International

China budget deficit shrinks despite need for economic boost

Published Mon, Aug 21, 2023 · 10:58 PM

CHINA’S budget deficit shrank by more than a third so far this year, a sign of Beijing’s cautious fiscal policy despite the economy’s slowdown and a worsening housing slump.

The broadest measure of the fiscal gap – the so-called augmented deficit – was 3.3 trillion yuan (S$617 billion) in the first seven months of this year, down 37 per cent from the same period in 2022, according to Bloomberg calculations based on data released by the Ministry of Finance on Monday (Aug 21). Total revenue rose 6 per cent, while spending was down 4.8 per cent in the period.

The figures show how reticent the government at all levels has been so far this year to step up stimulus, even as economic conditions worsened since April. Many provinces took a severe hit to their finances in 2022 and they likely don’t have the fiscal capacity to substantially boost spending without much more support from the central government.

Last year, the total budget deficit for the 31 provinces hit the highest since at least 2012 as the costs of the Covid Zero policy soared, while revenues slumped due to the weak economy, tax breaks and a fall in land sales. In the first half of this year, a majority of provinces have shrunk their main budget deficit from last year, partly due to a recovery in tax revenue.

The augmented deficit is based on a combination of two government fiscal plans: the general and government fund budgets. Official data on Monday showed revenue from the general public budget – which includes taxes and fees – was almost 14 trillion yuan in the seven months of the year, up 11.5 per cent from the same period last year. That compares with a 13.3 per cent increase in the year through June. Tax revenue rose 14.5 per cent and income from deed taxes, which are paid when a property is bought or sold, rose 4.2 per cent.

Government revenue from selling land-use rights fell 19.1 per cent, dragging down fund income.