Goldman Sachs: China still enjoys a “stability premium” amid external shocks

Overview

In Stability Premium, Goldman Sachs argues that China is exhibiting stability in growth, financial markets, and policy orientation. Official data show that real GDP grew 5.0% YoY in Q1 2026, in line with the pace of full-year 2025 and above market expectations, but the stable headline data mask sectoral divergence: exports are significantly stronger than domestic demand, while real estate, autos, and household loans remain weak. The report believes that Middle East conflict and rising energy prices will weigh on short-term activity, and expects Q2 real GDP growth to slow to 4.0% annualized quarter-on-quarter from 5.3% in Q1.

Core views

The core view is that China faces short-term external energy and trade disruptions, but still has strong policy and industrial buffers. On exports, the new-energy “new three items” and the resilience of China’s supply chain are expected to offset some regional shocks; on policy, if exports weaken materially, policy banks and SOE investment could accelerate infrastructure spending; on markets, oil inventories, low inflation, an undervalued RMB, and the central bank’s FX and liquidity management all help reduce volatility. Goldman Sachs does not expect the PBOC to cut rates this year, and also believes the bar for rate hikes is high.

Analysis framework

The report uses an analytical framework combining macro data, cross-asset market performance, and policy reaction functions: it first compares real-economy indicators such as GDP, exports, consumption, investment, and real estate; then observes the RMB, 10-year Chinese government bond yields, interbank repo rates, and cross-market correlations; and finally assesses the policy path based on the fiscal arrangements from the Two Sessions, PBOC liquidity tools, and local property policies.

Methodology notes

• macro_growthheadline_vs_sector_divergence

  Stable aggregate growth with structural divergence

  By comparing headline GDP growth with sub-indicators such as exports, consumption, real estate, autos, and household loans, the framework identifies a growth structure of “strong exports, weak domestic demand.”

• policy_reactionrisk_management_liquidity_framework

  Risk-management-style liquidity provision

  When growth meets targets but uncertainty is high, the PBOC uses OMO reverse repos, outright reverse repos, government bond purchases, and central parity rate management to reduce market volatility, rather than immediately changing policy rates.

• asset_marketstability_premium

  Stability premium

  Under external shocks, if exchange rates, interest rates, and cross-asset volatility are lower than in other markets, it suggests that initial conditions, policy tools, and market expectations are jointly supporting asset stability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CNY

  Benefits from the trade surplus, industrial competitiveness, and policy management

  Strengths

  The trade-weighted RMB continued to appreciate after the Iran war, while exporters’ FX settlement and a low-inflation environment support the exchange rate.

  Weaknesses

  Rising energy prices will worsen the terms of trade, and policymakers will avoid overly rapid RMB appreciation when exporters are under pressure.

  Comparison

  Compared with many emerging-market currencies dependent on imported energy, the CNY is more stable during shocks.

  Risks

  Escalation in the Middle East, episodic US dollar strength, one-sided appreciation expectations, and capital flow pressures.

• 10-year CGB

  Benefits from ample liquidity and a low-volatility policy stance

  Strengths

  Yields have fallen by about 5bp since late February, and the PBOC has maintained ample interbank liquidity.

  Weaknesses

  A positive turn in PPI and rising energy prices limit room for further rate cuts.

  Comparison

  Over the same period, 10-year government bond yields in the US, Germany, and Japan rose by about 30bp, while China’s rates were more stable.

  Risks

  If inflation broadens to more categories or growth rebounds significantly, room for further yield declines will be limited.

• China export chain

  Strong exports are the main support for stable growth

  Strengths

  Q1 exports rose 14.7% YoY, exports of the new-energy “new three items” jumped 72% YoY in March, and supply-chain resilience may help Chinese firms gain share.

  Weaknesses

  Exports to the Middle East plunged 45% YoY in March, and external demand and shipping disruptions may still weigh.

  Comparison

  Compared with overseas producers affected by energy and supply disruptions, parts of China’s manufacturing sector may benefit relatively.

  Risks

  Prolonged Middle East conflict, weaker demand from low-income oil-importing economies, and pressure on exporters’ profits from FX and costs.

• Real-estate- and consumption-related assets

  Still the weak link in macro growth

  Strengths

  Home prices in Shanghai and Shenzhen may stabilize first among tier-1 cities, and local property easing is still being rolled out.

  Weaknesses

  Outstanding household loans continue to contract, the marginal effect of trade-in programs for consumer goods is weakening, and property sales and construction indicators remain weak.

  Comparison

  Clearly weaker than exports, infrastructure transportation and power, and some manufacturing sectors.

  Risks

  Slow recovery in income growth, lengthy real estate stabilization, and less policy stimulus than expected.

Key data

• Q1 2026 real GDP+5.0% YoY; +5.3% annualized QoQAbove market expectations and in line with the full-year 2025 growth pace.
• Q1 2026 exports+14.7% YoY in nominal USD termsThe report estimates exports contributed about 3 percentage points to the 5.0% GDP growth rate.
• Q2 real GDP forecast+4.0% annualized QoQExpected to slow from Q1 due to Middle East trade disruptions, rising energy prices, and pressure on real household income.
• Exports to the Middle East-45% YoY in MarchThe report says this subtracted nearly 3 percentage points from China’s total exports.
• Exports of the new-energy “new three items”+72% YoY in MarchGrowth in exports of solar cells, lithium batteries, and EVs exceeded the 55% pace in January-February.
• Trade-in subsidies for consumer goodsRMB250bn in 2026, below RMB300bn in 2025The report believes their boost to retail growth is no longer significant.
• 10-year Chinese government bond yieldDown about 5bp since late FebruaryOver the same period, 10-year government bond yields in the US, Germany, and Japan rose by about 30bp.
• PPI inflationTurned positive YoY in March 2026The first positive reading since 2022, but only about 30% of PPI subcategories were positive YoY.

Impact & implications

For investors, the report emphasizes that the core attraction of Chinese assets is not high-growth elasticity, but low volatility and policy controllability under external shocks. The RMB and Chinese rates reflect a stability premium, while manufacturing, the export chain, and producer services are supported by structural transformation; but real estate, household credit, and broad consumption remain drags. If exports stay strong, the urgency for further large-scale consumption stimulus is limited in the short term; if exports weaken materially, infrastructure and policy finance may become the main countercyclical tools.

Risks

• Persistent Middle East conflict, disruption to transit through the Strait of Hormuz, or further rises in energy prices.
• Declining demand from the Middle East and low-income oil-importing economies drags on China’s external demand.
• Household income and real estate recover more slowly than expected, continuing to constrain consumption recovery.
• Overly rapid RMB appreciation could create one-sided expectations and pressure exporters.
• If inflation spreads from energy-driven components to more PPI and CPI categories, room for policy easing may be constrained.

What to watch

• The March trade volume-price breakdown data to be released by China Customs on April 27.
• Whether Q2 real GDP, exports, and Middle East-related trade data validate the slowdown path.
• PBOC interbank liquidity, DR001, the OMO 7-day reverse repo rate, and central parity rate operations.
• Whether policy-bank infrastructure lending and SOE investment accelerate.
• Whether home prices in Shanghai, Shenzhen, and other tier-1 cities stabilize and spread to other cities.
• Outstanding household loans, retail sales, and the marginal effect of trade-in programs for consumer goods.
• Whether exports of the new-energy “new three items,” aluminum, and chemical products can continue to offset external shocks.