China’s economic headwinds justify further policy stimulus. Yet, the politburo (China’s top decision-making body) meeting held in late July has poured cold water on the extent of potential stimulus, suggesting a “bazooka” type of stimulus, of a level comparable to previous cycles, is not forthcoming.

China Credit Impulse Index
Level, 2005-present

China credit impulse index from 2005 to present

Bloomberg, Principal Global Investors. Data as of June 30, 2022. The China Credit Impulse Index measures the credit cycle in a market. A rising level indicates the economy is recovering.

COVID related lockdowns ravaged the Chinese economy earlier this year, and markets have been eagerly waiting for China’s policymakers to introduce new stimulus measures to support a recovery. While the recent rate cut, despite growing inflation worries, confirms that the People’s Bank of China is concerned about the growth outlook and recognizes the need for stimulus, government action suggests less urgency on their part—at least for now.

China’s policymakers had been quite active during Q2, including re-filling government buffers to fund infrastructure investment and tax cuts. Nonetheless, weak Q2 growth, uncomfortably high unemployment, and disappointing July retail sales and industrial production data suggest that such moves are still inadequate.

And yet, the recent politburo (China’s top decision-making body) meeting indicated that the government, rather than introducing new measures to combat economic weakness, has instead moved its focus towards implementing existing stimulus policies.

Existing stimulus could keep economic activity afloat in Q3. But the waning fiscal impulse implies that, without additional stimulus measures, the economic recovery could be derailed in Q4. As that becomes apparent, the government is likely to review its decision.

Investors may be disappointed that a “bazooka” type of stimulus, of a level comparable to previous cycles, is not forthcoming. Yet, China’s monetary and fiscal policies are still tilted to the dovish side, putting China on a favorable policy path compared to most of its global peers.


Wall Street Journal Custom Content is a unit of The Wall Street Journal advertising department. The Wall Street Journal news organization was not involved in the creation of this content.

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results and should not be relied upon to make an investment decision.

The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice.

Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.

For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use only in other permitted jurisdictions as defined by local laws and regulations.

Principal®, Principal Financial Group®, and Principal and the logomark design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and services marks of Principal Financial Services, Inc., in various countries around the world.

Principal Global Investors leads global asset management at Principal.®