China’s Budget Spending Falls as Land Sale Revenue Plummets, Raising Economic Concerns

China’s budget spending has shrunk at an accelerated pace, driven by a steep decline in land sale revenues. With local governments reporting a 41.8% drop in income from land sales last month, concerns are rising about the country's economic outlook as it struggles to meet growth targets.

China’s Budget Spending Declines 2.9% Amid 41.8% Drop in Land Sales, Raising Economic Concerns

China’s broad budget expenditures shrank faster amid an unprecedented drop in income earned by local governments from land sales, an alarming sign for an economy desperately needing fiscal support.

Bloomberg calculations, which were based on data released by the Ministry of Finance on September 20, indicate that the combined spending in the general public budget and the government fund account was approximately 22.21 trillion yuan ($3.15 trillion) in the first eight months of the year, a 2.9% decrease from the same period in 2023. It further declined from a 2% decrease in the January-July period.

A sharp decline in revenue from land sales has significantly impacted budgets. Local governments generated a mere 245.5 billion yuan from them last month, a staggering 41.8% decrease from the previous year, mirroring the decline recorded in July. This severe drop is a cause for serious concern.

The most recent budget snapshot indicates that fiscal policy continues to burden the economy, which has been impeded by a property slump and lackluster private confidence, as deflation risks worsen. In August, consumption, investment, and production all experienced greater cooling than economists had anticipated. This unpredictability exacerbates the concerns that the country will need help in achieving Beijing's annual growth objective of approximately 5%.

China Accelerates Bond Issuance to Fund Infrastructure as Revenue Declines and Deficit Grows

The government has encouraged local officials to expedite issuing and utilizing special bonds primarily designed to finance infrastructure expenditures. In August, the debt's sales increased to a level that exceeded two years, following a period of stagnation earlier in the year.

The funds raised from the accelerated bond issuance may take several months to be allocated to initiatives intended to mitigate a decline in local government spending.

The total revenue under the general public budget and the government fund account decreased by 6% yearly to 17.46 trillion yuan. According to Yahoo Finance, this resulted in an augmented deficit of 4.7 trillion yuan, a comprehensive measure of the fiscal imbalance.