This report details the latest signals from 22V’s proprietary China Economic Sentiment Series (CHESS) tool. CHESS uses ChatGPT to assess the sentiment of analysts commenting in China’s domestic financial media, providing a snapshot of evolving views towards the economic and financial outlook.
SUMMARY
- Analyst expectations for stimulus have declined to neutral ahead of the upcoming July Politburo meeting; this aligns with 22V’s view that Beijing will only announce new support measures after a further decline in growth momentum.
- Sentiment towards the economic outlook and towards the equity market are slightly above neutral; we would not necessarily fight the recent rally in Chinese equities, given relatively low valuations, but would note the macro backdrop remains subdued.
- Sentiment towards consumption has dipped on uncertainty over Beijing’s trade-in program and softness in the labor market.
Stimulus Expectations Decline Ahead of Politburo Meeting
China’s 24-member Politburo decision-making body will meet by the end of the month to discuss economic policies for the second half of 2025. While our forthcoming preview note will provide details, we expect little in the way of concrete stimulus measures to come out of the meeting. A key factor is the strong headline GDP growth numbers for Q2, which came in at 5.2% year-over-year. Those figures mask a significant slowdown in sequential growth, which will continue through Q3. We expect Beijing to announce a modest stimulus boost only in early Q4, once the growth slowdown becomes evident in year-over-year numbers and forces policymakers to act.
CHESS signals align with that view. Analyst sentiment towards current economic conditions (orange line below) has picked up since mid-June. While we expect this momentum to fade, at present analysts perceive that Beijing is under little pressure to announce new support measures: Stimulus expectations (blue line) have declined and now stand near neutral. The silver lining of subdued analyst sentiment is that it reduces the risk of major market disappointment if the Politburo is lackluster, as we expect.
Neutral Sentiment Towards Growth and Equities
Volatility in US-China trade tensions since early April has sent sentiment towards the macroeconomic outlook (orange line below) and the equity market (blue line below) on a wild ride. Both series have picked up since the US-China tariff truce in mid-June, and are now slightly positive.
What does this imply for Chinese equities, which are up 16% since their bottom in early April? We would not necessarily fight the rally, which has been driven in part by reduced tail risks for US-China trade. Still, it is important to note that the overall growth backdrop remains muted: domestic demand is subdued, property activity is undergoing a “double dip,” deflationary pressures continue, and policy support is unlikely to gear up soon.
Export Sentiment Stabilizes, While Consumption Sentiment Dips
Analyst sentiment towards China’s exports (blue line) and geopolitical risks (orange line) have swung to neutral in the last month, following the truce on rare earths in London. A likely Trump-Xi meeting later this fall is an important watchpoint but we see major tariff relief as quite unlikely. Export growth is likely to slow in the second half as the front-loading of export orders fades and as transshipment of Chinese exports to the US through third markets comes under greater scrutiny from Washington.
The headwinds for the external sector highlight the importance of the outlook for domestic consumption, a relative bright spot this year. While consumption sentiment (blue line below) remains positive, it has faded a bit since the spring. One reason is the uncertain funding outlook for the trade-in program in the second half. Another reason is the weakness of the labor market, which analyst sentiment (orange line below) probably understates. Such caution is appropriate, as we do not expect policy support to be strong enough to lift retail sales back to the growth levels of earlier this year.
CHESS is a collaborative project, leveraging the expertise of Sophia Wang, 22V’s Director of Quantitative Research, and China-based economic consultant Dr. Fei Han. The authors express thanks for contributions and insights.
