Nomura: China’s fiscal stance was tight in the first half, likely becoming less contractionary in the second half, but the probability of major stimulus is not high

Overview

This report analyzes China’s fiscal data for the first half of 2026. Its core conclusion is that improved fiscal revenue coexisted with slowing fiscal expenditure, making the fiscal stance contractionary and potentially explaining the slowdown in Q2 GDP growth. The report expects fiscal spending to recover in the second half as government bond issuance accelerates and RMB 800bn of new policy financial instruments are deployed, but the likelihood of large-scale additional fiscal stimulus from the Politburo meeting is low.

Core views

First, broad fiscal revenue improved year-on-year to 1.0% in the first half, mainly due to a rebound in budgeted revenue, VAT, and corporate income tax, as well as stricter tax collection. Second, broad fiscal expenditure fell year-on-year to -2.9%, with budgeted expenditure growth at only 1.5% and government fund expenditure down 16.4% year-on-year, indicating a notably weak spending side. Third, the real estate downturn continued to weigh on land sales and government fund revenue, and local fiscal pressure remains an important constraint. Fourth, fiscal spending is expected to improve in the second half, but this is more likely to come from faster execution of existing budget and bond quotas rather than large-scale new stimulus.

Analysis framework

The report is based on monthly Ministry of Finance data. Given the high volatility of monthly data, it focuses on cumulative first-half data to assess trends, and compares budgeted fiscal accounts, government funds, land sale revenue, tax revenue, fiscal expenditure categories, and net government bond financing on a year-on-year basis. It also evaluates the direction of fiscal impulse and the policy space for the second half by comparing with 2025, Q1 2026, and the National People’s Congress budget targets.

Methodology notes

• Macro Fiscal AnalysisBroad Fiscal Revenue and Broad Fiscal Expenditure

  Combines budgeted fiscal accounts with off-budget or government fund-related revenue and expenditure for joint observation, in order to assess the impact of overall fiscal policy on the economy.

  Rising revenue growth alongside falling expenditure growth reduces the fiscal impulse and creates a contractionary effect. Based on this, the report judges that the fiscal stance was tight in the first half.

• Fiscal Impulse AnalysisComparison of Fiscal Revenue and Expenditure Momentum

  Compares the directional differences in growth rates between fiscal revenue and fiscal expenditure to determine whether fiscal policy is expansionary or contractionary for aggregate demand.

  The simultaneous improvement in revenue and turn to negative expenditure in the first half implies weaker marginal fiscal support for the economy.

• Government Financing AnalysisNet Government Bond Financing Excluding Debt Swaps

  Excludes special refinancing bonds that do not directly contribute to new fiscal expenditure, in order to observe the scale of government bond financing that genuinely supports incremental spending.

  The report expects net government bond financing excluding debt swaps to rise to RMB 6.80tn in the second half, supporting a rebound in fiscal spending.

Asset mapping & comparison

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

• Chinese Government Bonds

  The pace of government bond issuance is the key variable determining whether fiscal spending can recover in the second half.

  Strengths

  If the full-year quota is fully utilized, net financing in the second half is expected to rise significantly.

  Weaknesses

  In the first half, net issuance excluding debt swaps completed only 43% of the full-year quota, indicating a slow issuance pace.

  Comparison

  Net financing of RMB 6.80tn is expected in the second half, higher than RMB 5.75tn in H2 2025.

  Risks

  If issuance or fund disbursement continues to be slow, the recovery in fiscal spending may fall short of expectations.

• Chinese Equity Market

  Active stock market trading boosted securities transaction stamp duty, while AI-related goods exports also eased policy concerns about growth.

  Strengths

  Securities transaction stamp duty rose 97.3% year-on-year in the first half, reflecting significantly stronger trading activity.

  Weaknesses

  Support to fiscal revenue from an active stock market does not necessarily indicate an improvement in domestic demand fundamentals.

  Comparison

  The growth rate of securities transaction stamp duty rose from 57.8% in 2025 to 97.3% in the first half of 2026.

  Risks

  If trading activity cools, related tax revenue and support for risk appetite may weaken.

• Real Estate-Related Assets

  The real estate downturn continues to drag on land sale revenue and local fiscal capacity.

  Strengths

  Second-hand home transactions in some large cities have improved.

  Weaknesses

  The improvement is insufficient to offset weakness in other cities, and land sale revenue has fallen sharply.

  Comparison

  Land sale revenue fell 31.5% year-on-year in the first half, worsening further from -14.7% in 2025.

  Risks

  Deteriorating real estate revenue may continue to intensify local government fiscal pressure and constrain fiscal expansion capacity.

• Consumption and Domestic Demand-Related Assets

  The turn to negative consumption tax and the pull-forward effect of the trade-in policy indicate that consumption momentum remains weak.

  Strengths

  Policy may still remain accommodative and provide some support through faster spending in the second half.

  Weaknesses

  Consumption tax revenue growth fell from 2.0% in 2025 to -3.4% in the first half, reflecting weaker retail sales and insufficient consumer confidence.

  Comparison

  Compared with the overall improvement in tax revenue, consumption tax performance shows clear divergence.

  Risks

  Short-term stimulus such as the trade-in policy has a pull-forward effect and is difficult to use frequently.

Key data

• Growth Rate of Broad Fiscal Revenue in the First Half1.0% YoYImproved from -2.9% in 2025.
• Growth Rate of Broad Fiscal Expenditure in the First Half-2.9% YoYWeakened significantly from 3.7% in 2025.
• Growth Rate of Budgeted Fiscal Revenue in the First Half4.7% YoYHigher than the full-year target of 2.2% set by the National People’s Congress in March.
• Growth Rate of Tax Revenue in the First Half5.3% YoYRecovered from 0.8% in 2025, mainly driven by VAT and CIT.
• Growth Rate of VAT Revenue6.0% YoYAccelerated from 3.4% in 2025.
• Growth Rate of CIT Revenue3.9% YoYAccelerated from 1.0% in 2025.
• Growth Rate of Land Sale Revenue-31.5% YoYFurther deteriorated from -14.7% in 2025.
• Growth Rate of Government Fund Revenue-21.6% YoYSignificantly below the full-year growth target of 0.6% set by the National People’s Congress in March.
• Growth Rate of Budgeted Fiscal Expenditure in the First Half1.5% YoYBelow the full-year budget target of 4.4%, marking the slowest first-half spending growth since 2020.
• Growth Rate of Government Fund Expenditure in the First Half-16.4% YoYWas 11.3% in 2025; the decline widened to -31.0% in Q2.
• Net Government Bond Issuance in the First HalfRMB 6.64tnEquivalent to 48% of the full-year government bond quota of RMB 13.89tn.
• Net Government Bond Issuance in the First Half Excluding Debt SwapsRMB 5.09tnEquivalent to 43% of the full-year quota, below RMB 6.09tn in H1 2025.
• Expected Net Government Bond Financing in H2 Excluding Debt SwapsRMB 6.80tnHigher than RMB 5.75tn in H2 2025.

Impact & implications

For the macroeconomy, slower fiscal spending in the first half may weaken aggregate demand and help explain the slowdown in Q2 growth; in the second half, bond issuance and the deployment of policy financial instruments are expected to improve the pace of fiscal spending. For assets, a rebound in fiscal spending may provide marginal support to infrastructure and domestic-demand-related expectations, but deteriorating real estate-related fiscal revenue, weakening consumption tax, and local debt constraints imply that policy flexibility remains limited.

Risks

• The continued real estate downturn is dragging on land sale and government fund revenue, further intensifying local government fiscal pressure.
• Improvements in VAT and CIT may be driven more by external or temporary factors such as oil prices, upstream corporate profits, and tax collection, rather than a genuine strengthening of domestic demand fundamentals.
• If government bond issuance and fund disbursement fall short of expectations, the recovery in fiscal spending in the second half may be delayed or weaker than expected.
• Short-term stimulus policies have pull-forward effects, and frequent use may reduce policy efficiency.
• Local government debt constraints may limit the room for additional fiscal stimulus.

What to watch

• How the July Politburo meeting frames fiscal policy, growth targets, and incremental stimulus.
• The pace of government bond issuance in the second half, especially the scale of net financing excluding debt swaps.
• The rollout pace and use of funds for the RMB 800bn of new policy financial instruments.
• Whether land sale revenue, government fund revenue, and local fiscal pressure continue to deteriorate.
• The subsequent sustainability of major tax categories such as VAT, CIT, consumption tax, and securities transaction stamp duty.
• Marginal changes in fiscal expenditure categories such as infrastructure, education, healthcare, social security, and employment.