China’s targeted fiscal and monetary easing package: China’s targeted easing signals stronger policy support, but Goldman Sachs expects only a modest growth boost

Overview

Goldman Sachs assesses China’s targeted fiscal and monetary easing package announced after the 28 September State Council meeting. It sees the measures as a stronger policy signal aimed at meeting the full-year growth target than as a large immediate boost to underlying growth.

Core views

The report interprets the PBOC and Ministry of Finance package as a direct follow-through from the State Council’s call for stronger counter-cyclical measures and an indication that policymakers are focused on achieving the full-year growth target. The measures combine targeted credit easing with a housing-demand initiative. Goldman Sachs’ central conclusion is that the signaling effect is more meaningful than the likely near-term macroeconomic impulse. On the monetary side, the PBOC reduced the pledged supplementary lending (PSL) rate by 25bp, taking the one-year rate to 1.5% from 1.75%. This compares with roughly 1.4% for one-year policy-bank bond yields. PSL support was expanded to Six Networks projects: water networks, new power grids, computing-power networks, next-generation communications networks, urban underground pipelines and logistics networks. The PBOC also increased the technology innovation and equipment-upgrade relending quota by RMB200bn and raised its funding ratio to 100% from 60%. It added RMB500bn to relending for agriculture and SMEs, including RMB300bn earmarked for private enterprises. Goldman Sachs expects these credit measures primarily to support supply rather than directly lift demand. The PSL rate cut should help policy banks finance infrastructure projects, and the institution expects PSL lending to rise as Six Networks investment picks up. However, whether easier targeted credit becomes higher investment and stronger underlying growth will depend on implementation. The report notes that outstanding PSL had fallen by around RMB600bn, from RMB1.2tn in January to RMB631bn as of August, leaving scope for an increase in PSL lending. The more direct demand-side measure is a 1 percentage-point annual interest subsidy for new mortgages taken by eligible first-home buyers. The program applies to homes priced at no more than RMB1.5m and no larger than 120 square meters, begins on 1 October 2026, and is initially scheduled for one year. A household may receive the subsidy for up to five years on up to RMB1m of mortgage principal. At prevailing first-home mortgage rates, Goldman Sachs estimates that the subsidy is equivalent to roughly one-third of the borrowing rate. The institution expects the subsidy to provide a short-term lift to home sales and potentially front-load some first-home demand because the program has a one-year scheduled duration. Still, it expects the aggregate growth effect to remain modest because eligibility is relatively tight. Goldman Sachs estimates annual gross new mortgage origination at around RMB5tn, with about 50% potentially eligible, implying an annual subsidy cost of around RMB25bn for up to five years; the central government would pay 90% of that cost. The estimate is described as a ballpark calculation because China does not publish aggregate gross mortgage origination, the share of first-home buyers, or the share of transactions meeting both the size and price thresholds. The calculation scales major banks’ reported new mortgage lending using their shares of outstanding mortgages, draws on NFRA data that 90% of mortgages are for first-home purchases, and uses China Index Academy data showing homes of 120 square meters or less represented about 54% of new-home transactions by units across 30 major cities in 2025.

Analysis framework

Goldman Sachs first links the package to the State Council’s growth-target objective, then separates its credit-supply channels from the mortgage-demand channel. It evaluates likely effects through the PSL funding mechanism, relending quotas, housing eligibility rules and an estimated subsidy cost, while qualifying the macro impact by implementation uncertainty and incomplete mortgage-market data.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Targeted credit support is assessed through its transmission from policy-bank funding and relending quotas to infrastructure investment and underlying growth.

  The report distinguishes easier financing from the eventual economic outcome: credit support first aids supply-side projects, while investment and growth depend on implementation.

• Other

  Ballpark mortgage-subsidy cost estimation based on estimated new mortgage originations and eligibility shares.

  Goldman Sachs estimates potential eligible mortgage volume, applies the 1 percentage-point subsidy, and flags data limitations around total originations, first-home buyer shares and qualifying transactions.

Key data

• PSL rate1.5%One-year rate after a 25bp cut from 1.75%
• Technology and equipment-upgrade relending increaseRMB200bnFunding ratio increased to 100% from 60%
• Agricultural and SME relending increaseRMB500bnIncludes RMB300bn more for private enterprises
• Mortgage interest subsidy1 percentage point annuallyFor eligible new first-home mortgages, initially effective for one year from 1 October 2026
• Estimated annual subsidy costRMB25bnBased on around RMB5tn annual gross new mortgage origination and roughly 50% potential eligibility
• Outstanding PSLRMB631bn as of AugustDown around RMB600bn from RMB1.2tn in January

Impact & implications

The report says targeted credit easing should support infrastructure-related supply and investment financing, while the mortgage subsidy is the package’s more direct channel for stimulating housing demand. It expects some near-term support to home sales but a modest overall growth impulse unless policy implementation materially increases investment.

Risks

• Targeted credit easing may not translate into investment or underlying growth if implementation is weak.
• The mortgage subsidy’s macro impact may be constrained by its price and floor-area eligibility requirements.
• The mortgage-program cost estimate is uncertain because comprehensive data on new originations and qualifying first-home transactions are unavailable.

What to watch

• Implementation of PSL support and the pace of Six Networks investment.
• Use of expanded technology, equipment-upgrade, agriculture and SME relending quotas.
• Whether the mortgage subsidy produces a short-term rise in first-home sales and demand front-loading.
• Any extension or revision of the one-year mortgage-subsidy program.