Goldman Sachs April China proprietary economic indicators: activity improved in March, but financial conditions and the fiscal pace remained tight

Overview

This report updates Goldman Sachs’ proprietary China economic indicators, covering activity momentum, manufacturing and construction, investment, inventories, foreign trade, financial conditions, credit impulse, FX flows, macro policy, the fiscal gap, government bond issuance, and real estate policy tightness. The core conclusion is that China’s economic activity improved in March relative to January-February, with manufacturing and consumption as the main contributors; investment and inventory-related indicators also improved in Q1; however, financial conditions tightened notably in March, the domestic macro policy proxy tightened slightly, and the slower pace of fiscal spending remains a near-term constraint.

Core views

The main thrust of the report is not to provide a single-asset buy or sell recommendation, but to use a set of proprietary indicators to assess China’s macro momentum. Positive signals include CAI rising to +7.0% mom annualized, recent macro data exceeding consensus expectations, improved manufacturing proxy indicators, better Q1 investment growth, and the possibility that inventories’ contribution to pro-cyclical GDP growth has turned positive. More cautious signals include weak import-implied domestic demand growth in late 2025, a decline in construction growth proxy indicators, a notable tightening in FCI in March, a slight tightening in the domestic macro policy proxy due to slower fiscal spending, and modest FX outflows in March.

Analysis framework

Goldman Sachs uses a proprietary macro indicator framework for cross-validation: CAI tracks actual activity, import-implied domestic demand measures domestic demand, the MAP surprise index gauges data performance relative to expectations, manufacturing and construction proxy indicators split sector momentum, investment and inventory trackers assess Q1 growth contributions, outside-in trade indicators validate customs data, and FCI, credit impulse, FX flows, and policy proxy indicators assess financial and policy conditions.

Methodology notes

• Actual activity indicatorChina Current Activity Indicator (CAI/GSCNCAI)

  First-principal-component macro activity indicator

  CAI extracts the first principal component from multiple real activity indicators such as industrial production, electricity consumption, and PMI, and converts it into a GDP-equivalent measure; the indicator can be further decomposed into pro-cyclical momentum in manufacturing, consumption, and other sectors.

• Domestic demand estimationImport-implied Real Domestic Demand

  Import-implied real domestic demand

  This method uses China’s input-output table to allocate sector-level imports to sources of final demand, and uses GDP excluding net exports under national accounts as cross-validation.

• Surprise indicatorChina MAP Surprise Index

  Strength of macro data relative to consensus expectations

  The MAP surprise index aggregates the importance of economic indicators and the magnitude of their deviation from consensus expectations, and is used to judge whether macro data over a period has been stronger or weaker than market expectations.

• Sector momentum proxyManufacturing and Construction Growth Proxies

  Manufacturing and construction growth proxy indicators

  The construction proxy takes the median y/y growth rates of new starts, steel, cement, glass, and other indicators; the manufacturing proxy takes the median y/y growth rates of metal-cutting machine tools, automobiles, power generation equipment, and microcomputer output.

• Investment indicatorRevamped Investment Tracker

  Investment tracking on a real value-added basis

  The investment tracker is based on seven underlying investment indicators, including commodity demand and output, equipment sales, construction output, and newly signed construction contracts; after cleaning, it extracts the first principal component and maps it to GFCF.

• Inventory indicatorRevised Inventory Tracker

  Tracker of inventory change as a share of GDP

  The inventory tracker is based on six underlying inventory indicators, including commodities, PMI subcomponents, finished goods inventories of industrial enterprises, and auto inventories; after extracting the first principal component, it is mapped into a share of GDP.

• Foreign trade cross-validationOutside-in Trade Measures

  Mirror-statistics estimates of import and export growth

  This method uses mirror data reported by major trading partners, combined with country-level lead-lag relationships, to estimate China’s export and import growth and validate China customs data.

• Financial conditionsGS China Financial Conditions Index (GSFCI)

  Composite index of liquidity and financial conditions

  GSFCI incorporates AA MTN yields, 3-month SHIBOR, M2, TSF flows, stock market P/E, and the trade-weighted RMB, and attributes changes to four channels: FX, equities, credit, and interest rates.

• Policy and fiscalChina Domestic Macro Policy Proxy and Augmented Fiscal Deficit

  Domestic macro policy stance and broad fiscal gap

  The macro policy proxy summarizes the policy stance across fiscal, monetary, credit, and housing policy; the augmented fiscal deficit includes both the effective on-budget fiscal deficit and the off-budget fiscal deficit, with off-budget spending covering channels such as local government special bonds, land sale revenue, LGFV bonds, policy bank support, and shadow banking loans.

Asset mapping & comparison

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

• China equity market

  Risk-asset mapping of improved macro growth momentum

  Strengths

  Rising CAI, improving manufacturing and consumption, and macro data exceeding expectations help lift risk appetite.

  Weaknesses

  A notable tightening in FCI and a slight tightening in the policy proxy indicator may restrain valuation expansion.

  Comparison

  Compared with single-industry indicators, CAI and MAP provide broader confirmation of macro momentum.

  Risks

  If fiscal spending continues to slow or domestic demand remains weak, the equity market rebound may lack sufficient foundation.

• RMB and FX flows

  Direct mapping of FCI and FX flows

  Strengths

  RMB appreciation against the trade-weighted basket reflects support at the exchange-rate level.

  Weaknesses

  The report also indicates modest FX outflows in March.

  Comparison

  The contribution of exchange-rate appreciation to FCI tightening needs to be assessed together with capital flow indicators.

  Risks

  If capital outflows widen or exchange-rate volatility rises, financial conditions may tighten further.

• China government bonds and rate assets

  Mapping of fiscal financing and policy pace

  Strengths

  Net government bond issuance is expected to accelerate in Q2 2026, potentially increasing fiscal support.

  Weaknesses

  Slower fiscal spending caused the macro policy proxy indicator to tighten slightly in March.

  Comparison

  The pace of financing issuance is not equivalent to actual fiscal spending; the spend-through ratio needs to be monitored.

  Risks

  If faster bond issuance does not translate into effective spending, the growth impulse may be delayed.

• Real estate and construction chain

  Mapping of housing policy and construction activity

  Strengths

  The city-level real estate relative tightness index shows that housing policy continues to ease.

  Weaknesses

  The construction growth proxy declined in March, and actual activity in the real estate chain remains weak.

  Comparison

  The policy easing signal is stronger than the actual construction activity signal.

  Risks

  If sales, financing, or starts do not improve, the transmission of policy easing to real-estate-chain assets may be limited.

• Manufacturing, autos, and industrials

  Mapping of manufacturing proxy indicators and CAI subcomponents

  Strengths

  The manufacturing growth proxy rose in March, and the improvement in CAI was also mainly driven by manufacturing and consumption.

  Weaknesses

  Domestic demand proxy indicators show weak domestic demand growth in late 2025, which may affect the sustainability of follow-on orders.

  Comparison

  Short-term momentum in manufacturing is stronger than in the construction sector.

  Risks

  A weakening in external or domestic demand, or a reversal in the inventory cycle, may undermine the manufacturing recovery.

Key data

• China CAI+7.0% mom annualized sa in MarchChina Current Activity Indicator rose to +7.0% mom annualized in March, above the 1-2 month average of +5.4%.
• 1-2 month average CAI+5.4% mom annualized saUsed as the comparison baseline for the March improvement.
• Drivers of CAI improvementManufacturing and consumption ledThe report notes that the March CAI improvement was mainly driven by the manufacturing and consumption sectors.
• MAP surprise indexRecent macro data exceeded market expectationsThe 21-day moving average shows that recent macro data performed better than consensus expectations.
• Investment trackerQ1 growth improvedThe real value-added investment tracker shows improved growth in Q1 2026.
• Inventory trackerSlight increase in Q1 2026The boost from inventory changes to pro-cyclical GDP growth may have turned positive in Q1 2026.
• Import-implied domestic demandDomestic demand growth was weak in late 2025The proprietary import-implied domestic demand proxy indicator shows weaker domestic demand growth in late 2025.
• Foreign trade sample coverageExports 31.1%; imports 65.7%The February 2026 outside-in export estimate uses country data covering 31.1% of China’s 2025 export value; the import estimate uses country data covering 65.7% of China’s 2025 import value.
• FCITightened notably in MarchChina Financial Conditions Index tightened notably in March.
• FCI driverTrade-weighted RMB appreciationThe March FCI tightening was mainly driven by RMB appreciation against the trade-weighted basket.
• Credit impulseExpected to become more positive in 2H 2026Goldman Sachs estimates that the credit impulse will turn more positive in the second half, with the chart assuming credit remains stable for the rest of the year.
• Net government bond issuanceExpected to accelerate in Q2 2026The government bond financing tracker shows that net government bond issuance will accelerate in Q2.
• Real estate policyContinues to easeThe city-level real estate relative tightness index shows that housing policy is still continuing to ease.

Impact & implications

For asset allocation, the report conveys a combination of marginal improvement in growth momentum alongside constraints from policy and financial conditions. Improvements in manufacturing, consumption, investment, and inventories support near-term sentiment for Chinese risk assets and cyclical sectors, but tighter FCI, slower fiscal spending, and weaker construction limit the conviction of pro-cyclical trades. If the credit impulse turns positive in the second half and faster government bond issuance translates into actual spending, it could improve the macro backdrop for infrastructure, the construction chain, industrial commodities, and domestic-demand-related assets; conversely, if financial conditions continue to tighten or fiscal funds fail to translate effectively into spending, the economic recovery may remain fragile.

Risks

• China Financial Conditions Index tightened notably in March, which may weaken credit expansion and asset valuations.
• The FCI tightening was mainly driven by appreciation of the trade-weighted RMB, and FX factors may continue to affect financial conditions.
• The domestic macro policy proxy indicator tightened slightly in March, mainly due to slower fiscal spending.
• The import-implied domestic demand proxy indicator shows weak domestic demand growth in the later part of 2025.
• The construction growth proxy declined, and the recovery in real estate and the construction chain remains fragile.
• March preference indicators showed modest FX outflows, warranting vigilance over capital flow pressures.
• The report’s government bond issuance forecast may change with new data and policy signals.

What to watch

• Whether follow-on CAI maintains recovery momentum above the January-February average.
• Whether manufacturing and consumption continue to be the main contributors to CAI improvement.
• Whether the construction growth proxy can stabilize, and whether real estate policy easing can transmit to actual activity.
• Whether the MAP surprise index continues to show macro data exceeding market expectations.
• Whether FCI eases back from the notable tightening in March, especially through the FX, credit, and rates channels.
• Whether the credit impulse turns more positive in 2H 2026 as Goldman Sachs estimates.
• Whether accelerated net government bond issuance in Q2 2026 translates into fiscal spending and real-economy demand.
• Whether the fiscal spend-through ratio can improve, validating whether fiscal funds are being deployed effectively.
• Whether the outside-in export and import trackers continue to remain consistent with official customs data.