Accelerating government expenditure in the second half of this year could be another option for China’s policymakers as they pursue the goal of economic stabilization, amid the reining in of credit expansion.
Fiscal spending growth may outpace that of fiscal revenue from the third quarter, with strengthened investment in high-tech sectors and some basic public services such as education, Zhang Lianqi, a consultant to the Ministry of Finance and a partner with Ruihua Certified Public Accountants, told China Daily on June 18.
In the first five months, China’s fiscal spending increased 8.1 percent to 8.3 trillion yuan ($1.29 trillion), leaving more than 60 percent of the annually planned budget to be allocated, according to data from the ministry.
The pace of fiscal spending was in line with a relatively fast implementation of the budget, and the expenditure structure still has room for improvement, with a greater focus on innovative and agricultural sectors, said Bai Jingming, vice-president of the Chinese Academy of Fiscal Sciences.
Market observers said China’s policymakers have already slightly adjusted their response to signs of global headwinds recently, especially since some major economic indicators weakened in May.
Controlling credit growth to reduce financial risks will continue, they said, expecting the fiscal policy to take effect and boost domestic demand, offsetting the negative influence of external uncertain factors.
The nation’s monetary authority didn’t show any signs of policy easing in May, reflected by the total social financing and broad money supply data.
During the January-to-May period, China’s fiscal revenue rose 12.2 percent year-on-year to 8.7 trillion yuan, which was slower than the 13.6 percent growth rate in the first quarter, according to the ministry.
“The growth rate of fiscal revenue is likely to moderately slow down in the second half, to around 8 percent,” said Zhang.
A rebound in industrial production and rising factory-gate prices from January to May resulted in a rapid growth in fiscal revenue from collecting value-added tax－the largest contributor of the nation’s tax revenue, said an official from the ministry’s National Treasury Department.
China’s total tax revenue in the first half of this year was 7.68 trillion yuan, up 15.8 percent, slower than 18.4 percent in the first four months and 17.3 percent in the first quarter, the ministry reported.
Since May 1, China has cut VAT rates from 17 percent to 16 percent for manufacturing and some other industries, and from 11 percent to 10 percent for transportation, construction, basic telecommunication services and agricultural produce, as part of a tax reduction package amounting to 400 billion yuan this year.
The implementation of a tax reduction strategy has to some extent restrained the growth of tax revenue, said experts.