By: Jemy Finance Market Research Team At Jemy Trade
16/9/2025
China finds itself at a complex economic crossroads, where domestic slowdown indicators are compounded by external challenges. This has prompted the government to activate its arsenal of monetary and fiscal tools. Yet, these moves are accompanied by warnings from global credit rating agencies, casting a shadow of doubt over the long-term effectiveness of these measures.
The Central Bank Intervenes: Injecting Liquidity into the Economy’s Veins
In a move aimed at countering the slowdown, the People’s Bank of China (PBOC) injected a massive 200 billion yuan ($27 billion) in medium-term liquidity into the financial system. This action, designed to provide funding to commercial banks, is a clear signal that monetary authorities are determined to support growth and ease pressure on financial institutions. The measure comes as a direct response to recent disappointing economic data, which revealed weakness in industrial production and retail sales. Analysts view this move as a prelude to a new phase of monetary easing, albeit a cautious one, to prevent a deeper economic downturn.
A Warning from Moody’s: Mounting Debt Risks
On the other hand, concerns about China’s debt levels have grown, leading credit rating agency Moody’s to make the rare decision of downgrading its outlook on China’s sovereign rating from “stable” to “negative.” This decision reflects increasing apprehension about the rising debt levels of local governments and the worsening crisis in the real estate sector, issues that could weaken Beijing’s ability to support its economy in the future. While some see Moody’s decision as an overreaction, it highlights the structural weaknesses facing the Chinese economy and suggests that the growth model based on excessive borrowing is becoming less sustainable.
Betting on Infrastructure: A Plan to Boost Growth
Chinese policymakers have not relied solely on monetary measures; they have also announced an extensive plan to boost spending on domestic infrastructure. This plan aims to stimulate growth through vital projects in future-oriented sectors, such as renewable energy and smart transportation networks. This move is seen as an attempt to create new job opportunities, improve economic efficiency, and establish long-term growth drivers away from traditional sectors. It reflects the government’s strategy of relying on a strong and integrated fiscal policy alongside its monetary measures.
Conclusion: An Existential Challenge for the Chinese Dragon
These three developments clearly show that the Chinese economy is facing an existential challenge. While the government is using all its power to revive growth through liquidity injections and infrastructure spending, credit rating agencies are reminding it that these actions may come at a high cost to debt sustainability. China’s success in navigating this phase will depend on its ability to strike a delicate balance between essential economic stimulus and addressing the underlying structural weaknesses that now threaten its financial stability.
Disclaimer: We are conveying our own perspective and experience only. The analyses and forecasts contained in this report are for informational and educational purposes only and should not be considered investment advice or a recommendation to invest, sell, or buy. Past performance is not an indicator of future results. Trading in securities involves risks and may lead to capital loss.
