China’s Fiscal Pullback Stretches Into August as Spending Slumps

(Bloomberg) -- China's public expenditure declined at a quicker rate in August, indicating the government was still withdrawing fiscal support for the economy despite cooling growth momentum.

A measure of broad budget spending fell 6.7% last month from a year earlier, faster than its 4.4% drop in July, according to Bloomberg calculations based on Ministry of Finance data released on Friday. Broad revenue rose 2.9%.

As a result, the fiscal deficit shrank by a fifth in August, taking the shortfall in the first eight months of the year to 5.5 trillion yuan ($821 billion).

The deepening pullback in government spending partly explains the persistence of weak domestic demand in August, when consumption growth almost ground to a halt and investment continued to slump. Policymakers are likely keeping a close eye on how the economy fares in the next few weeks as they assess whether additional stimulus is needed to achieve their annual growth target of 4.5%-5%.

Officials have so far focused on the faster use of existing budget allocations instead of rolling out fresh supportive measures. In one such move, state-owned policy banks started deploying funding from a program that can unlock 800 billion yuan, mainly for infrastructure projects in 2026.

Government bonds slated to be issued during the rest of this year but still unsold were equivalent to around 1.1% of China's gross domestic product, according to estimates by Miao Yanliang, chief economist at China International Capital Corp. Authorities should be able to meet this year's growth target with spending financed by the borrowing, he said earlier this week.