China is preparing to expand its financial support during the second half of the year, in an attempt to give the economy additional impetus in the face of weak domestic demand and slowing foreign investment flows. While Beijing is moving to increase household and consumption spending and expand loan interest subsidies, the bond market is showing signs that investors are betting strongly on continued support. This prompted the central bank to monitor the risks associated with the rush into long-term debt.
Chinese Deputy Finance Minister Liao Min said that the government will introduce additional financial measures according to the development of economic conditions, stressing the preservation of continuity and stability of macroeconomic policies, while planning and distributing financial resources over a longer time horizon.
Liao's statements carry special importance because they indicate a gradual shift in the direction of Chinese financial policy. Instead of relying heavily on infrastructure investment, the government intends to direct a larger share of spending towards households and consumption, in light of continued weak domestic demand.
The Ministry of Finance is also working with the People's Bank of China and regulatory authorities to prepare new financial and financing support measures for the second half of the year, although their size or details have not been revealed.
In a practical step, the Ministry of Finance announced the expansion of the loan interest subsidy program directed to small private companies and consumers. The program will cover one percentage point of interest on eligible loans to small businesses for up to two years, and will also be extended to credit card installment products, with maximum support limits raised.
This move reflects an attempt to reduce the actual cost of borrowing without necessarily resorting to a broad reduction in official interest rates. It is a mechanism that could give Beijing greater ability to direct support to specific sectors, rather than a broad liquidity injection that may lead to increased financial speculation or pressure on banks’ profit margins.
The move comes after a series of data that reinforced concerns about the strength of the Chinese economy. During the Politburo meeting in July, the party's leadership pledged to accelerate spending on infrastructure projects already included in the budget during the remainder of the year, rather than launching a new massive stimulus package.
Beijing targets a budget deficit equivalent to about 4 percent of gross domestic product in 2026, and has pledged to accelerate bond issuance to support economic activity.
But expansionary fiscal policy faces an important constraint: the indebtedness of local governments. Liao stressed that preventing local governments from generating new hidden debts must remain an "iron discipline", while gradually working to reduce financial risks in key areas.
This means that Beijing is trying to implement a precise equation: increase spending enough to support the economy, without reproducing the domestic borrowing model whose risks accumulated during the years of real estate expansion and intensive investment in infrastructure.
The bond market is betting on further support
Investors' expectations about the economy and monetary policy are clearly visible in the Chinese bond market. Long-term government bond prices have risen over the past month, with weak economic data leading investors to expect continued support. The 10-year government bond yield fell to 1.68 percent, Thursday, after recording during the week its lowest levels since July 2025, while the 30-year bond yield fell to 2.13 percent, the lowest since September 2025.
But the strength of this rise is beginning to attract the attention of the People's Bank of China. Sources said that the bank conducted a survey among investment funds regarding their holdings of long-term government bonds, especially for terms of 10 and 30 years.
Inquiries included the risk of mismatch between the maturity profiles of assets in the funds' portfolios, the return levels that managers deem appropriate, as well as recent market volatility.
The risk is that a large number of investors are taking the same position, which is to buy long-term bonds to benefit from expectations of lower returns. Hua Tai Securities analysts estimated that the average durations of portfolios of several categories of bond funds were close to their highest levels in five years.
Hence, any sudden change in monetary or fiscal policy expectations may prompt investors to take profits simultaneously; Which can lead to a rapid rise in returns and wide market volatility.
Foreign investment adds another challenge
The importance of stimulus increases in light of the continuing decline in foreign investment flows. Data from the Ministry of Commerce showed a decrease in foreign investment flowing into China by 6.2 percent during the first seven months of 2026 compared to the same period of the previous year, reaching 438.3 billion yuan, or about 65.2 billion dollars.
This decline places more responsibility on domestic demand as a source of growth, especially if foreign companies continue to adopt a more cautious approach towards new investments.
Overall developments indicate that China is not moving, so far, towards a comprehensive stimulus program similar to the huge packages it used in previous crises, but rather towards more targeted support that combines financial spending and reducing borrowing costs for specific sectors.
The success of this strategy remains linked to its ability to transfer money from the financial system to the real economy. High bond prices and low yields are not enough if families remain cautious in spending and companies are reluctant to invest. Therefore; The real test of Chinese stimulus over the coming months will be the extent to which it can revitalize consumption and private demand, without increasing the debt burden or creating new imbalances in financial markets.
US President Donald Trump announced an exceptional step to reduce beef prices in the United States, allowing the import of up to 300,000 tons of products used in the production of ground beef, without customs duties applied to imports that exceed quotas, for a period of 90 days.
The move reflects a direct attempt to increase supply in the American market and reduce prices, which have become a source of pressure on household budgets, at a time when the United States is facing a shrinking size of cow herds, while food prices remain a sensitive element in the battle to contain inflation.
Trump said in a post on the “Truth Social” platform that he had concluded an agreement aimed at “significantly reducing the price of ground beef for working American families,” explaining that during the next three months the United States will allow the specified quantity to be imported without fees outside the quota.
He added that there is a commitment to sell the meat included in the agreement at a price 25 percent lower than current market prices, believing that the measure will reduce the cost for consumers, and at the same time give American livestock producers space to rebuild their herds.
Economically, the step aims to address the supply problem from two aspects. On the one hand, temporarily eliminating duties reduces the cost of foreign meat entering the American market, which should increase competition and put pressure on wholesale and retail prices.
On the other hand, temporary reliance on imports can reduce pressure on the local herd, and give breeders time to rebuild livestock numbers. But the extent to which the decline is transmitted to the consumer will depend on factors beyond customs duties, including import, transportation and distribution prices, and the margins of meat processing companies and retailers, as well as countries that are able to provide the required quantities within a short period of time.
The amount of 300 thousand tons carries great importance, especially since it will enter within a window not exceeding 90 days. If imports flow quickly, the increased supply could lead to significant downward pressure on prices, especially in the ground meat market, which depends partly on mixing different types of meat to achieve the required proportions of fat.
On the other hand, opening the market to large quantities exempt from duties may raise concerns among some American livestock producers that domestic prices will be subject to pressure.
The Trump administration is trying to present the measure as temporary and designed to protect consumers during the herd rebuilding period, and not as a permanent shift toward increased dependence on imports.
The decision takes on a broader dimension in American economic policy, as it comes at a time when the Trump administration is widely using tariffs to achieve commercial and industrial goals. But the meat exemption makes clear that the administration is willing to ease trade barriers when tariffs become a factor that could make basic goods more expensive for American consumers. The decision also represents a test of the ability of trade policy to address inflation in specific sectors. Instead of relying exclusively on monetary policy and interest rates to control prices, the administration uses increased imported supply as a direct tool to target a commodity experiencing price pressures. If the goal of selling imported meat at prices 25 percent lower than current levels is achieved, the impact may extend to restaurants, food companies, and stores, relieving some of the pressure on food prices. However, the sustainability of this decline will remain dependent on the speed of recovery of cow production in the United States after the end of the exemption period.
Thus, Washington is betting on a short import window to buy time for the local livestock sector: increasing supply now to reduce prices, in exchange for giving breeders an opportunity to rebuild herds later. The test in the coming weeks will be how much of the cuts will actually reach the American consumer, and whether the 90-day period is sufficient to bring about a shift beyond the temporary drop in prices.
Japan is moving to introduce higher interest rates more clearly into its financial calculations; The Ministry of Finance is considering adopting a default interest rate of 3.8 percent to calculate debt service costs in budget requests for the next fiscal year, which is the highest level of this assumption in 29 years.
The move comes at a time when inflationary pressures are accelerating and expectations are increasing that the Bank of Japan will raise interest rates in September, putting fiscal and monetary policy to an unusual simultaneous test after decades of cheap money.
Two government sources said that the Ministry of Finance is considering raising the assumed interest rate to 3.8 percent, compared to 3 percent in the fiscal year 2026 budget. The proposed rate does not mean that the government necessarily expects the benchmark bond yield to reach this level immediately, but it is used to estimate the amount of money that should be allocated to debt service, and therefore raising it reflects official preparation for a more expensive borrowing environment.
The issue acquires exceptional sensitivity due to the huge Japanese public debt. Each sustained rise in yields gradually shifts to the debt service bill as new bonds are issued or maturing debt is refinanced, reducing the resources available to spend on growth, defense, social welfare, and other priorities.
These pressures were clearly evident in the bond market, where concern over Prime Minister Sanae Takaichi's expansionary fiscal policy and the path of interest rates pushed the 10-year Japanese government bond yield to 2.945 percent on Tuesday, the highest level in 3 decades.
The dilemma for the Takaichi government is that the high cost of borrowing comes as it seeks to expand investments in strategic sectors and growth engines. The higher the amounts allocated to debt service, the less room for maneuver the government has to implement these plans without increasing borrowing or searching for additional revenues.
At the same time, recent inflation data does not give the government much reason to be optimistic about rapidly falling yields; The core CPI rose 1.8 percent in July on an annual basis, compared to 1.6 percent in June, matching market expectations. Although it remained below the Bank of Japan's 2 percent target for the seventh month in a row, government support for fuel prices was one of the main reasons behind keeping it at these levels.
More importantly for the Bank of Japan, the index, which excludes fresh food and fuel and is used to more clearly measure the direction of core inflation, accelerated to 1.9 percent from 1.7 percent in June. Wage pressures have also begun to be transmitted more to service prices; Services inflation rose to 1.2 percent from 1.1 percent, an indication that price increases are no longer limited only to imported goods and energy.
This comes after wholesale price inflation jumped to 7.2 percent in July, driven in part by higher costs of raw materials and energy as a result of the US-Israeli war with Iran and the weakness of the yen. Economists believe that Japanese companies have become more willing than before to pass these costs on to consumers.
Masato Koike, chief economist at Sompo Institute Plus, told Reuters that core inflation is likely to accelerate again with renewed tension in the Middle East and the resulting rise in oil prices, in addition to pressures resulting from the weakness of the yen. Koike expects the Bank of Japan to raise interest rates in September.
After raising its key interest rate to 1 percent in June, the highest level in 31 years, the Bank of Japan left policy unchanged in July, but issued its strongest warnings yet about rising inflation risks. Expectations indicate that interest rates may be raised to 1.25 percent during the September 17-18 meeting.
The tightening cycle may not stop there; Informed sources indicated that the bank is studying the possibility of accelerating the pace of increases compared to the current pattern of approximately twice a year, if price pressures continue. This puts Japan in front of a complex economic cycle. High oil and a weak yen increase inflation, and inflation pushes the Bank of Japan to raise interest rates, while higher interest expectations raise government bond yields, thus increasing the cost of servicing one of the largest sovereign debt burdens in the world.
Taro Saito, an economist at the NLI Research Institute, believes that increases in food prices and daily needs may accelerate later in the year, expecting core inflation to exceed approximately 2 percent in the fall, and then exceed 3 percent by the end of the current fiscal year in March 2027.
For markets, raising the assumed budget interest rate to 3.8 percent represents an acknowledgment that the era of assuming ultra-low financing costs is rapidly retreating. The move may also increase scrutiny of any new government spending plans, because investors will look for evidence of Tokyo's ability to balance stimulating growth and maintaining the sustainability of public finances.
Thus, the Bank of Japan meeting in September, in parallel with the preparation of the next budget, becomes a major station for the Japanese economy. If inflation accelerates as analysts expect and the bank continues to raise interest rates, the Takaichi government will find itself facing a more difficult equation to finance its economic priorities at a time when the cost of debt is rising, without causing further anxiety in the bond market, or pushing yields to levels that make the financial burden heavier.
