China: Fiscal room remains sizeable in H2 – Standard Chartered

Fiscal measures were front-loaded, contributing to higher-than-expected GDP growth in H1. If broad budget is fully implemented, fiscal impulse would be 1.2% of GDP in H2, reducing downside risk. Broad spending can maintain the H1 pace under prudent assumptions of tax and land sale revenues. The government is likely to advance the 2026 local debt-swap quota if growth slows sharply in H2, Standard Chartered's market analysts report.

No urgency for additional fiscal stimulus yet

"Proactive budget implementation supported GDP growth of 5.3% y/y in H1. We estimate the broad budget deficit (combined general public budget and government funds budget) for H1 at CNY 4.75tn (or 3.4% of our estimated 2025 GDP), c.CNY 1.1tn (or 0.7% of GDP) higher than the actual implementation in the first half of 2024. Broad revenues fell 0.6% y/y in H1 on falling tax and land sales revenues. Meanwhile, broad spending grew 6% y/y, with robust spending on social security and employment, science and technology, infrastructure projects and land acquisitions. In addition, local debt-swap bond issuance reached 90% of the annual quota of CNY 2tn, also releasing fiscal resources to the real economy."

"Fiscal room under the broad budget is still decent in H2, in our view, though we expect support from debt-swap operations to be much less. The approved 2025 budget includes a fiscal impulse as large as 1.9% of GDP. If fiscal room under the broad budget is fully utilised, the government can potentially run a deficit of CNY 8.7tn in H2 – this would be c.CNY 1.9tn (or 1.2% of GDP) more than in H2-2024."

"In light of the strong H1 economic performance and still-comfortable fiscal space available in H2, we expect the government to focus on budget implementation instead of introducing additional stimulus at this stage. If growth falls significantly below its targeted 5% in H2, the government is likely to allocate the 2026 debt-swap bond issuance quota in advance to mitigate downside risks."