Time to Ease

Research evidence excerpt

Time to Ease

Economics Research

20 July 2026 | 10:19PM HKT

CHINA MATTERS

n China’s growth momentum slowed sharply in recent months, with real GDP Hui Shan

+852-2978-6634 | hui.shan@gs.com

growth falling from 5.3% qoq annualized in Q1 to 3.6% in Q2. Retail sales and Goldman Sachs (Asia) L.L.C.

fixed asset investment both weakened meaningfully, raising downside risks to the

government’s 4.5-5% full-year GDP growth target. The slowdown reflected a

negative fiscal impulse, disruptions from the Iran War, and adverse weather.

n The economy’s divergence has widened, with exports and high-tech sectors

remaining resilient while domestic demand continues to struggle. Among major

activity indicators, only exports, electricity production, and industrial production

grew more than 5% yoy in June. The “K-shape” pattern is visible across industries,

with strong growth in high-tech manufacturing and adjacent sectors, but sluggish

activity elsewhere.

n From a pure macroeconomic perspective, the Chinese economy can benefit from

more market-based, long-term, expansionary, and demand-side policies. Lower

effective mortgage rates relative to rental yields could be more effective in

stabilizing property demand than administrative measures such as local

government purchases of empty apartments. Longer-term policies that support

jobs, incomes, and confidence would likely do more to sustain consumption than

short-term subsidies such as the consumer goods trade-in program.

n However, geopolitical tensions and US-China competition are likely to keep

policymakers focused on security and technological advancement, while high

government debt and deficits make them reluctant to pursue significant fiscal

expansion.

n That said, the current setup resembles mid-2024 in some respects, before a