China’s public spending plunged in June to its lowest level since October, suggesting the government further tightened fiscal policy despite growing calls for more support as economic growth slows.
According to calculations of Bloomberg based on data from Ministry of Financepublic spending fell 11.9% in June compared to the same month of the previous year. In contrast, general tax revenues increased 1.8%.
With this, the general accumulated deficit in the first half reached 4.57 trillion yuan (US$675 billion), a decrease of 13% compared to the same period of the previous year.
China’s fiscal restraint has slowed overall investment and economic expansion weakened more than expected in the second quarter. Given this scenario, it is likely that the Government will move towards a more expansive monetary policy, while senior officials advocate accelerating the implementation of growth-promoting measures already approved.
The goal is to ensure that the economy grows enough to reach the annual goal of Beijinglocated between 4.5% and 5%.
The slowdown in fiscal spending “appears to be an intentional adjustment in the pace of spending after the strong growth of the first quarter,” economists from Standard Charteredincluding Ding Shuang, in a note published on Wednesday.
“The Government retains considerable fiscal margin within the budget framework approved in March,” they stated.
He Ministry of Finance He stated that he will continue to apply a “more active” fiscal policy. Among other measures, officials will “reasonably accelerate the pace of spending” and increase resources intended to improve the well-being of the population.
The ministry also pledged to continue supporting “the expansion of effective investment”, a strategy that suggests the Government will continue to prioritize quality projects to avoid wasteful investments. However, finding enough such projects could remain an obstacle to accelerating spending.
According to calculations of Bloomberg Based on official figures, infrastructure spending within the general public budget fell almost 9% between April and June compared to the same period of the previous year.
In contrast, combined government spending on education, health, social security and employment increased 4.9% during that period. Since last year, authorities have promoted an “investment in people” policy to encourage birth rates and household spending, through measures such as childcare subsidies and preschool tuition exemptions.
General public revenues increased 4.7% in the first half, driven by the recovery of industrial prices and business profits, solid stock market activity and an increase in imports.
Value-added tax collection, the country’s main source of tax revenue, increased 6%. Revenue from corporate income tax, the second most important source, grew 3.9%.
The stamp tax registered the largest increase among the main taxes, with an increase of 40.9%, while the collection associated with the purchase and sale of shares almost doubled. Revenue from personal income tax and VAT and consumption tax on imports increased by more than 11%.
However, the prolonged crisis in the Chinese property market continues to affect public finances. Local governments recorded a 31.5% drop in income from land sales between January and June.
The government promised to accelerate the construction of an ambitious program called “Six Networks”, a strategic infrastructure initiative that includes data centers, power grids and telecommunications networks, with the aim of preparing China for long-term growth in the era of artificial intelligence.
Previously, the prime minister Li Qiang had promised to make the most of existing policies and explore additional measures as part of a more active response to the economic slowdown.
Chinese provinces are already intensifying their fundraising for capital expenditures. In June, local governments issued 291.7 billion yuan of bonds, mainly aimed at infrastructure investments, according to data compiled by Bloomberg. The figure was the highest since February and more than double that recorded the previous month.
This trend could continue in the coming months, as provinces still have nearly 1.9 trillion yuan in bond installments to use during the second half.
Separately, the government also plans to allocate 800 billion yuan to new policy financing instruments this year, a quasi-fiscal mechanism used to boost investment.
As reported on Wednesday by the state newspaper Securities Timesthe funds have not yet been used and their deployment is expected to accelerate during the third quarter.
