WHAT 'targeted' Means.
a BASE-RATE ANALYSIS OF STIMULUS DELIVERY

China's policy language shifted in 2024 from aggregate stimulus to targeted transmission. The shift matters because it changes the investable thesis entirely. Aggregate stimulus is a broad reflationary trade: buy everything exposed to Chinese domestic demand. Targeted stimulus is a sector-selection exercise: identify the specific channels through which policy reaches the real economy and position there, while avoiding sectors where the policy signal is absent or actively negative.

The targeted framing has three components: targeted credit (specific sectors and borrowers get enhanced credit access, others face tightened conditions); targeted fiscal (central and local government spending concentrated in strategic industrial capacity rather than broad social spending); and targeted regulatory relief (selected sectors get eased rules, others remain under structural regulatory pressure).

For the 2024 to 2026 period, the targeted sectors have been clearly identified: electric vehicles and the battery supply chain, semiconductor fabrication and equipment, advanced manufacturing more broadly, green energy infrastructure, and digital infrastructure including AI-related data centres. The sectors outside the targeting perimeter are equally clear: property and construction remain in managed decline, platform technology companies face continued regulatory constraint, and financial services operate under enhanced capital and conduct rules.

The People's Bank of China cut the loan prime rate four times between mid-2024 and end-2025, bringing the one-year LPR to 3.10 percent. The PBOC also deployed a range of structural monetary policy tools: the pledged supplemental lending facility (PSL), the relending facility for technology and green sectors, and targeted reserve requirement ratio cuts for small and medium enterprise lenders.

The credit data tells a mixed story. Aggregate credit growth, as measured by total social financing, remained subdued relative to historical norms. But within that aggregate, lending to the manufacturing sector, green energy and technology accelerated. Lending to the property sector, which had accounted for 25 to 30 percent of all bank credit at the peak in 2020, continued its structural contraction.

The transmission problem is that the sectors receiving targeted credit are capital-efficient and do not require the same volume of bank lending to generate economic activity as the property sector did. A manufacturing plant requires credit once, at construction, then generates revenue from operations. A property development required continuous credit to fund land acquisition, construction and buyer mortgages. The bank lending multiplier on targeted manufacturing credit is simply lower than on property.

The fiscal component of targeted stimulus has been concentrated in three areas: the equipment renewal subsidy programme (trade-in programmes for industrial equipment, consumer electronics and vehicles); special purpose bonds for local government infrastructure projects that meet strategic criteria; and central government direct investment in semiconductor fabs, EV infrastructure and digital backbone.

The equipment renewal programme, launched in early 2024, generated measurable demand acceleration in industrial equipment, agricultural machinery and vehicle sales through mid-2025. The desk estimates it contributed 0.3 to 0.5 percentage points to GDP growth in 2024, with diminishing impact as the programme was gradually wound down.

Local government special purpose bonds remain constrained by the broader LGV (local government vehicle) debt restructuring that has absorbed significant fiscal capacity. The central government's enhanced oversight of bond issuance, while necessary for fiscal sustainability, has created a bottleneck in infrastructure investment at the local level that targeted stimulus cannot easily overcome.

The desk has mapped actual policy instrument deployment against announced targeting priorities. The sectors receiving the most concentrated policy support, measured across credit, fiscal and regulatory dimensions:

The correct positioning framework for China in 2025 to 2026 is sector selection, not index exposure. The CSI 300 or MSCI China level is increasingly meaningless as a performance predictor given the divergence between targeted and non-targeted sectors.

The desk's preferred exposure: A-share or H-share manufacturing sector names in EV supply chain, industrial automation and semiconductor equipment. These companies are benefiting from both targeted credit and the structural shift of global supply chains. They are also genuinely competitive on technology, not just policy-dependent.

What the desk avoids: property developers, even those with government rescue backstops, because the structural demand contraction is secular; platform companies until there is clearer evidence that the regulatory posture has shifted from constraint to support.