China: The contractionary fiscal policy stance in H1

Research evidence excerpt

China: The contractionary fiscal policy stance in H1

Global Markets Research

27 July 2026Asia Insights

Economics - Asia ex-Japan

Research Analysts

China: The contractionary fiscal policy stance in H1 Asia Economics

Hannah Liu - NIHKThe Ministry of Finance released June's fiscal data last week. Given the volatility in

hannah.liu@nomura.commonthly figures, we use H1 data to gauge a broader trend. According to our estimates,

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augmented fiscal revenue growth, which includes off-budget revenues such as income

Jing Wang - NIHKfrom land sales, improved to 1.0% y-o-y in H1 from -2.9% in 2025, driven mainly by faster

jing.wang@nomura.comtax revenue growth thanks to both reflation and more stringent tax collection enforcement.

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However, augmented fiscal expenditure turned negative, falling to -2.9% y-o-y in H1 from

3.7% in 2025, dragged partially by a slow pace of government bond issuance. On a Ting Lu - NIHK

ting.lu@nomura.comquarterly basis, there was a more pronounced improvement in fiscal revenue in Q2

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alongside a sharper deterioration in fiscal spending compared with Q1.

We expect less contractionary/more expansionary fiscal policy in H2

Faster fiscal revenue growth alongside slower expenditure growth reduces the fiscal

impulse and can have a contractionary impact; it also helps to explain theapparentGDP

growthslowdowninQ2. We expect Beijing to step up fiscal spending in H2 by speeding

up government bond issuance and the deployment of the RMB800bn new policy financing

tool. Assuming the full-year net government bond quota is fully utilized, we expect

RMB6.80trn of net government bond financing (excluding debt swaps) to be conducted in

H2, which would represent 57% of full-year quota and surpass the RMB5.75trn recorded

in H2 2025.