Against the backdrop of the July 30 Politburo meeting of the Communist Party of China Central Committee setting the tone to “step up efforts to expand domestic demand and optimize supply” while emphasizing the need to “enhance capital market resilience and confidence,” Liu Feng, chief economist at the International Institute of Green Finance at Central University of Finance and Economics, has written that the fundamental solution to China’s domestic demand problem lies not in the supply of funds, but in boosting confidence and stabilizing expectations—and the foundation of confidence and expectations is credit. He describes building the credit system as the most urgent “soft infrastructure” project, arguing it can boost economic vitality more fundamentally than any short-term stimulus policy.
Liu’s analysis is grounded in the latest macroeconomic data. Figures released by China’s National Bureau of Statistics on July 15 show that gross domestic product (GDP) reached 69.57 trillion yuan (approximately $10.3 trillion) in the first half of the year, up 4.7% year-on-year, with the GDP increment reaching 3.6 trillion yuan, the largest half-year increase in five years. The International Monetary Fund (IMF) also recently raised its full-year growth forecast for China by 0.2 percentage points. However, beneath the headline growth, structural divergence is stark: new growth drivers represented by high-end manufacturing and the digital economy contributed over 40% to economic growth, with the value added of high-tech manufacturing above designated size rising 13.3% year-on-year. Yet traditional industries remain sluggish, with national fixed-asset investment down 5.7% year-on-year, private investment down 8.5%, real estate development investment down 18%, and total retail sales of consumer goods up only 1.3%.
Faced with the deep questions of “where will incremental capital come from, why won’t private investment pick up, and why can’t consumption willingness be unleashed,” Liu’s core judgment is that confidence is the switch that activates the economic cycle, and the foundation of confidence is credit.
The Credit Roots of ‘Afraid to Spend’ and ‘Afraid to Invest’
The article reveals the concrete manifestations of confidence deficiency through data from both households and enterprises. On the consumption side, People’s Bank of China (PBOC) data shows that household deposits increased by 7.58 trillion yuan in the first half, with total household savings reaching 173.48 trillion yuan by the end of June. In stark contrast, household loans decreased by 366.8 billion yuan (approximately $54.4 billion) overall in the first half—the first time on record that household loans have recorded a net half-year decline. Among these, short-term loans fell by 588.1 billion yuan (approximately $87.2 billion), while medium- and long-term loans increased by only 221.2 billion yuan (approximately $32.8 billion), the lowest level for the same period in nearly a decade. Liu believes that households “saving more and borrowing less” is essentially defensive behavior—not a lack of funds, but a lack of willingness to consume and borrow.
On the investment side, private investment fell 8.5% in the first half, a further decline from the previous period. Liu points out that entrepreneurs are not short of funds; the key lies in fostering stable long-term expectations. He emphasizes that expectation management has become a core proposition of macroeconomic policy, and the key to expectation management lies in establishing credit—government policy credibility, market commercial credit, and corporate performance credit together form the institutional foundation upon which expectations are formed.
How Credit Deficiency Erodes Three Key Markets
Liu analyzes the specific consequences of a poorly functioning credit system across three dimensions: capital markets, consumer markets, and the real economy cycle.
In capital markets, he notes that valuation logic is essentially the pricing of credit. Corporate credit, intermediary credit, regulatory credit, and market credit are all ultimately reflected in risk premiums. If behaviors such as financial fraud, insider trading, and market manipulation are not effectively curbed, and if regulatory policy implementation lacks continuity and consistency, the market lacks a pricing anchor, and long-term capital will naturally stay away. The Politburo meeting’s shift of capital market policy focus from short-term “stabilizing confidence” to institutional “enhancing resilience” is a profound response to this logic.
In consumer markets, information asymmetry is particularly prominent in the services sector. In industries such as catering, tourism, domestic services, education, and healthcare, consumer rights are frequently compromised. Liu argues that the phrase “consume with confidence” is essentially the result of an effectively functioning credit system. If consumers’ legitimate rights cannot be effectively protected, they will remain cautious even with money in hand.
In the real economy cycle, payment arrears have become a significant bottleneck constraining business operations. By the end of June, accounts receivable of industrial enterprises above designated size had reached 28.60 trillion yuan, up 8.1% year-on-year. Behind the massive volume of payment arrears, those ultimately bearing the pressure are workers at the end of the industrial chain. The article cites data from the 2025 winter campaign against wage arrears—nationwide, 280,000 cases of wage arrears were investigated, with 14.83 billion yuan (approximately $2.2 billion) in wages recovered for 1.4778 million workers—illustrating that the effectiveness of credit repair depends on the intensity and transparency of institutional enforcement.
‘Soft Infrastructure’: Three Directions for Institutional Action
In previous articles, Liu has proposed that China’s economy needs to transition from traditional “hard infrastructure” to “soft infrastructure.” “Soft infrastructure” does not mean building roads, bridges, or factories, but rather a set of fair, just, and transparent market rules and legal mechanisms, robust investor and consumer rights protection systems, and a stable, predictable regulatory framework. This “operating system for the economy” profoundly influences the confidence, expectations, and long-term behavior of households and enterprises. No matter how well roads are built, if market rules are opaque, rights protection is inadequate, and regulatory policies are erratic, private investment and household consumption will still struggle to be effectively activated. Thus, “soft infrastructure” is the institutional prerequisite for “hard infrastructure” to be effective.
The Politburo meeting’s call to “enhance capital market resilience and confidence” is a concrete echo of the “soft infrastructure” concept in the capital market sphere. Liu believes that resilience and confidence can only come from the accumulation of credit—from every piece of truthful and accurate information disclosure, from every fair and just enforcement action, and from every stable and predictable policy.
He proposes that credit system construction requires coordinated efforts on three levels: First, rule-of-law safeguards. The foundation of the credit system is the rule of law; investor rights need to be clearly defined and robustly protected at the legal level, with clear punishment mechanisms for insider trading, false information, market manipulation, and other violations. The breadth of the market’s trust boundary is determined by the intensity of rule-of-law governance. Second, regulatory stability. The policy framework needs to maintain necessary continuity and predictability; major policies should be fully communicated before introduction and stably implemented after. Market participants do not fear strict rules—they fear changing rules. They do not fear high thresholds—they fear unclear standards. Third, credit management. On the financing side, information symmetry and full disclosure must be ensured. On the consumption side, entry standards, process supervision, and necessary constraint mechanisms must be established. Credit management is not a constraint on market vitality, but an institutional safeguard for the healthy functioning of the market.
Key First-Half Data at a Glance
| Indicator | Data | Year-on-Year Change |
|---|---|---|
| Gross Domestic Product (GDP) | 69.57 trillion yuan | +4.7% |
| Value Added of High-Tech Manufacturing Above Designated Size | — | +13.3% |
| National Fixed-Asset Investment | — | -5.7% |
| Private Investment | — | -8.5% |
| Real Estate Development Investment | — | -18% |
| Total Retail Sales of Consumer Goods | — | +1.3% |
| Per Capita Consumption Expenditure (Real) | — | +2.7% |
| Increase in Household Deposits | 7.58 trillion yuan | — |
| Household Loans | Decrease of 366.8 billion yuan | First half-year net decrease |
| Accounts Receivable of Industrial Enterprises Above Designated Size | 28.60 trillion yuan | +8.1% |
Note: Data sourced from China’s National Bureau of Statistics and the PBOC, compiled from Liu Feng’s article.
Ultimately, Liu believes that credit, expectations, and confidence form the logical chain of current economic operations—interlinked and indispensable. A market economy environment and healthy ecosystem where “rules are predictable, rights are protected, and violations are prosecuted” can boost confidence more fundamentally than any short-term stimulus policy. The accumulation of credit is a slow variable, requiring sustained institutional construction and enforcement implementation; it cannot be achieved overnight. But once formed, it becomes the most enduring and profound force supporting economic growth. The policy direction is already clear; the key lies in the resolve and transparency of execution—allowing the market to truly feel a predictable and trustworthy future, confidence will gradually return, and domestic demand will progressively recover.