Goldman Sachs: China's Investment Sees Moderate Recovery in Q1 2026, Supported by Fiscal Stimulus

Overview

This report issued by Goldman Sachs Global Investment Research highlights the dynamics of investment within China's macroeconomy in the first quarter of 2026. It points out that although official statistics show a notable rebound in fixed asset investment (FAI), considering previous statistical corrections made by the national bureau which can introduce base effects and distort fluctuations, the adjusted real investment growth according to Goldman Sachs' proprietary tracker stood at just 3.2%, showing only moderate improvement compared to 2.0% in the last quarter of 2025. The report also analyzes the proactive implementation of fiscal policies and ongoing adjustments coupled with partial signs of stabilization in the real estate market, suggesting fiscal stimulus will provide minor support to GDP growth over the coming quarters.

Core views

Regarding investment momentum, the report emphasizes caution about the reliability of FAI data. Due to statistical corrections previously conducted by the State Statistical Bureau leading to an exaggeration of recent fluctuations in FAI growth rates, removing these distortions reveals that Goldman Sachs' internal tracking system shows Chinese real investment growing moderately to 3.2% year-on-year in the first quarter of 2026, surpassing 2.0% recorded in the final quarter of 2025. Structurally, significant gaps remain between SOEs and private enterprises, as well as across different geographical zones. On fiscal policy, government spending saw a mild increase in the first quarter while revenues remained largely stable resulting in an expanded deficit. Government bond issuance this year has been faster than average historical pace reflecting early adoption of accommodative fiscal measures. By the end of the first quarter, fiscal deposit balances reached RMB 340 billion yuan higher than the same time last year, narrowing the gap from the end of 2025. Combined with increasing deployment efficiency metrics, this suggests the government accelerated its use of funds gathered earlier this year. Goldman Sachs' 'Generalized Fiscal Deficit' (AFD) indicator based on four-quarter moving averages expanded from 10.9% at the end of 2025 to 11.4% by the end of Q1 2026 and is projected to further widen to 12.0% by year-end thanks to increased support from policy banks. In terms of the property sector, entering the fifth consecutive year of unprecedented downturn in China's housing market, new home starts have declined more steeply than during the US global financial crisis period, and price drops exceed the average magnitude of typical large-scale housing crashes worldwide. Despite some upward trends since mid-2025 including rising Hong Kong property prices and local easing measures implemented gradually in major cities like Shanghai and Shenzhen, mainland city property prices appear still to be finding their bottom. However, observers note emerging positive signals such as decreases in listings of second-hand properties and localized price increases in select urban areas. Nonetheless, indicators related to development activity continue weakening: land sales, new residential starts, and completions all trend downwards. Looking ahead, the April Politburo meeting proposed optimizing fiscal expenditure structures, ensuring basic livelihood needs were met, and initiating several infrastructure projects deemed ready for commencement. Goldman Sachs interprets this as emphasizing strategic allocation of limited resources within fiscal constraints. They project GFCF growth for 2026 to rise from 1.5% in 2025 to 3.5%, though unexpected slowdowns in exports due to global energy supply shocks could pose downside risks if policy execution falls short.

Analysis framework

To analyze, Goldman Sachs combined methods aimed at reducing noise and decomposing structural elements. Firstly, addressing concerns around headline FAI figures, they refrained from using raw data directly; instead, employing their unique tracker to eliminate distortions caused by statistical revisions providing clearer insights into actual investment growth trends. Secondly, introducing the concept of ‘Generalized Fiscal Deficit’ (AFD) alongside monitoring changes in treasury deposits and bonds issuance rhythms allowed them to assess both timing and intensity of fiscal stimulus efforts accurately. Lastly, through cross-comparisons with past international crises—for instance comparing current real estate declines against those seen during America’s GFC—and contrasting performance among various tiers of Chinese cities versus places like Hong Kong helped position today's real estate cycle correctly and identify potential turning points.

Methodology notes

• Industry/Industrial Analysis FrameworkQuantity-Price Decomposition

  Analyzing Real Investment Growth After Removing Statistical Distortions

  Rather than relying solely on reported nominal FAI growth, the study utilized adjustments to filter out disturbances introduced by statistical revisions, isolating genuine physical output growth. This approach offers greater accuracy regarding real economic conditions without misleading influences stemming from shifts in measurement protocols.

• Macroeconomic frameworkCredit/debt cycle

  Generalized Fiscal Deficit (AFD) & Fiscal Momentum Analysis

  Monitoring changes in Generalized Fiscal Deficit rate—including contributions from policy bank support—helps gauge how much additional leverage governments take on and evaluates its impact on stimulating GDP growth via fiscal impulses, serving as a vital tool for assessing counter-cyclical policy effectiveness.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  International Comparison of Real Estate Cycles

  By comparing the extent of China’s current real estate decline—in terms of new constructions and house prices—to outcomes observed during events such as the US Subprime Crisis and other globally recognized housing collapses, analysts can better determine where we stand in the present cycle phase and evaluate possible reversal scenarios based on comparative supply-demand analysis.

Key data

• Q1 2026 Actual Investment Growth Rate3.2%Year-over-year growth after adjustment by Goldman Sachs Tracker, up modestly from 2.0% in Q4 2025
• Generalized Fiscal Deficit Ratio (AFD)11.4%Level at the end of Q1 2026 (4-quarter moving average); projected to reach 12.0% by year-end
• Increase in Fiscal Deposit BalancesRMB 340 BillionEnd-of-Q1 2026 balance was 5% higher than the corresponding period last year
• Projected GFCF Growth for 20263.5%Expected increase from 1.5% in 2025 mainly propelled by low baselines and active fiscal policies
• YoY Growth Rate of Real Estate Loans-3.4%As of Q1 2026, down further from -1.6% in Q4 2025

Impact & implications

The research concludes that forward-looking fiscal policy activation and expanding generalized deficits should offer slight tailwinds to future GDP growth, particularly relevant given potential export decelerations triggered by global energy disruptions. Nevertheless, persistent weakness in the real estate sector—the primary drag factor owing to declines in construction starts and land sales—remains concerning. Investors ought therefore shift focus beyond aggregate FAI growth towards structural opportunities: capital expenditures tied to technological rivalry between China and the U.S., specifically those impacting hyperscalers (cloud services)—related investments within AI domains—as well as priority infrastructure sectors receiving fiscal backing such as water networks, power grids, computing infrastructures.

Risks

• There exists inherent risk of statistical inaccuracies in official FAI reporting potentially misleading assessments of underlying investment strength.
• Unexpected severe export slowdowns due to external global energy shocks may necessitate stronger-than-projected policy interventions.
• Prolonged duration of real estate market downturn beyond expectations might undermine anticipated recoveries despite fragmented stabilizing signals.
• Local government debt burdens could impede the speed at which infrastructure investments translate into tangible progress.

What to watch

• Whether subsequent quarters witness AFD expanding as planned to 12.0%.
• Confirmation whether declining trends in main urban area property prices and reduced volumes of second-hand home transactions signal a definitive turnaround.
• Actual status and impacts derived from capital expenditure plans by key tech firms driving AI advancements.
• Progress updates on designated infrastructure projects announced post-Politburo meetings such as enhancements to water management systems and compute-centric network expansions.