China's Central Bank Maintains Lending Rates Amid Slow Economic Growth

The People's Bank of China (PBOC) is expected to maintain its benchmark lending rates unchanged for the third consecutive month in August, according to a Reuters survey of 23 market analysts. This decision comes despite recent economic data indicating a slowdown in growth.

The PBOC's anticipated move reflects a strategic choice to avoid broad monetary easing, opting instead for targeted structural policies aimed at specific sectors. This approach aligns with Beijing's broader economic strategies, including the "anti-involution" campaign targeting industrial overcapacity to counter deflationary pressures.

The Loan Prime Rate (LPR), set monthly by the PBOC based on submissions from 20 designated commercial banks, serves as a benchmark for most new and outstanding loans. In May 2025, both the one-year and five-year LPRs were reduced by 10 basis points to stimulate economic activity.

In July 2025, industrial output growth slowed to 5.7% year-on-year, marking the lowest rate since November 2024. Retail sales growth decelerated to 3.7% year-on-year in July, down from 4.8% in June, indicating a weakening in consumer spending. Investment growth slowed to 1.6% year-on-year for January–July 2025, compared to 2.8% in the first half of the year, reflecting reduced business confidence. The property market remains under pressure, with residential housing investments dropping 11% and new housing prices in major cities falling 1.1% in July. The unemployment rate for youths aged 16 to 24 (excluding college students) rose to 17.8% in July, up from 14.5% in June, highlighting labor market challenges for younger demographics.

Despite these indicators, the PBOC is expected to maintain the LPR unchanged for the third consecutive month in August 2025. Rather than implementing broad-based monetary easing, the central bank is focusing on targeted structural policies to support specific sectors, such as technology, small businesses, and consumption. This strategy aligns with Beijing's broader economic tactics, including the "anti-involution" campaign aimed at reducing industrial overcapacity to counter deflationary pressures.

In addition to monetary policies, the Chinese government has introduced fiscal measures to stimulate the economy. In August 2025, a policy was announced to subsidize consumer loan interest payments, offering a 1 percentage point reduction in interest rates for eligible consumer purchases up to RMB 50,000 (approximately $7,000). The government covers 90% of the subsidy cost, with local governments covering the remainder. This initiative aims to boost consumer confidence and demand, particularly in the service industry sectors like catering and tourism.

The stock market has shown resilience despite economic challenges. The Shanghai Composite Index has risen nearly 30% over the past year, indicating investor confidence in the government's policy measures.

As China navigates a complex economic landscape marked by slowing growth and sector-specific challenges, the PBOC's measured approach underscores a commitment to stability while addressing targeted areas of concern.