ING: Three key factors to likely support mainland China’s economic growth target

China’s economic growth reached 5.3% in the first half of the year, beating market estimates. ING forecasts a slowdown in the second half due to base effects and the impact of tariffs. However, with initial consensus emerging from China–US trade negotiations, and tariffs proving less damaging to China's exports and industrial production than feared, China is expected to introduce further stimulus policies—making the annual growth target achievable. 

US and Chinese trade officials are set to hold a third round of negotiations in Sweden next week. In an exclusive interview, Lynn Song, Chief Economist, Greater China at ING, said “The fact that China and the US are beginning tariff discussions is already a relatively optimistic development, but reaching a more substantial trade agreement will still be quite challenging.” 

Lynn said that from the Trump administration’s perspective, fair trade means China’s trade surplus with the US should be close to zero. But since China is the world’s largest exporter and the US is the largest importer, it is difficult to reduce the surplus through such negotiations—especially when the US has not fully lifted its restrictions on high-tech exports to China. Even though the US stance on chips seems to have slightly shifted recently, semiconductors remain a major hurdle, given the competitive relationship between the two countries and the fact that this is one of the most important future industries. A further easing of US control may prove difficult. 

ING’s baseline scenario assumes tariffs will stay close to current levels and negotiations will continue. Unless China and the US reach a more significant agreement, such as on fentanyl or the sale of TikTok, a clear drop in tariffs seems unlikely. “The current unfavorable situation is that the Trump administration tends to propose new tariff directions every few weeks. Deep down, they still believe tariffs are good for the US economy, so there is a risk tariffs may climb again,” Lynn said. 

ING expects tariffs to drag China’s GDP by about 0.6% this year and forecasts full-year economic growth at 4.7%. 

As China shifts toward strengthening trade relations with ASEAN countries, the move can only offset a portion of the losses incurred from reduced US engagement. In response, the central government has intensified support for domestic demand. According to Lynn, under the influence of tariffs, certain products have been redirected from the US to other markets and domestic sales—undoubtedly heightening price competition among Chinese enterprises.  

Currently, while overall consumer demand and new investments have picked up, they remain relatively weak, difficult to drive inflation. Deflation is expected to ease next year, but returning to a healthier inflation level of around 2% will take time. Signs such as asset price stabilization and a rebound in consumer confidence will be crucial. 

Lynn noted that real estate is especially critical for rebuilding confidence, as it still represents about 60% to 70% of household balance sheets. Although the property market has shown a positive sign, it has yet to reach a stable footing. Home prices in tier-1 cities are likely to gradually stabilize and rise this year. Still, the broader challenges remain unresolved. He expressed hope that the central government will continue supporting the "white list" initiative and accelerate land reserve purchases as local fiscal conditions improve. The broader environment is characterized by cost-control measures, including salary reductions and layoffs, which have dampened public confidence in future income growth. 

Lynn stated that boosting domestic demand marks an important turning point in China’s economic transformation. Trade-in programs and equipment upgrades remain key strategies. Even if their effect diminishes over time, they can still support short-term consumption as medium- and long-term issues are gradually addressed.  

Lynn anticipates that following interest rate cuts by the Federal Reserve, the People’s Bank of China may reduce rates by 10–20 basis points and lower the reserve requirement ratio by 50 basis points in the fourth quarter. He estimates the USD/RMB exchange rate will fluctuate within the 7.0 to 7.4 range by year-end. 

• ING forecasts full-year economic growth of 4.7%. Yet, with preliminary consensus emerging from China-US trade talks, and the impact of tariffs on Chinese exports and industrial production proving less severe than market pessimism suggests, China is expected to introduce further stimulus measures, making the annual growth target achievable. 

• Reaching a major trade agreement between China and the US remains difficult. The baseline scenario is that tariffs will stay around current levels while negotiations continue, with little chance of a significant reduction. 

• Overall consumer demand and new investment have picked up but remain relatively weak. Deflation is expected to ease starting next year, though returning to a healthier inflation level of around 2% will take time. 

• Boosting domestic demand marks a crucial turning point in China’s economic transformation. Initiatives like trade-in programs and equipment upgrades continue to be key areas of focus. 

• Following anticipated rate cuts by the Federal Reserve, the People’s Bank of China may also lower interest rates by 10 to 20 basis points and reduce the reserve requirement ratio by 50 basis points in the fourth quarter. 

Originally published in Hong Kong Economic Times: Opens in a new tabhttps://invest.hket.com/article/3983683/