China Country Risk Rating

China’s overall country risk score remains at medium. The July 30 Politburo readout places emphasis on domestic demand to support the economy after the soft Q2 GDP reading. However, cyclical trade in programs to support households in March were less than 2025, while improvements in structural safety nets remain small – a large improvement would reduce precautionary savings and also boost consumption. The risk is that actual additional policy stimulus will be incremental on the fiscal front, while the PBOC remains reluctant to cut interest rates for fear of undermining profit margins and bank lending. Elsewhere, the exchange transfer risk remains at medium-high. A growing current account surplus, plus substantial FX reserves, help to support this rating. The inability to provide fiscal stimulus remains at medium. China has room for extra fiscal stimulation should lower growth raise the risk of a hard landing in 2026 or 2027, but if growth is 4.5-5.0%, then further stimulus will likely be small. Banking sector vulnerability has remained at a medium rating, as non-performing loans, primarily held by small and city banks, can be managed through potential takeovers by larger banks and local governments. In terms of political risk, China’s domestic situation remains stable, as the authorities maintain internal stability. Externally China is in a trade truce with the U.S., which will likely not change this year as it suits China. Finally, the risk of an invasion or blockade of Taiwan by China remains low in 2026 and 2027, given the high risks involved with the U.S. maintaining the strategic ambiguity policy.