J.P. Morgan China: 2025 Fiscal Execution Undershot Targets, Fund Carryover and Early Bond Issuance to Support 1Q26 Growth
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J.P. Morgan observes that China’s 2025 fiscal execution was weak overall, with both general public budget and government fund budgets missing their annual targets. In December, general public budget revenue fell 25% year-over-year, dragged down by declining tax and non-tax receipts, resulting in a full-year revenue contraction of 1.7%. General public budget expenditure growth slowed to 1.0% for the year. Government fund revenues dropped 11.7% year-over-year due to a 22.9% decline in land sales. Fiscal deposits ended the year at 658 billion yuan, remaining elevated above the 2020-2024 average of 363 billion yuan. This suggests fund carryovers could be larger than expected, providing ammunition for front-loaded fiscal spending. High-frequency data reveals that January 2026 government bond issuance reached approximately 1.1 trillion yuan, exceeding the 930 billion yuan issued in January 2025. This early issuance supports front-loaded stimulus without waiting for the March budget approval. J.P. Morgan forecasts first-quarter 2026 GDP to grow at an annualized quarter-over-quarter rate of 6.2%. The official deficit target sits near 4% of GDP, while the broad deficit ratio reaches approximately 11%. Consumption support measures are moderately expanding to roughly 0.5% of GDP, encompassing trade-in subsidies, pensions, healthcare, and childcare, with over 30 million infants already receiving childcare subsidies.