Goldman Sachs: What will support China’s growth in 2027? Invited guests expect continued fiscal constraints and slower export growth

Why will government investment still be needed in the short term despite prolonged fiscal constraints?

The guests at the Goldman Sachs discussion consider fiscal tightening the most important driver of domestic economic weakness in 2026, and believe the pressure is persistent. Non-tax revenue, including proceeds from land sales, is unlikely to grow; leadership concerns about leverage limit further increases in net government bond issuance; and population aging is pushing up pension and healthcare spending.
The guests therefore see tax increases as a structural trend in the coming years. But weak private demand also means government investment may continue to fill the gap and sustain growth from 2026 to 2027.
Recent fiscal support may first become apparent in the first quarter of 2027: 800 billion yuan in new policy-based financial instruments deployed from September to October, and an additional 550 billion yuan in local government debt quota announced in October, are expected to boost real GDP in that quarter.

The guests have limited expectations for the strength of property and consumption policies. They believe the policy goal is to control the pace of house price declines and manage the contagion of financial risks, rather than drive a major rebound in the property market.
On boosting consumption, the parties concerned have yet to reach a consensus on effective and sustainable measures. Strengthening social security and improving income distribution through fiscal reforms are also constrained by complex central-local government relations and divergent interests.

In US dollar terms, China’s exports rose more than 20% year on year in the first three quarters of 2026. The guests expect export growth to slow to about 10% year on year in 2027; China-US and China-EU trade relations are expected to remain relatively stable, but the widening trade surplus needs to be managed.
As an example, the guests said policymakers may reduce export VAT rebates on goods whose exports grow more than 50% year on year. Regarding the renminbi, they believe policymakers have no preset future level for the US dollar-renminbi exchange rate, but will adjust the pace of renminbi appreciation according to export strength.
The guests believe the long-term goal of doubling income between 2020 and 2035 remains important, so the 2027 growth target is unlikely to be significantly below 4.5%. On monetary policy, they expect conventional interest rate cuts to be possible next year, especially if the Federal Reserve stops raising rates or shifts to cuts.

The guests said high-tech industries, including artificial intelligence, account for about 20% of China’s GDP and contributed 40% of GDP growth. They expect their contribution to growth could rise to 50%–60% in the coming years.
Policy still aims to develop high technology into a growth engine, but places greater emphasis on risk management, including duplicative and inefficient local government investment in the same areas and the potential effects of artificial intelligence on the financial system, infrastructure and employment.

The guests believe this year’s meetings between the two countries’ leaders established a floor under China-US relations, and structural factors also help prevent a major escalation, but tensions could still rise from 2027 to 2028.
Potential triggers include Congress introducing China-related measures after the US midterm elections, fewer meetings between the two countries’ leaders next year, and the Taiwan regional leadership election in January 2028. The guests also believe Chinese policymakers are more confident in managing bilateral relations and may be inclined to contain tensions.