Goldman Sachs in the second episode of the “Outlook 2026” series analyzes the economic trends in Asia in 2026, focusing on China, Japan, and the impact of China's manufacturing industry on the entire Asian region. Goldman Sachs forecasts China's economic growth in 2026 to be 4.8%, above market consensus, but also points out that China is currently in a contradictory structure of “strong manufacturing and exports, weak domestic demand and real estate.” This pattern not only affects China itself but is also reshaping the development paths of other Asian countries.
Real estate has become the biggest headwind for China's economy, declining for five consecutive years
The program begins by discussing China's core structural pressures, with the real estate market declining for five years. Goldman Sachs estimates that in 2025, the real estate sector will drag down China's GDP by nearly 2 percentage points through multiple channels such as construction activity, local government finances, and related consumption.
By 2026, this drag is expected to slightly ease but still amount to about 1.5 percentage points, with impacts expected to continue into 2027. This indicates that real estate issues are not short-term fluctuations but a key variable affecting China's long-term economic growth trajectory.
Falling housing prices spread, household wealth and consumption face pressure
Goldman Sachs points out that real estate has a critical impact on Chinese consumption. On one hand, reduced home purchases directly impact demand for durable goods such as appliances and furniture. More importantly, real estate accounts for about two-thirds of Chinese household wealth.
In recent years, housing prices in China have fallen by approximately 25% to 30%, significantly impacting household assets. Although the Chinese stock market has performed relatively well, stocks only account for about 10% or less of household wealth, making it difficult to offset the effects of the decline in the housing market.
Coupled with weak corporate hiring intentions, high youth unemployment, difficulties for new labor force entrants to find employment, and slowing wage growth, these factors collectively suppress consumer confidence. Goldman Sachs believes that in 2026, Chinese consumption will still grow, but its overall contribution to economic growth will remain limited.
High household savings but insufficient consumer confidence
From a capital perspective, Chinese households are not short of money, with a savings rate exceeding 30%, and total household deposits reaching about 100 trillion RMB (approximately 14.3 trillion USD).
Goldman Sachs points out that the issue is not “lack of money to spend” but “fear of spending.” Due to a relatively limited social safety net, people must self-insure for healthcare, retirement, and unemployment, leading to highly “self-insured” savings behavior.
Therefore, even with high deposit levels, Goldman Sachs still expects that in 2026, the support of Chinese consumption for economic growth will remain moderate.
China's manufacturing industry remains strong due to obvious cost advantages
Contrasting with weak domestic demand is China's manufacturing competitiveness, which remains extremely strong. Goldman Sachs' equity research team finds that in several mid-to-high-tech industries, China has a 20% to 40% cost advantage over major global competitors, including batteries, electric vehicles, and electronics.
China's export growth rate has long exceeded global trade growth, indicating that China is continuously expanding its share of the global manufacturing market. Goldman Sachs estimates that in the coming years, China's exports could grow by about 5% to 6% annually.
This manufacturing strength is backed by continuous technological improvements, such as outstanding performance in batteries, electric vehicles, and electronics, and a gradual move upstream in the semiconductor supply chain. Although still behind the world's top standards, progress is clear.
Japan's policy direction defies the trend, with sluggish GDP growth despite rate hikes
Among Asian countries, Japan appears particularly unique. Goldman Sachs estimates that Japan's real GDP growth in 2026 will be less than 1%, indicating moderate growth. However, inflation levels are relatively high, and the Bank of Japan has raised its policy interest rate to 0.75%, a 30-year high.
Japan's government bond yields are around 2%, even higher than China's. While most Asian countries are still pursuing a “rate cut” policy, Japan has chosen to “raise rates,” forming a starkly different monetary policy stance.
China's manufacturing industry is too strong, putting pressure on other Asian export economies
Finally, Goldman Sachs points out that China's manufacturing strength poses severe challenges to other Asian export-oriented economies.
Without clear differentiation advantages, it is difficult to compete with China on costs. For example, Taiwan relies on high-end semiconductors, and India on service exports, to form niche advantages. Without such positioning, relying solely on traditional manufacturing exports will be hard to counter China, and countries may need to shift toward expanding domestic demand to support growth. This also means that the future economic paths of Asian countries will become more diversified.
(Former Japanese ambassador to China: China's economic crisis is unprecedented, and the real estate market collapse affects the entire nation and its vital interests)
Why does China's manufacturing pressure not ease? Goldman Sachs analyzes the key factors of Asian economic differentiation in 2026. Originally published in Lian News ABMedia.
