Goldman Sachs Report: China's Economy Fully Shifts Track, Technology to Dominate Next Decade

Goldman Sachs recently released a macroeconomic research report titled 'All About Tech,' redefining the fundamental logic of China's economy for 2026. The report states that China is undergoing an 'epic resource shift' from real estate-driven growth to technology and manufacturing-led development. However, this transformation is creating a significant divergence between the domestic market and the tech sector, resulting in a clear 'K-shaped' trend.

The Parallel Worlds of Exports and Domestic Demand

According to the report, there is a noticeable 'temperature gap' between China's macroeconomic data and public sentiment in 2026. Robust GDP growth is primarily supported by exports from high-end manufacturing, particularly automobiles (up 75%), home appliances, and electromechanical equipment (up nearly 20%). However, excluding tech manufacturing exports, real domestic demand growth is estimated at only about 1% to 2%.

This divergence is even more pronounced across industries. Goldman Sachs observes that in 2026, high-end manufacturing grew by 15.1%, and the information services sector grew by over 30%. In contrast, traditional real estate and building materials sectors continue to decline. Capital markets reflect this trend: the information technology stock index has risen over 50% year-to-date, while consumer staples stocks have fallen over 25%, a gap of 75 percentage points.

Re-evaluating the Artificial Intelligence Value Chain

Regarding artificial intelligence (AI), Goldman Sachs' thematic research team identifies a significant 'mispricing' opportunity in the market. Chinese AI-related companies have a total market capitalization of approximately $4 trillion, contributing about 16% of global AI-related revenue. Yet, their share in global mutual fund tech allocations is only around 1.2%.

The report argues this is not merely an application breakthrough but a repricing opportunity driven by 'underweight positioning, policy investment, and hardware demand.' Goldman Sachs recommends investors consider a basket of Chinese AI value chain stocks (GSXACART), including power infrastructure, semiconductors, AI infrastructure, and AI applications.

Moreover, the report notes that China's AI development path differs from that of the U.S. Although China's four major cloud giants (Alibaba, Tencent, ByteDance, Baidu) have capital expenditures only about one-seventh of U.S. levels, China's installed data center capacity has reached 60% of the U.S. level, thanks to massive government investment, such as the 2 trillion yuan computing network initiative.

Beware the 'Tech Deflation Trap' and 'Vicious Cycle'

However, Goldman Sachs expresses concern about the side effects of this tech-driven transformation and warns of a 'tech deflation trap.' The report points out that AI-driven cost reduction and efficiency gains could inherently displace large numbers of white-collar and service-sector jobs, which are largely concentrated among flexible workers and low-to-middle-income groups.

If unemployment expands, it could trigger a chain reaction: population outflow from cities leads to falling rents; the disappearance of rent premiums further pressures housing prices, causing household wealth to shrink and consumer confidence to decline. Businesses, facing revenue pressure, may rely more on AI to cut labor costs, ultimately forming a self-reinforcing negative feedback loop (Doom Loop).

Policy Recommendations and Outlook

In light of the current situation, Goldman Sachs advises policymakers to move beyond solely pursuing GDP growth figures and instead focus more on domestic-demand-oriented indicators such as employment and consumption growth. The report emphasizes that confidence-building requires time and policy continuity, and the past pattern of 'accelerating stimulus only when data weakens' creates quarterly volatility that undermines private-sector confidence.