Li Qiang seeks economic advice as China GDP growth slows to 4.5%

Li Qiang chaired a symposium with economists and business leaders on July 13, a high-level consultation that points to potential stimulus as China's economy likely expanded 4.5% in the second quarter, the slowest pace since early 2023. The meeting, reported by state broadcaster CCTV, included both academic economists and corporate executives, a format Beijing has historically used before announcing major policy shifts.

"While exports have continued to support headline activity, softer domestic demand has prevented meaningful improvements in employment and corporate profitability," Goldman Sachs analysts said in a note. The firm expects Beijing to rely primarily on fiscal measures to stabilize growth.

The economy likely grew 4.5% year-on-year in the April-June period, according to a Reuters poll of 54 economists, down from 5% in the first quarter and below the 4.7% forecast in April. On a quarterly basis, GDP growth moderated to 0.9% from 1.3%. The data, due July 15, will be accompanied by June readings on retail sales, industrial production and fixed-asset investment.

The slowdown raises the stakes for Beijing's policy response. China has set a 2026 fiscal deficit target of around 4% of GDP and plans significant bond issuance, but the People's Bank of China has kept its seven-day reverse repo rate unchanged since May 2025. Economists expect the reserve requirement ratio to remain steady until a possible 20-basis-point cut in the fourth quarter, suggesting monetary easing will lag fiscal support.

Cross-Asset Impact Mounts

For global investors, the implications extend beyond Chinese equities. A slowdown in the world's second-largest economy weighs on commodity demand — iron ore prices have declined 12% from their April peak on the Dalian Commodity Exchange, while copper on the London Metal Exchange has retreated 8% over the same period. The offshore yuan (CNH) has weakened past the 7.25-per-dollar level, reflecting expectations of further monetary easing. The CSI 300 index has fallen 3.5% in the past month as growth concerns mount. China's central bank, meanwhile, extended its gold purchases for a 20th consecutive month in June, raising holdings to 75.44 million fine troy ounces, a sign of continued reserve diversification.

Historical Precedent and Forward Path

The last time China's quarterly GDP growth dipped to 4.5% was in the first quarter of 2023, when the economy was emerging from Covid-era restrictions. In the subsequent quarter, Beijing responded with a series of targeted rate cuts and accelerated fiscal spending that helped lift growth back above 5% by year-end. The current environment differs: the property sector remains in a prolonged downturn, with new home prices in 70 cities declining for a 14th consecutive month. Consumer inflation is running at just 1.2% — well below the government's 2% target — and deflationary pressures persist in producer prices.

Capital Economics expects stronger fiscal spending to improve growth in the second half, though persistent domestic overcapacity means the economy will remain heavily dependent on exports. For the full year, China's economy is expected to expand 4.6% in 2026, slowing from 5% in 2025, before easing further to 4.4% in 2027, according to the Reuters survey. The question for markets is whether Beijing's response will be aggressive enough to close the gap with its annual target. Investors will watch the Politburo meeting expected later this month for concrete policy announcements.

This article is for informational purposes only and does not constitute investment advice.