China’s broad fiscal spending fell 3.7 per cent year on year in September, its seventh consecutive monthly decline, though the contraction narrowed from 6.7 per cent in August, Bloomberg calculations based on China’s Ministry of Finance data showed.
The figures suggest the fiscal squeeze has yet to ease significantly. Broad fiscal revenue also declined, by 3.5 per cent. Broad spending covers expenditure under the general public budget and the government-managed funds budget.
As a result, the fiscal deficit narrowed 3.8% year on year in September. In the first nine months of this year, broad fiscal spending exceeded revenue by 7.57 trillion yuan (S$1.45 trillion).
China’s fiscal policy has remained tight this year, becoming a major drag on the economy. While booming exports have continued to support economic expansion, fiscal spending has failed to give domestic demand an effective boost.
The fiscal squeeze could ease in the coming months as major national projects, including the construction of “six networks”, get under way and Beijing rolls out recently approved additional support measures to spur investment. The “six networks” comprise water networks, new power grids, computing networks, next-generation communications networks, urban underground pipeline networks and logistics networks. They were identified as key priorities and major projects for modern infrastructure development at the Chinese Communist Party Politburo’s April meeting.
The data also showed that China’s broad fiscal revenue fell in September for the first time since February, helping to explain policymakers’ continued reluctance to introduce more aggressive economic stimulus measures.
At a briefing following last week’s Asia-Pacific Economic Cooperation (APEC) Finance Ministers’ Meeting in Hong Kong, Chinese Finance Minister Lan Fo’an stressed the need to balance support for domestic demand and productivity through social spending with fiscal discipline and long-term sustainability.
The main factors slowing fiscal spending include falling land-sale revenue, Beijing’s efforts to resolve local governments’ hidden debt, and a shortage of investment projects capable of generating returns. Tighter scrutiny of officials during government personnel reshuffles has posed another obstacle.
Data from China’s Ministry of Finance showed that local governments’ land-sale revenue plunged 27.9% year on year in the first nine months of this year. Related expenditure tied to that revenue consequently fell 18.5% over the same period.
Goldman Sachs said in a report that although China had introduced some modest easing measures since late September, its estimates showed that “fiscal policy remains a drag on economic growth”.
Goldman Sachs believes the latest round of stimulus is more likely intended to reverse the earlier fiscal tightening and ensure that this year’s economic growth target of 4.5% to 5% is met, rather than mark the start of a new cycle of sustained, large-scale fiscal easing.
Over the past few weeks, Chinese policymakers have announced a series of measures to stimulate economic growth, including mortgage subsidies for eligible homebuyers and permission for local governments to issue an additional 550 billion yuan in bonds.
