Chinese fiscal spending slowdown persists in risk for growth
The government’s broad spending in January to August is already up 8.9% from a year earlier for a total of 24.2 trillion yuan
[BEIJING] China’s government spending increased at a slower rate for the second straight month, underscoring how weaker fiscal support now presents a risk to an economy whose momentum is cooling across the board.
Total expenditure under the country’s two major fiscal books climbed just 6 per cent last month from a year earlier, the slowest since May, to 2.7 trillion yuan (S$486 billion), according to Bloomberg calculations based on data published on Wednesday (Sep 17) by the Ministry of Finance.
Combined government revenue under the general public budget and the government-managed fund account rose less than 0.3 per cent in the month to 1.6 trillion yuan. As a result, the broad budget deficit in January to August widened to 6.7 trillion yuan.
“The August slowdown in government spending growth, continued accumulation in fiscal deposits and the sharp decline in infrastructure investment during July to August suggest policymakers are not in a rush to step up stimulus amid still-resilient exports,” Goldman Sachs economists, including Lisheng Wang, wrote in a note.
The pullback in spending follows a front-loading of fiscal stimulus earlier in the year as the world’s second-biggest economy came under pressure from US President Donald Trump’s tariffs.
In August, China’s net government bond issuance decelerated for the first time this year, constraining Beijing’s spending power.
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The waning fiscal support has contributed to the two weakest months for the economy this year in July and August. Investment, a key lever used by the government to stimulate growth, has weakened sharply.
While analysts are increasingly calling on Beijing to ramp up support for the economy, ballooning debt risks mean the authorities may opt against the kind of aggressive fiscal expansion seen in the past couple of years.
The government’s broad spending in January to August is already up 8.9 per cent from a year earlier for a total of 24.2 trillion yuan.
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The ministry’s latest numbers provided further evidence that the government is struggling to lift income. China’s growth woes are curtailing tax revenue while land sales remain sluggish, with the years-long housing slump showing no signs of improvement.
In the first eight months of the year, tax revenue edged up just 0.02 per cent from a year earlier to 12.1 trillion yuan, while local government income from selling land contracted 4.7 per cent to 1.9 trillion yuan. Combined, they made up 80 per cent of broad government revenue during the period.
“Given sluggish domestic demand and continued weakness in labour and property markets, we believe incremental and targeted easing is still necessary in the coming quarters,” Goldman’s economist said. BLOOMBERG
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