There’s tentative evidence that China’s fiscal stimulus splurge — responsible for driving a recovery in the world’s second largest economy this year — could be coming to an end.
According to data released by China’s Ministry of Finance (MOF) on Monday, fiscal expenditure fell by 12.5% in October compared to the levels of a year earlier, a sharp reversal on the 11.3% growth seen in the 12 months to September.
Central government spending rose 5.6 % in October from a year earlier, while spending by local governments dipped 15.5%, said Reuters, citing a statement on the MOF’s website.
While total expenditure between January to October still grew by 10% compared to the same period in 2015, the rate was below the 12.5% level seen in the first nine months of the year.
A small deceleration from what is still a rapid pace.
The MOF said the October drop was largely due to a high base of comparison with the same period last year, creating doubt as to whether it is the start of a planned slowdown in fiscal stimulus or merely a one-off aberration.
However, in unison with a sharp slowdown in new bank lending and broader total social financing in October, it suggests that the fiscal and credit-led rebound in economic activity could be coming to an end.
We’ll have to wait until November’s figures are released next month to for further clarity on the matter.
“Fiscal stimulus may be dialled back a bit for now,” said Wei Li, China and Asia economist at the Commonwealth Bank.
“Beijing is running a fiscal deficit of 4.3% of GDP according to our calculation, above its budget of 3.0% for 2016.”
While fiscal expenditure weakened sharply in October, revenue growth actually accelerated, fitting with the improvement in the Chinese economy seen since the first quarter of the year.
Revenues increased by 5.9% in October compared to the levels of a year earlier, up on the 4.9% lift seen in the 12 months to September.
As a result, revenues received between January to October grew by 5.9% compared to the same period in 2015, unchanged from the levels seen in the first nine months of the year.