China government spending falls faster as fiscal support recedes

China’s public spending fell at a faster pace in August, suggesting the government continued to withdraw fiscal support even as economic momentum cooled.

Broad budget spending dropped 6.7% from a year earlier, accelerating from a 4.4% decline in July, according to Bloomberg calculations based on Ministry of Finance data. Broad revenue rose 2.9%, causing the fiscal deficit to shrink by a fifth during the month.

The shortfall for the first eight months of the year reached 5.5 trillion yuan, or about $821 billion. The pullback in spending helps explain why domestic demand remained weak in August, when consumption growth nearly stalled and investment continued to decline.

Policymakers are assessing whether more stimulus is needed to meet the annual growth target of 4.5% to 5%. So far, officials have focused on using existing budget allocations rather than introducing new support measures.

State-owned policy banks have begun deploying funds from a program that can unlock 800 billion yuan, mainly for infrastructure projects this year. Government bonds still awaiting issuance for the rest of the year equal about 1.1% of gross domestic product, according to Miao Yanliang, chief economist at China International Capital Corp.

Miao said authorities should be able to meet the growth target with spending financed by that borrowing.