(Bloomberg) — China’s broad budget expenditure shrank at a faster clip amid an unprecedented drop in income earned by local governments from land sales, an alarming sign for an economy desperately in need of fiscal support.
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The combined spending in the general public budget and the government fund account was about 22.21 trillion yuan ($3.15 trillion) in the first eight months of the year, down 2.9% from the same point in 2023, according to Bloomberg calculations based on data released by the Ministry of Finance on Friday. It deteriorated further from a decrease of 2% in the January-July period.
A plunge in revenue from land sales has been a particular drain on budgets. Local governments earned just 245.5 billion yuan from them last month, an annual drop of 41.8% that renewed a record decline booked in July.
The latest budget snapshot reveals fiscal policy is still a drag on the economy that’s been plagued by weak private confidence and held back by a property slump while deflation risks grow worse. Consumption, investment and production all cooled more than economists had expected in August, adding to pessimism that the country will struggle to meet Beijing’s annual growth target of around 5%.
The government has urged local officials to accelerate the issuance and use of special bonds, which are primarily intended to fund infrastructure spending. Sales of the debt picked up in August to a more-than-two-year high, after staying slow earlier in the year.
It may take a couple of months before funds raised from the accelerated bond issuance get invested in projects to help stem a drop in local government spending.
Total revenue under the general public budget and the government fund account fell 6% on year to 17.46 trillion yuan in the period. That translated into an augmented deficit — a broad measure of the fiscal gap — of 4.7 trillion yuan.
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