The increase in Chinese government spending is mind-blowing

Photo by Phil Walter/Getty Images

In a clear sign that Chinese policymakers are taking steps to address flagging economic growth, government fiscal spending soared in August with the nation’s ministry of finance revealing an annual increase in expenditure of 25.9%.

The enormous increase, the largest annual rise since April, left government spending so far in 2015 up 14.8%, or more than 10 trillion yuan, than the same period a year earlier.

With traditional monetary responses such as interest rate cuts having less impact on economic activity than in the past, China is trying to increase fiscal stimulus to both shore up short-term growth and defend against deflationary pressures, according to a report from Reuters.

The increase in government spending was broad based. Between January to August, expenditure on energy conservation and clean technology rose by 22.7% compared to a year earlier, topping a 21.7% lift in social security and employment spending and 15.8% increase in education.

While not as large as the increase in government expenditure, fiscal revenues rose 6.2% in the year to August, leaving the total increase so far in 2015 at 7.4% compared to the same period of a year earlier.

In another sign China is prepared to crank up fiscal stimulus, the powerful economic planner, the National Development and Reform Commission (NDRC), held an internal teleconference on Monday to discuss the ways to stabilise investment growth.

According to Reuters, measures to be taken include dispensing a second round of financing for construction projects by September, and ensuring that funding for projects paid for by the central government will be ready in the next two weeks.

China’s government is currently targeting economic growth of 7% this year, a figure that many analysts believe may be hard to achieve given a noticeable slowdown in economic activity in recent months.

Data released over the weekend revealed industrial production and urban fixed asset investment figures grew less than expected in the year to August, something that may have been caused by temporary disruptions caused by the enormous port explosion at Tianjin midway through the month and shuttering of industry before Victory Day celebrations held earlier this month.

Despite the sharp increase in government expenditure, Chinese stocks have not responded positively to the news so far during Tuesday’s session. The benchmark Shanghai Composite index currently sits at 3053.3, a decline of 1.97%. From this year’s high it has fallen over 41%.

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