China's public spending recorded its biggest decline since October last month, indicating the government is tightening its fiscal policy despite mounting calls for more support to counter the economic slowdown.

The public spending measure fell 11.9% year-on-year in June, according to Bloomberg calculations based on data from the Ministry of Finance released Wednesday, while public fiscal revenue rose 1.8%.

This resulted in a public deficit of 4.57 trillion yuan ($675 billion) in the first half of the year, down 13% from the previous year. Goldman Sachs estimated that the negative fiscal impact from April to June contributed more than 40% to the sequential decline in real economic growth between the first and second quarters.

Tue, 21 2026

China's fiscal decline cast a shadow over overall investment, coinciding with a sharper-than-expected economic slowdown in the second quarter. However, a shift toward more accommodative policy is still likely, with senior officials calling for accelerated implementation of approved pro-growth measures to ensure Beijing meets its annual target of 4.5% to 5%.

Economists at Standard Chartered wrote in a note released Wednesday that the slowdown in fiscal spending 'appears to be a deliberate fine-tuning of the spending pace after the strong growth in the first quarter,' adding that 'the government still has ample fiscal room within the budget framework approved in March.'

More active fiscal policy

The Ministry of Finance announced it would continue implementing a fiscal policy it described as 'more active,' according to a statement in a video released as part of its quarterly briefing.

Among other measures, the ministry said officials would work to 'implement all approved policies on the ground,' with 'reasonably accelerating the pace of spending,' as well as increasing spending aimed at improving citizens' welfare.

Mon, 20 2026

It pledged to continue supporting the expansion of effective investment, indicating the government's continued focus on high-quality projects to avoid wasteful investment, which may limit its ability to accelerate spending.

Infrastructure-related spending in the general public budget, the largest of the four government budget accounts, fell 9% from April to June compared to the previous year, according to Bloomberg calculations based on ministry figures.

At the same time, total government spending on education, healthcare, social security, and employment rose 4.9% over the same period. Since last year, officials have been promoting an 'investment in people' policy as part of efforts to encourage births and boost household spending, offering benefits such as childcare subsidies and preschool fee exemptions.

Tax revenue in China

In a separate video, the ministry attributed the 4.7% increase in general revenue in the first half of the year, including tax revenue, to a rebound in industrial product prices and corporate profits, as well as stock trading activity and higher imports.

Value-added tax revenue, the largest source of fiscal revenue in China, rose 6%, while corporate income tax revenue, the second largest source, increased 3.9%.

Stamp duty revenue jumped 40.9%, the highest increase among major taxes in the same period, driven by nearly doubling of revenue from stock trading. Personal income tax growth, and combined revenue from value-added tax and consumption tax on imports, exceeded 11%.

Mon, 13 2026

Infrastructure tops spending priorities

In contrast, the years-long property downturn continued to pressure public finances, with local government revenue from land sales falling 31.5% from January to June. Major public works projects are set to become the focus of government spending in the coming months.

The government pledged to accelerate implementation of the massive 'Six Networks' program, a strategic national infrastructure development project covering data centers, power grids, and telecommunications, aimed at supporting China's long-term growth in the new AI era.

This followed Premier Li Qiang's pledge to maximize existing policies and study additional measures for a more effective response to the economic slowdown. Chinese provinces have begun stepping up efforts to raise necessary funding for capital expenditure.

China expands investment financing tools

In June, local governments issued bonds worth 291.7 billion yuan, mainly to finance infrastructure investment, according to Bloomberg data. This was the highest level since February and more than double the previous month's issuance, though still below year-ago levels. The pace is likely to continue in the coming months, as provinces have 1.9 trillion yuan left in their bond quotas that can be used in the second half.

Separately, the government has planned to make available 800 billion yuan in new policy financing tools this year, a quasi-fiscal mechanism aimed at stimulating investment. Government-run Securities Times reported that the funding has yet to be utilized and is set to be accelerated in the third quarter.

Economists at Goldman Sachs said in a report: 'After second-quarter GDP fell short of expectations, we expect policymakers to ramp up accommodative rhetoric and pledge to accelerate implementation of planned demand-support measures at the upcoming July Politburo meeting.' They added: 'However, strong exports and the possibility of meeting the annual growth target suggest limited urgency for a large-scale, significant stimulus package in the near term.'