Goldman Sachs: China’s Fiscal Policy to Shift From Tightening to Easing in H2, With Limited New Stimulus
Goldman Sachs said China’s post-pandemic fiscal policy has shifted from precautionary stimulus to reactive “stop-go” easing, constrained by high debt, low returns on capital and external uncertainty.
Goldman Sachs said China’s post-pandemic fiscal policy has shifted from precautionary stimulus to reactive “stop-go” easing, constrained by high debt, low returns on capital and external uncertainty.
Budget revenue exceeded expectations in H1 2026, but spending lagged. The broad fiscal deficit narrowed, while a negative fiscal impulse in Q2 weighed on GDP as quarter-over-quarter growth slowed by nearly half.
The government currently has more than 8 trillion yuan in available funds for H2. Policy signals point to faster implementation of existing easing measures. However, because the growth target is achievable, the urgency for a new, broad-based stimulus package is limited.
Goldman Sachs lowered its 2026 AFD forecast to 11.5% and also reduced its forecast for fixed-asset investment growth. It highlights that central and local governments accelerate bond issuance and the rollout of policy-based financial instruments, with a focus on advanced technology and high-quality investment rather than demand-side expansion.
In summary, China’s fiscal policy is reversing its tightening trend in H2, but the shift represents “faster implementation of existing easing” rather than “new stimulus.” The more than 8 trillion yuan in available funds provides resources to support the economy, but the probability of large-scale stimulus is low while the growth target remains achievable.
The outlook is favorable for infrastructure and advanced-technology sectors because fiscal implementation is accelerating and policy is focused on advanced technology and high-quality investment. It is also favorable for the bond market: faster bond issuance could create interest-rate volatility, but the overall direction of policy easing is clear.
The market already expects fiscal easing in H2. However, the characterization of the policy shift as “faster implementation rather than new stimulus” could fall short of some investors’ optimistic expectations.
Key catalysts are the pace at which government bonds and policy-based financial instruments are actually deployed in August and September; Q3 GDP and fixed-asset investment data; whether additional easing measures emerge in September and October; and the comparison between actual AFD and fixed-asset investment growth and Goldman Sachs’ forecasts.
Budget revenue exceeded expectations in H1 2026, but spending lagged. The broad fiscal deficit narrowed, while a negative fiscal impulse in Q2 weighed on GDP as quarter-over-quarter growth slowed by nearly half.
The government currently has more than 8 trillion yuan in available funds for H2. Policy signals point to faster implementation of existing easing measures. However, because the growth target is achievable, the urgency for a new, broad-based stimulus package is limited.
Goldman Sachs lowered its 2026 AFD forecast to 11.5% and also reduced its forecast for fixed-asset investment growth. It highlights that central and local governments accelerate bond issuance and the rollout of policy-based financial instruments, with a focus on advanced technology and high-quality investment rather than demand-side expansion.
In summary, China’s fiscal policy is reversing its tightening trend in H2, but the shift represents “faster implementation of existing easing” rather than “new stimulus.” The more than 8 trillion yuan in available funds provides resources to support the economy, but the probability of large-scale stimulus is low while the growth target remains achievable.
The outlook is favorable for infrastructure and advanced-technology sectors because fiscal implementation is accelerating and policy is focused on advanced technology and high-quality investment. It is also favorable for the bond market: faster bond issuance could create interest-rate volatility, but the overall direction of policy easing is clear.
The market already expects fiscal easing in H2. However, the characterization of the policy shift as “faster implementation rather than new stimulus” could fall short of some investors’ optimistic expectations.
Key catalysts are the pace at which government bonds and policy-based financial instruments are actually deployed in August and September; Q3 GDP and fixed-asset investment data; whether additional easing measures emerge in September and October; and the comparison between actual AFD and fixed-asset investment growth and Goldman Sachs’ forecasts.