J.P. Morgan: China May Fiscal Spending Remains Sluggish, Anticipating a Two-Phase Fiscal Path
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
J.P. Morgan observes that China's fiscal expenditure remained sluggish in May, as general public budget spending contracted for a second consecutive month. Spending fell by 1.6% year-over-year, dragged down by a significant 12.0% drop in infrastructure-related outlays. Meanwhile, general budget revenue maintained solid growth, rising 6.6% year-over-year, supported by tax receipts.
Government fund revenues faced severe headwinds, declining 20.3% year-over-year. This was exacerbated by a deepening contraction in land sales, which plummeted 35.8%. Government fund expenditures also dropped 11.5%.
Despite the spending weakness, fiscal deposits climbed to their second-highest May level in a decade, providing substantial dry powder for potential interventions. June saw a reactive acceleration in special bond issuance, rebounding to approximately 500 billion yuan, although actual project deployment may lag behind the bond issuance. Ultra-long special treasury bond issuance remained steady.
The firm outlines a two-phase fiscal path. The first phase centers on executing the budget approved by the National People's Congress and utilizing accumulated fiscal deposits, which could help infrastructure spending recover. The second, conditional phase depends on macroeconomic performance; if second-quarter growth falls below the 4.5% to 5% target band, the rationale for additional fiscal support in the second half will strengthen, though policymakers retain significant flexibility.