China is likely getting ready for monetary stimulus to prop up an otherwise weakening economy, according to analysts.

In the wake of sluggish manufacturing, real estate and labor markets, China could be gearing up for some kind of stimulus to support itself, analysts tell Bloomberg. Duncan Wrigley, chief China economist at Pantheon Economics, says that “it does seem like the US tariffs are just starting to bite” for America’s biggest economic rival.

“Domestic demand is sluggish, but don’t underestimate China’s preparations for a protracted trade war. They have been holding back support measures to use for if and when exports really start to slow.” And according to Rob Subbaraman, chief economist at Nomura, China will “very likely rush to roll out a new round of supportive measures in the second half.”

The People’s Bank of China (PBOC) last eased policy in May, cutting interest rates and lowering banks’ reserve requirements. The total Shanghai/Shenzhen market cap has breached an all-time high, trading at 95.98 trillion yuan or $13.36 trillion as of August 7th, despite weakening economic momentum.

China has enjoyed a stock market rally largely due to strong flows into exchange-traded funds (ETFs) from retail investors as well as China’s “national team” – government-affiliated investors that aim to prop up the stock market. One of the main players of the national team is Central Huijin Investment Ltd., a unit of the China Investment Corporation, which was founded in 2007 with $200 billion in assets and is now managing $1.3 trillion. China’s national team primarily focuses on gaining exposure to ETFs rather than individual securities.

Source: Bloomberg

And as part of its capital shift, China appears to be offloading US Treasuries, recently falling out of the top two foreign holders of Treasuries after a multi-month T-Bill sell-off.

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