China clings to austerity despite sharper economic slowdown
A broad measure of expenditure tumbled 11.9% in June from a year earlier
Add BT as a preferred source
[BEIJING] China’s public spending plunged last month by the most since October, suggesting the government tightened fiscal policy further despite increasing calls for more support as economic growth slips.
A broad measure of expenditure tumbled 11.9 per cent in June from a year earlier, according to Bloomberg calculations based on Ministry of Finance data released on Wednesday (Jul 22). By contrast, broad fiscal revenue gained 1.8 per cent.
That took the broad deficit in the first half to 4.57 trillion yuan (US$675 billion), 13 per cent less than a year earlier.
China’s fiscal pullback has put a drag on overall investment, with economic expansion weakening more than expected in the second quarter. A shift toward looser policy is still likely as top officials call for faster deployment of pro-growth measures that have already been approved to ensure the economy expands enough to meet Beijing’s annual target of 4.5 per cent-5 per cent.
The slowdown in fiscal expenditure “appears to be an intentional fine-tuning of the spending pace after strong first-quarter growth,” Standard Chartered economists including Ding Shuang wrote in a Wednesday note.
“The government retains sizeable fiscal headroom within the budget framework approved in March,” they said.
The Ministry of Finance said it will continue to carry out what it called a “more active” fiscal policy, according to a statement made in a video clip released as part of its quarterly briefing.
Among other steps, it said officials will “push for all existing policies to be rolled out on the ground and look to “reasonably accelerate the pace of spending,” along with stronger expenditure aimed at improving people’s wellbeing.
The ministry also pledged continued backing for “the expansion of effective investment.” That phrase hints at the government’s continued focus on quality projects to avoid wasteful investment – an approach that’s presented a hurdle for faster spending.
The ministry also pledged continued backing for “the expansion of effective investment,” possibly suggesting that finding enough quality projects will remain a hurdle for faster spending.
Infrastructure-related spending under the general public budget, the largest among the government’s four books, fell almost 9 per cent in April-June from a year earlier, according to Bloomberg calculations based on the ministry’s numbers.
Meanwhile, the government’s combined expenditure on education, healthcare as well as social security and employment rose 4.9 per cent in the period. Officials have since last year been touting a policy of “investment in people,” as part of efforts to encourage births and household spending, handing out perks such as childcare subsidies and pre-school fee exemptions.
In a separate video clip, the ministry attributed a first-half increase of 4.7 per cent in general public income, which incorporates tax revenue, to a recovery in industrial prices and corporate earnings, along with robust stocks trading and stronger imports.
The intake from value-added tax, the country’s largest source of fiscal revenue, rose 6 per cent. China’s revenue from corporate income tax, the second biggest, gained 3.9 per cent.
Growth in stamp duty surged 40.9 per cent in the period, the most among all major taxes, with the collection from stocks trading nearly doubling. Increases in individual income tax and combined revenue from VAT and the consumption tax on imports both surpassed 11 per cent.
China’s years-long property downturn is, however, continuing to put a dent in government finances. Local authorities saw income from land sales slump 31.5 per cent in January-June.
Major public works projects are set to become the focus of government spending in the months to come.
The government on Monday vowed to expedite the construction of a massive “Six Networks” programme – a strategic national infrastructure push involving data centres, power grids and telecom networks aimed at positioning China for long-term growth in the new era of artificial intelligence.
Prior to that, Premier Li Qiang promised to fully leverage existing policies and study a pipeline of additional measures as part of a more active response to the economic slowdown.
Chinese provinces are already ramping up fundraising for capital expenditure.
In June, local governments issued 291.7 billion yuan of bonds primarily to be used for infrastructure investment, according to Bloomberg-compiled data. That’s the highest since February and more than double the amount sold in the previous month – although it remains slightly below its year-earlier level.
The trend will likely continue in the coming months, as provinces still have nearly 1.9 trillion yuan in remaining bond quota to draw down in the second half.
Separately, the government has also planned 800 billion yuan in new policy financing tools – a quasi-fiscal instrument used to drive investment – for this year.
The funding hasn’t yet been tapped and is set for an aggressive rollout in the third quarter, the state-run Securities Times reported on Wednesday. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
