand, the recovery of traditional growth drivers and domestic demand will take some time, with the property sector, private investment and demand for durable goods still relatively weak, he said.

Zhu identified three major challenges to China's macroeconomic outlook in the second half.

First, the adjustment in the real estate sector has not yet concluded. Second, consumer demand is showing clear structural divergence. Third, while external demand remains an important source of support, uncertainty surrounding it has significantly increased.

Fiscal Response

Regarding fiscal policy, Zhu said, “Policies should not only accelerate implementation but also be prepared to expand when necessary.”

Although the issuance of special-purpose local government bonds accelerated in June, fiscal spending remained relatively slow in the second quarter, leaving government deposits at relatively high levels. This suggests there is still room in the second half for the faster deployment of fiscal funds and bond issuance. The key challenge is how to convert funds into concrete projects, orders and employment opportunities.

If economic momentum remains weak in the third quarter, additional fiscal measures may be needed to provide targeted support for small and medium-sized enterprises as well as private businesses, helping to stabilize employment, improve income expectations and ease pressure on people's livelihoods.

Liquidity Support

As for monetary policy, Zhu said it should work in coordination with fiscal policy to maintain adequate liquidity.

To address the pressures caused by the K-shaped recovery, Zhu recommends accelerating the development of service consumption. The service sector, as a labor-intensive part of the economy, can absorb workers displaced from traditional industries while also supporting supply-side optimization and industrial upgrading.

During the economic transition period, it is essential to provide stronger social support for residents and leave sufficient room for businesses to adjust and grow. Specifically, fiscal and monetary policies should provide more targeted support to small and micro enterprises, particularly private businesses, to boost confidence among market participants.

At the same time, resources should focus on improving social welfare areas such as social security, healthcare, elderly care and childcare, in order to rebuild household consumption confidence and unlock the potential of domestic demand.

Editor: Kim Taylor