China: Augmented fiscal deficit tightened further in May

Research evidence excerpt

China: Augmented fiscal deficit tightened further in May

Goldman Sachs China

RMB800bn policy bank new financing tool available this year (up from RMB500bn last

year), and the RMB536bn year-on-year increase in outstanding fiscal deposits all

suggest ample funding capacity in coming quarters. We expect the central and local

governments to step up their bond issuance and proceeds spending in coming months,

accelerate the implementation of the policy bank new financing tool, and leave the door

open for incremental easing should Q2 GDP disappoint meaningfully. However, given

firmer-than-expected exports and the conservative growth target for this year

(“4.5-5%”), we do not expect significant, broad-based stimulus in the near-term.

Lisheng Wang

Exhibit 1: Fiscal revenue growth continued to outperform Exhibit 2: Property-related government revenue

fiscal spending growth in May continued to weaken in May

% yoy % yoy % yoy % yoy

60 60 80 80

Fiscal revenue and expenditure growth Off-budget land sales revenue vs. on-budget property-related tax revenue

50 50 Land sales revenue Fiscal revenue 60 60

40 40 Property-related tax revenue

Fiscal expenditure

30 30 40 Govt revenue from the property sector 40

20 20

10 10

0 0

-10 -10 -20 -20

-20 -20

-40 -40

-30 -30

-40 -40 -60 -60

Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26

Source: Wind, Data compiled by Goldman Sachs Global Investment Research Source: Wind, Data compiled by Goldman Sachs Global Investment Research

Exhibit 3: Our augmented fiscal deficit (AFD) metric tightened further in May

Percent of GDP Percent of GDP

5 5

-5 -5

-10 -10

Augmented fiscal deficit-3mma

-15 Augmented fiscal deficit-12mma -15

Effective fiscal deficit-3mma

Effective fiscal deficit-12mma