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

Overview

Goldman Sachs assesses China’s September 29 targeted fiscal and monetary easing package following the State Council’s call for stronger counter-cyclical policy. It sees the measures chiefly as a signal of policymakers’ commitment to the full-year growth target, with direct housing-demand support but only a modest overall growth impulse.

Core views

Goldman Sachs interprets the package announced by the PBOC and Ministry of Finance after the September 28 State Council meeting as a direct policy follow-through aimed at supporting the full-year growth target. The institution considers its signaling value more significant than its immediate macroeconomic effect: targeted credit easing should principally support the supply side, while the eventual effect on investment and underlying growth depends on policy implementation. On the monetary side, the PBOC cut the pledged supplementary lending (PSL) rate by 25bp, taking the one-year rate to 1.5% from 1.75%; this is compared with around 1.4% for one-year policy-bank bond yields. It also extended PSL support to “Six Networks” projects—water networks, new power grids, computing-power networks, next-generation communication networks, urban underground pipelines and logistics networks. Goldman Sachs expects the lower rate to help policy banks finance infrastructure projects and expects PSL lending to rise as investment in these projects picks up. Outstanding PSL had already fallen by about RMB600bn, from RMB1.2tn in January to RMB631bn as of August. The package also expands targeted relending. The quota for technology innovation and equipment-upgrade relending increases by RMB200bn, while its funding ratio rises to 100% from 60%. The quota supporting agriculture and SMEs rises by RMB500bn, including RMB300bn earmarked for private enterprises. The report’s reasoning is that these measures improve funding support for designated investment and business activity, but their conversion into broader demand and growth is not automatic. The fiscal component provides more direct support to housing demand. The MOF, PBOC and NFRA introduced a 1 percentage-point annual interest subsidy for eligible new first-home mortgages. It applies to homes priced at no more than RMB1.5 million and no larger than 120 square meters, takes effect on October 1, 2026, and is initially scheduled for one year. Eligible households can receive the subsidy for up to five years on mortgage principal of up to RMB1 million; at prevailing first-home mortgage rates, Goldman Sachs estimates that the subsidy equals roughly one-third of the borrowing rate. Goldman Sachs expects this measure to give home sales a short-term boost and potentially front-load some first-home purchases because the program is initially limited to one year. However, it expects the aggregate growth effect to remain modest because eligibility is relatively tight. Its ballpark calculation assumes annual gross new mortgage origination of roughly RMB5tn, with around 50% potentially qualifying, implying an annual subsidy cost of RMB25bn for up to five years, of which the central government would pay 90%. The estimate is necessarily uncertain because China does not publish aggregate gross mortgage origination, the share of first-home buyers in the overall market, or transaction data directly matching the 120-square-meter and RMB1.5-million thresholds. The analysis scales reported new lending at major banks using their share of outstanding mortgage loans, references NFRA data showing that 90% of mortgage loans are for first-home purchases, and uses China Index Academy data indicating that homes of 120 square meters or below accounted for about 54% of new-home transactions by unit across 30 major cities in 2025.

Analysis framework

The report first identifies the policy package and its connection to the State Council meeting, then separates its monetary and fiscal channels. It assesses PSL and relending as targeted supply-side financing tools, evaluates the mortgage subsidy as a housing-demand measure, and estimates its possible scale and fiscal cost using bank lending, NFRA and China Index Academy data.

Methodology notes

• Industry AnalysisSupply-demand framework

  Supply-side credit support versus housing-demand support

  The report distinguishes targeted PSL and relending measures that fund infrastructure and designated sectors from the mortgage subsidy that directly lowers eligible households’ borrowing costs and supports home purchases.

• Other

  Ballpark mortgage-subsidy cost estimate

  Goldman Sachs estimates potential eligible mortgage volumes and subsidy costs by scaling major-bank lending data and combining it with NFRA first-home mortgage data and housing-transaction data from China Index Academy.

Key data

• One-year PSL rate1.5%Cut by 25bp from 1.75%; compared with around 1.4% for one-year policy-bank bond yields.
• Technology innovation and equipment-upgrade relending quota increaseRMB200bnFunding ratio increased to 100% from 60%.
• Agriculture and SME relending quota increaseRMB500bnIncludes RMB300bn more earmarked for private enterprises.
• Outstanding PSLRMB631bnAs of August, down about RMB600bn from RMB1.2tn in January.
• Mortgage interest subsidy1pp annuallyFor eligible new first-home mortgages; effective October 1, 2026 and initially scheduled for one year.
• Estimated annual subsidy costRMB25bnBased on about RMB5tn annual gross new mortgage origination and roughly 50% potential eligibility; 90% would be paid by the central government.

Impact & implications

The report argues that the policy package reinforces policymakers’ commitment to the growth target and should support infrastructure financing and selected credit channels. The mortgage subsidy may lift first-home sales in the short term, but strict limits on home price, floor area and subsidized principal are expected to restrain the broader macroeconomic impact.

Risks

• The effect of targeted credit easing on investment and underlying growth depends on policy implementation.
• Relatively tight mortgage-subsidy eligibility requirements may limit the aggregate growth impact.