China macroeconomic policy easing: Goldman Sachs expects measured China policy easing rather than broad stimulus

Overview

This event commentary examines Premier Li Qiang’s 28 September policy pledge and Goldman Sachs’ assessment of its likely scale and macroeconomic effect. The institution expects targeted fiscal and credit support, but not a broad stimulus package, while retaining a cautious view of growth and financing conditions.

Core views

Premier Li pledged at the 28 September State Council meeting to introduce a package of “pragmatic and effective incremental policy measures” and to strive to meet the full-year economic and social-development targets. The measures highlighted included drawing on unused local-government bond issuance quota from prior years, expanding targeted PBOC relending for technological innovation and small businesses, and studying future steps to stabilize the property and labor markets. Goldman Sachs interprets this as targeted, measured easing through fiscal and credit channels rather than broad-based, significant stimulus. The policy emphasis remains on high-tech sectors and investment—especially the “Six Networks” projects—rather than consumption. Those projects span water networks, new power grids, computing-power networks, next-generation communications networks, urban underground pipelines and logistics networks. The report argues that the renewed rhetoric follows weak policy implementation and subdued domestic momentum. Although the July Politburo meeting called for stronger easing, local implementation was slow in August and fiscal policy remained a drag on growth. Goldman Sachs forecasts Q3 real GDP growth of 4.4% year on year, versus 4.3% in Q2, which would remain below the lower end of the year’s 4.5–5.0% target range; risks are skewed downward. Government-bond issuance has accelerated somewhat since early September, while implementation of the RMB800bn new policy-based financial instrument has reportedly only just begun. Against delayed easing and renewed Middle East-conflict risks, Goldman Sachs recently cut its 2026 full-year real GDP forecast by 10bp to 4.5%. For the coming weeks, Goldman Sachs expects the Ministry of Finance to approve RMB500bn or more of additional local-government bond quota, rather than undertake a high-profile budget revision. It estimates that RMB1.8tn of unused government bond quota had accumulated by end-2025, comprising RMB0.6tn of central-government bonds and RMB1.2tn of local-government bonds, and views this stock as relatively accessible with MOF approval. The report also expects a modest increase in PBOC relending quota and potentially lower relending rates. However, it maintains a baseline of no policy-rate cuts for the rest of 2026 because bank net interest margins are narrow; more conspicuous monetary easing could become more likely if growth weakens further. Housing support is expected to proceed through broader use of housing provident funds, intended to slightly reduce weighted-average mortgage rates, alongside more easing measures from large cities. Goldman Sachs nevertheless expects any incremental support to remain moderate because off-budget pressure on local-government finances—particularly from land sales and LGFV financing—limits scope. It also flags tighter tax collection, weaker incentives for local officials to start projects amid intensified anti-corruption efforts, and leadership reshuffles as contractionary forces that may continue to impair policy transmission. Consequently, even with additional easing, the institution sees downside risk to its 2026 aggregate financing forecast of 11.5% of GDP, compared with 11.0% in 2025.

Analysis framework

Goldman Sachs links the State Council announcement to recent growth momentum, the pace of fiscal implementation, available bond quota and expected fiscal, credit and housing measures. It then evaluates the constraints on policy transmission, including local-government finances, bank margins and local implementation incentives, to explain why it expects only moderate easing.

Key data

• Q3 real GDP growth forecast4.4% yoyCompared with 4.3% yoy in Q2 and below the lower bound of the 4.5–5.0% full-year target range.
• 2026 full-year real GDP growth forecast4.5%Lowered by 10bp amid delayed easing and renewed Middle East-conflict risks.
• Expected additional local-government bond quotaRMB500bn or moreExpected to be approved by the MOF in coming weeks.
• Unused government bond issuance quota at end-2025RMB1.8tnRMB0.6tn in central-government bonds and RMB1.2tn in local-government bonds.
• New policy-based financial instrumentRMB800bnImplementation was reported to have just begun.
• 2026 aggregate financing forecast11.5% of GDPGoldman Sachs sees downside risk; 2025 was 11.0% of GDP.

Impact & implications

The report says additional policy action should mainly support investment, technology, small businesses and housing financing, but its constrained scale and uneven implementation mean it may not fully offset weak domestic momentum. Broader monetary easing would become more likely only if growth slows further.

Risks

• Renewed risks from the Middle East conflict contributed to the reduction in Goldman Sachs’ 2026 growth forecast.
• Pressure on local-government finances from land sales and LGFV financing may limit easing to moderate measures.
• Tighter tax collection, anti-corruption efforts and local leadership reshuffles may continue to weaken policy transmission.
• Growth risks are skewed downward, and aggregate financing could undershoot the report’s 2026 forecast.

What to watch

• MOF approval and size of additional local-government bond issuance quota.
• Any increase in PBOC relending quota or reduction in relending rates.
• Whether policy rates are cut if growth weakens further.
• Expansion of housing provident-fund use and new housing-easing measures in large cities.
• The pace of implementation of the RMB800bn policy-based financial instrument.