China’s fiscal spending climbed back to growth in August and analysts believe that, given the persistent weakness in domestic amid Covid-19 flare-ups and rising downward pressure on the economy, Beijing is expected to accelerate fiscal spending in the rest of the year.
The country’s total fiscal spending in the first eight months of the year reached 15.5 trillion yuan, rising 3.6 per cent from the same period last year, according to data released by the Ministry of Finance on Friday. In breakdown, the central government’s spending fell 3.6 per cent year over year, while local governments’ spending increased 4.8 per cent from a year earlier.
In August alone, its fiscal spending grew 6.2 per cent from a year earlier to 1.74 trillion yuan, compared to a 4.9 per cent drop in the previous month, showed calculations based on official data.
Its total fiscal revenue in the eight-month period reached 15 trillion yuan, increasing 18.4 per cent from a year earlier, according to the finance ministry. That included 7.05 trillion yuan revenue for the central government, up 18.9 per cent year over year, and 7.96 trillion yuan fiscal revenue for local governments, rising 17.9 per cent.
Tax revenue increased 19.8 per cent year over year during the period to 12.96 trillion yuan, rising 19.8 per cent from a year ago, and non-tax revenue grew 10.4 per cent to 2.05 trillion yuan, said the ministry.
In August alone, China’s fiscal revenue grew 2.7 per cent year over year to 1.24 trillion yuan, slowing sharply from a 11.1 per cent drop a month earlier, showed calculations based on official data. That marks the slowest growth pace so far this year.
The slowdown was mainly due to declines in non-tax revenue as well as lower corporate income tax due to impact of the Covid-19 pandemic on business operations.
China’s tax revenue grew by 8.1 per cent year over year last month, easing from a 12.9 per cent growth in July, while non-tax revenue slid 19.8 per cent, accelerating from a 4 per cent drop in the previous month.
Corporate income tax revenue fell by 6.5 per cent in August from a year earlier, the first drop so far this year, while individual income tax grew by 15.1 per cent. Value-added tax and consumption tax grew by 8.5 per cent and 22.3 per cent, respectively.
“Overall speaking, China’s fiscal revenue has been growing stronger than expected, while the growth in fiscal spending was relatively weak,” said Huang Wenjing, analyst at China International Capital Corporation (CICC).
Going forward, as local governments step up bond issuance, their spending is expected to pick up and government consumption and investment may accelerate, said Huang.
Data from the finance ministry also showed that revenue from the government’s land use sales reached 4.7 trillion yuan in the January – August period, increased 12.1 per cent from a year earlier.
Regional Covid-19 resurgence in August dampened economic recovery in the world’s second largest economy, with weakness across industry production, investment and consumption, with growth of retail sales hitting the slowest in a year.
UBS said in a latest research note that China’s economic growth is likely to slow to 5.8 per cent year over year in the third quarter and decelerate further to 4 per cent in the fourth quarter due to high comparison base last year.
“If downward pressure spikes, we believe the government is likely to step up on-budget and off-budget fiscal supports, the regulations aimed at deleveraging the economy are likely to be relaxed and production restrictions aimed to help achieve carbon-neutrality goals will likely be eased too,” said Wang tao, chief China economist at UBS.
