Fiscal deployment remained sluggish in May, and the second half may follow a two-stage fiscal path

Overview

This report assesses China’s May fiscal revenue and expenditure performance and government bond issuance progress. The core view is that, although fiscal revenue remained resilient, fiscal spending and government fund spending were still contracting, and the pace of fiscal deployment was below expectations. Fiscal deposits remained elevated, and the acceleration in special local government bond issuance in June suggests there is still more room for budget execution and policy support in the second half of the year.

Core views

The report argues that the fiscal path may unfold in two stages. The first stage is execution-oriented: speeding up the implementation of the budget already approved by the NPC, issuing government bonds and disbursing funds, while drawing down relatively high fiscal deposits; this could improve infrastructure and public investment in the second half of the year. The second stage is more conditional: if Q2 economic growth falls below the 4.5%–5% full-year target range, the case for additional fiscal support strengthens. However, because the target range gives policymakers more flexibility, the report remains relatively cautious about the certainty of incremental policy action.

Analysis framework

The report tracks indicators including the general public budget, government funds, land sale revenue, fiscal deposits, special local government bond issuance, and fixed asset investment to judge the pace of fiscal deployment, the drag from spending structure, and policy room in the second half of the year. The analytical focus is not on revenue resilience alone, but on the transmission chain among revenue, spending, bond issuance, project funding deployment, and investment performance.

Methodology notes

• Macropolicy TrackingFiscal Revenue and Expenditure Execution Analysis

  Assess the intensity of fiscal policy execution using the revenue, spending, and balance progress of the general public budget and government funds.

  Revenue resilience does not equal policy aggressiveness; if spending contracts and fiscal deposits rise, it means fund deployment and project rollout are still slow.

• Policy Path AssessmentTwo-Stage Fiscal Path

  First execute the approved budget, then decide whether to add support based on growth performance.

  The first stage emphasizes budget execution, bond issuance, and the disbursement of fiscal deposits; the second stage depends on whether economic growth continues to undershoot the policy target range.

• Investment Transmission AnalysisLag from Bond Issuance to Project Deployment

  Accelerating government bond issuance does not usually show up fully in monthly investment data immediately.

  After special bonds are issued, project approval, fund disbursement, and construction are still needed before physical work is created, so the late-June acceleration in issuance may have only a limited boost to June investment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Macroeconomy

  Fiscal policy is an important variable for growth stabilization in the second half of the year.

  Strengths

  Fiscal deposits are high, there is still room to execute the approved budget, and special bond issuance is starting to accelerate.

  Weaknesses

  Fiscal deployment was slow in the first five months, spending contracted, and the project pipeline may be limited.

  Comparison

  Compared with the policy patience after the strong growth in Q1, signs of reactive acceleration strengthened after the slowdown in April and May.

  Risks

  If project deployment continues to lag, the transmission of fiscal funds into actual investment and growth may be weaker than expected.

• Infrastructure and Public Investment

  Fiscal spending and the deployment of special bond funds directly affect infrastructure investment.

  Strengths

  The base in the second half of the year is more favorable, and faster bond issuance may support a recovery in later investment.

  Weaknesses

  May infrastructure-related fiscal spending fell 12.0%, and infrastructure fixed asset investment fell 9.4%.

  Comparison

  Current performance is weaker than the full-year budget spending target and the Q1 fiscal spending growth rate.

  Risks

  Insufficient qualified projects, funds being prioritized for debt repayment, and slow deployment of policy bank tools could all weaken the rebound in investment.

• Local Government Finance and the Land Market

  Land sale revenue affects government funds and local fiscal conditions.

  Strengths

  The acceleration in special local government bond issuance can partly cushion the pressure from falling land revenue.

  Weaknesses

  Land sale revenue fell 35.8% year over year in May, dragging on both government fund revenue and spending.

  Comparison

  The decline in land sales is much larger than the 14.7% decline for full-year 2025.

  Risks

  If the downturn in the property and land markets persists, local government fiscal constraints may continue to suppress spending.

• China Government Bonds

  The pace of bond issuance is an important signal of fiscal execution.

  Strengths

  Special local government bond issuance rebounded to about RMB 500 billion so far in June, showing stronger willingness to use remaining fiscal resources.

  Weaknesses

  There is a time lag between issuance and project use, so the short-term immediate boost to investment data is limited.

  Comparison

  Compared with the average issuance of about RMB 168 billion in April and May, June saw a clear acceleration.

  Risks

  If bond proceeds cannot quickly match effective projects, faster issuance may not turn into physical investment.

Key data

• May general public budget revenueup 6.6% year over yearYear to date, growth is 4.0%, above the full-year budget target of 2.2%.
• May tax revenueup 6.8% year over yearVAT revenue rose 7.9%, and securities transaction stamp duty revenue rose 145.9%.
• May general public budget spendingdown 1.6% year over yearSpending contracted for a second straight month, below the 2.6% growth in Q1 and the 4.4% full-year budget target.
• May infrastructure-related fiscal spendingdown 12.0% year over yearThe report sees this as the main drag on fiscal spending and consistent with weak infrastructure fixed asset investment.
• May infrastructure fixed asset investmentdown 9.4% year over yearPublic fixed asset investment fell 8.9% year over year.
• May government fund revenuedown 20.3% year over yearThe decline in land sale revenue widened to 35.8%.
• May government fund spendingdown 11.5% year over yearAffected by the land market and the pace of disbursement of special local government bond funds.
• Special local government bond issuance so far in Juneabout RMB 500 billionA clear rebound from an average of about RMB 168 billion in April and May.
• Q2/full-year growth target reference4.5%–5%If Q2 growth falls below this full-year target range, the likelihood of additional fiscal support increases.

Impact & implications

For macro assets and policy expectations, the message from the report is that fiscal policy has not yet been fully deployed and still has room to catch up later. In the short term, slower fiscal spending and weaker land revenue explain the softness in infrastructure and public investment; in the medium term, if bond issuance, project approval, and fund disbursement accelerate, infrastructure investment could improve in the second half of the year. If the slowdown in growth persists, the market may reprice the probability of additional fiscal support.

Risks

• Land sale revenue may continue to contract sharply, further weighing on local government fiscal conditions.
• An insufficient pipeline of qualified projects may limit the effectiveness of special bonds and policy funds in generating investment.
• There is a lag between bond issuance and fund deployment, so near-term investment improvement may be weaker than expected.
• If policymakers remain patient because the full-year target range is more flexible, additional fiscal support may come later than the market expects.
• If the Q2 slowdown is not viewed as persistent, the probability of second-stage incremental fiscal support may decline.

What to watch

• The issuance pace of special local government bonds, special treasury bonds, and ordinary treasury bonds in June and July.
• Whether fiscal deposits decline materially in addition to normal mid-year seasonal factors.
• Whether infrastructure fixed asset investment and public fixed asset investment stabilize and recover in the second half of the year.
• Whether the declines in government fund revenue and land sale revenue narrow.
• Whether actual Q2 GDP growth falls below the 4.5%–5% full-year target range.
• Whether approved budget funds are disbursed to projects more quickly and translated into physical work.