China's budget spending hits 4-year low: What's the reason?
What's the story
China's fiscal spending fell sharply in October, marking the largest drop since at least 2021. The combined outlay of China's two major budgets, the general public account and the government-managed fund book, plummeted 19% year-on-year to CNY 2.37 trillion ($334 billion). This was the steepest decline since comparable records began in early 2021 and represented the lowest expenditure since July 2023.
Investment impact
Investment faces unprecedented decline amid budget cuts
The sharp drop in budget spending has severely impacted investment, which saw an unprecedented decline in October. This comes as sluggish consumption and weaker foreign demand continue to weigh on the economy. Goldman Sachs Group's "augmented fiscal deficit" metric also narrowed last month, indicating a less supportive budget policy for growth.
Stimulus delay
Stimulus measures slow to impact economy
The contraction in budget spending indicates that recent stimulus measures will take time to impact the economy. The CNY 500 billion in new policy financing tools was only fully deployed by the end of last month. Another CNY 500 billion in special local government bond quota announced mid-October saw only 40% allocated for projects, indicating a focus on containing debt risks.
Expenditure slowdown
Government expenditure growth slows
In the first 10 months of this year, broad government expenditure totaled CNY 30.7 trillion with a growth rate of 5.2%. The combined government income edged up by a mere 0.2% to CNY 22.1 trillion during this period. This left a broad budget deficit of CNY 8.6 trillion, over 20% more than last year's figure for the same period.