宏观研究-中国下半年财政展望

Asia in Focus: China H2 Fiscal Outlook Summary

Core Content

This report provides an analysis of China's fiscal conditions and policy outlook for the second half of 2025, emphasizing the shift from a drag to a moderate growth boost in fiscal policy. It outlines the current fiscal space, potential for further easing, and the impact on fixed asset investment (FAI) and GDP growth.

Main Points

Fiscal Conditions in H1 2025

• Fiscal Expansion: China's fiscal conditions have improved notably in H1 2025, driven by the RMB10tn local government debt resolution plan and expansionary budget.
• Government Revenue and Expenditure: Government revenue growth declined to -0.3% yoy, while expenditure growth reached 3.4% yoy, outperforming revenue growth.
• Augmented Fiscal Deficit (AFD): The AFD widened to 11.3% of GDP in H1 2025, up from 10.6% in 2024, indicating a more supportive fiscal stance.

Fiscal Space Available for H2

• Unused Quotas: There is still significant fiscal room, including RMB5tn unused government bond issuance quota and over RMB1tn unspent fiscal deposit.
• Extra-Budget Funding Options: Policymakers may use extra-budget tools such as policy bank net financing and budget revision if needed.

Fiscal Policy Outlook

• Moderate Expansion: Given the resilience of real GDP growth and the current "reactive" easing mode, fiscal expansion is expected to be moderate.
• Potential for Incremental Easing: A "dual cut" (RRR and policy rate) is anticipated in Q4, and more targeted easing measures in H2, such as support for consumption and high-tech manufacturing.
• Risk of Backloading: There is a risk that fiscal easing could be more backloaded than the current baseline assumption, depending on export performance and growth data.

Fixed Asset Investment (FAI) Forecast

• Lowered Forecast: The FAI growth forecast for 2025 is lowered by 2pp to 3% from 3.2% in 2024.
• Sectoral Trends:
  • Infrastructure: Expected to moderate to 6% growth in 2025 from 7.2% in 2024.
  • Manufacturing: Likely to decline to 5% due to US tariffs and anti-involution policy.
  • Services and Agriculture: Expected to rebound to 2.5% growth in 2025 from -6% in 2024.
  • Property: Remains depressed at -11% yoy in 2025, reflecting continued weakness in land sales and new home starts.

Fiscal Policy Impact on GDP

• Growth Boost: Based on the fiscal impulse framework, fiscal policy is expected to boost real GDP growth by 0.9pp in 2025 and 0.8pp in 2026.
• AFD Forecasts: AFD is projected to widen to 12.5% of GDP in 2025 and 13.5% in 2026, compared to 10.6% in 2024.

Key Information

Lingering Weakness in Off-Budget Channels

• Land Sales and LGFVs: Land sales revenue has been under pressure, and LGFVs continue to face deleveraging challenges.
• PSL Contraction: PSL has resumed contraction since February 2024, reducing its role in financing.

Policy Measures for H2

• Consumption Support: Includes consumer goods trade-in, childbirth subsidies, and social safety net enhancements.
• Investment Support: Focuses on strategic infrastructure, equipment upgrades, AI-related investments, and new financing tools.
• Housing Policy: Includes urban village renovation and destocking measures, though progress is slow.
• Other Measures: Social relief for the unemployed and low-income individuals.

Local Government Incentives

• Bottleneck for Implementation: Local officials' growth incentives remain low due to anti-corruption efforts and stricter discipline.
• Impact of Policies: The "alcohol ban" has negatively affected retail sales in some areas.

Fiscal Impulse and Growth Drivers

• Growth Driver Rotation: The shift from export-driven growth to policy support is expected to be less significant and delayed than previously anticipated.

Conclusion

China's fiscal policy has transitioned from a drag to a moderate growth boost in 2025, with some fiscal space still available for H2. While the economy shows resilience, certain sectors like property and labor markets remain vulnerable, prompting the need for targeted fiscal easing. The AFD is expected to widen further, supporting growth through a combination of on-budget and off-budget measures.