China Maps Out H2 Policy Priorities: Domestic Demand Key

China’s National Development and Reform Commission (NDRC) has outlined its macro policy priorities for the second half of 2026, placing greater efforts to expand domestic demand at the center of its economic agenda. The policy direction, detailed at a July 31 press conference, follows the Central Politburo meeting that called for increased counter-cyclical adjustment to support sustained growth, as reported by Xinhua.

Context: A Slowing but Resilient Economy

The policy push comes as China’s economy navigates a complex environment. H1 2026 GDP grew 4.7% year-on-year, within the annual target range of 4.5%-5%, but Q2 growth slowed to 4.3%, reflecting weakening consumption and investment momentum. The Central Politburo meeting on July 30 acknowledged “difficulties and challenges” in economic operations while noting the economy shows “new momentum and optimized structure,” according to China Daily.

Despite the slowdown, structural highlights emerged. Manufacturing value-added share of GDP rose to 26.2%, new energy vehicle retail penetration exceeded 60% for three consecutive months, and new growth drivers—including high-end manufacturing, digital economy, and modern services—contributed over 40% to economic growth.

Expanding Domestic Demand: The Core Priority

The NDRC is working with relevant departments to draft the Expansion of Domestic Demand Strategy Implementation Plan (2026-2030), which will guide demand expansion efforts over the next five years. Zhou Hongwei, Deputy Director of the NDRC Department of National Economy, outlined specific measures at the press conference.

On the consumption front, the strategy focuses on three pillars: implementing the employment-first strategy to boost resident incomes through vocational training; tapping service consumption potential by expanding quality supply across different consumer groups; and promoting smart product consumption by increasing supply of AI-enabled terminals such as smartphones, computers, smart wearables, and intelligent robots, as detailed by 21st Century Business Herald via Sina Finance.

Yuan Haixia, President of China Chengxin International Credit Rating Research Institute, noted that service consumption has been growing faster than goods consumption and remains a key growth pillar. “China’s service consumption share of household spending is still below developed economies,” she said, emphasizing the need to enrich consumption scenarios in cultural tourism, sports events, digital consumption, and green smart consumption.

Investment: The “Six Networks” and Fiscal Backbone

On investment, the NDRC will accelerate deployment of 800 billion yuan in new policy-based financial instruments during the Q3 construction season, alongside accelerating special bond issuance and usage. The 2026 new special bond quota stands at 4.4 trillion yuan, with approximately 2.3 trillion yuan expected to be issued in H2, according to Economic Information Daily.

A centerpiece of the investment strategy is the “Six Networks” infrastructure initiative—encompassing water networks, new power grids, computing power networks, new-generation communication networks, urban underground pipeline networks, and logistics networks. Total related investment in 2026 is estimated to exceed 7 trillion yuan, as reported by CCTV.

Luo Zhiheng, Chief Economist at Yuekai Securities, highlighted the multiplier effect of policy-based financial instruments: “They can both supplement capital for major projects and leverage bank loans and social capital follow-up, forming a strong investment multiplier effect and providing strong support for key infrastructure construction such as the ‘Six Networks.’”

During the “15th Five-Year Plan” period (2026-2030), the new power grid alone is expected to receive over 5 trillion yuan in investment, underground pipelines about 5 trillion yuan, and computing power networks 4 trillion yuan in new direct investment, according to Jiemian News.

Emerging Industries: From 6 Trillion to 10 Trillion

The NDRC is also prioritizing six emerging pillar industries: integrated circuits, aerospace, biomedicine, low-altitude economy, new energy storage, and intelligent robots. Combined output value was nearly 6 trillion yuan in 2025 and is expected to reach over 10 trillion yuan by 2030.

H1 2026 data shows strong momentum in these sectors. Integrated circuit production grew 23.1% year-on-year, with IC exports surging 88.7% and contributing nearly one-third of total export growth. Thirty-eight innovative drugs were approved, including 31 domestic ones, and approximately $100 billion in out-licensing deals were completed. Globally, 8 out of 10 humanoid and quadruped robots sold worldwide are made in China, as reported by CCTV.

Jiang Yi, Director of the NDRC Policy Research Office and Spokesperson, said the commission will “organize and implement large-scale application demonstration actions for new technologies, new products, and new scenarios,” supporting comprehensive major scenarios, industry-domain integrated scenarios, and high-value niche scenarios to accelerate the transformation of scientific and technological achievements into real productivity.

Analysis: What to Expect in Q3

Analysts see significant room for additional policy support in the coming months. Wang Qing, Chief Macro Analyst at Oriental Jincheng, expects a batch of pragmatic incremental policies around the end of Q3, including additional government bond issuance for consumption and investment support, as well as interest rate cuts and RRR cuts by the central bank.

Dong Ximiao, Chief Economist at China Merchants Union, noted that the Politburo meeting “released a clear signal that monetary policy will remain flexible, prudent, and discretionary,” with policy tools in a state of readiness. He expects RRR cuts and interest rate cuts in Q3, depending on domestic and international economic conditions, inflation levels, and financial market performance.

Fiscal-monetary coordination also has room to accelerate. H1 fiscal spending and local government special bond issuance ratio was approximately 47%, leaving significant capacity for H2 acceleration, as noted by Economic Information Daily.

What’s Next

The coming months will test whether these policy measures can reverse the Q2 slowdown and keep growth within the annual target range. Key indicators to watch include: the pace of special bond issuance and “Six Networks” project implementation in Q3; the rollout of the 2026-2030 domestic demand expansion plan; and any incremental fiscal and monetary policy announcements around the end of Q3.

The 20th CPC Central Committee’s 5th Plenary Session, scheduled for October, will also provide important signals on medium-term economic strategy. As China enters the first year of its “15th Five-Year Plan,” the balance between stabilizing near-term growth and advancing long-term structural transformation will remain the defining challenge for policymakers.