China: Fiscal revenue and expenditure growth both improved in June, while land sales revenue contracted further

Research evidence excerpt

China: Fiscal revenue and expenditure growth both improved in June, while land sales revenue contracted further

en the prolonged property downturn (especially for

construction activity) and still-stretched funding conditions for many developers.

4. Taking into consideration the general public budget and government-managed fund

budget, we estimate year-on-year growth in total government revenue slowed to +1.8%

in June from +2.4% in May, and the year-on-year contraction in total government

expenditure widened to -12.0% from -3.9%. Further incorporating more off-budget

financing channels, our proprietary “augmented fiscal deficit” (AFD) metric continued to

narrow in June, on both a 3-month and 12-month moving average basis (Exhibit 3).

Although our proprietary measure of the fiscal “spend-through” ratio (which is based on

12-month moving average) and the year-on-year change in the outstanding amount of

fiscal deposits pointed to slightly faster government spending of previously raised funds

in June (Exhibit 4), the meaningful tightening of our AFD metric suggests fiscal policy

became a growth drag in Q2, on the back of falling land sales revenue and shrinking

policy bank support. We estimate the negative fiscal impulse contributed more than

40% of the sequential decline in real GDP growth from Q1 to Q2 (Exhibit 5).

5. In the first half of 2026, on-budget fiscal revenue grew 4.7% yoy (vs. -1.7% yoy in

2025), exceeding the MOF’s full-year budget projection of a 2.2% yoy gain thanks to a

notable improvement in tax revenue growth amid higher global energy prices and

domestic PPI inflation, while anecdotal evidence suggests that some local governments,

2 We define infrastructure-related fiscal spending as fiscal spending on energy saving & environment