China's Fiscal Expenditure Contracts in April, Policy Stimulus May Be Delayed

Overview

This report, published by JPMorgan, analyzes China’s April 2026 fiscal revenue and expenditure data, highlighting an unexpected contraction in fiscal spending—particularly a sharp decline in infrastructure expenditure—which reflects delayed policy execution rather than weakened policy intent. The report argues that fiscal policy has not front-loaded as expected, weakening near-term economic momentum, but leaves room for enhanced fiscal support in the second half of the year if Q2 economic performance falls significantly short of targets.

Core views

Demand side: General public budget expenditure declined by 3.2% YoY in April, reversing the 2.6% growth seen in Q1. This was primarily driven by a sharp 18.6% YoY drop in infrastructure spending—far worse than the modest 2.4% improvement observed in January–February. Meanwhile, social welfare spending (education, healthcare, urban renewal) also slowed from 5.3% YoY in Q1 to just 1.2%, indicating a broad-based deceleration in fiscal outlays. Supply side: Both revenue and expenditure from local government-managed funds contracted sharply—revenue fell by 26.4% YoY and expenditure by 20.8% YoY—mainly due to a 34.8% YoY collapse in land transfer revenue, far exceeding the full-year 2025 decline of -14.7%. This underscores the persistent weakness in the property market, which is severely eroding local fiscal capacity and limiting their ability to fund related investments. Fiscal fund flows: Fiscal deposits increased by RMB 739 billion in April—2–3 times the typical seasonal increase—bringing the balance to RMB 1.2 trillion, a multi-year high. This indicates a significant amount of fiscal funds have not yet been deployed, reflecting a 'hoarding cash' phenomenon. Policy timing: Central government bond issuance (especially special treasury bonds) has accelerated, but local special-purpose bond issuance slowed dramatically in April and May. The report interprets this as evidence of 'patience' or 'delays' in policy execution rather than diminished willingness. The infrastructure investment slowdown may also stem from insufficient qualified project pipelines, higher debt repayment priorities, and slow deployment of policy bank financing tools. Outlook: The report notes that fiscal spending has not been sufficiently front-loaded this year, explaining recent economic softness but also suggesting that market concerns about a sharp fiscal pullback in H2 may be overblown. If Q2 GDP falls significantly below the 4.5%-5% annual target range, it would strengthen the case for intensified fiscal support later in the year. However, policymakers retain considerable flexibility due to the wide target band, resulting in relatively low confidence in immediate policy action.

Analysis framework

JPMorgan analysts employed a 'fiscal-to-investment transmission' framework, cross-validating fiscal data with real-economy indicators such as fixed asset investment (FAI). They first identified structural shifts in fiscal spending (infrastructure vs. social welfare), then used the cliff-like decline in land-related revenue to reveal deep fiscal stress at the local level. Next, they inferred policy implementation lags from the abnormal accumulation of fiscal deposits. Finally, by contrasting central and local bond issuance patterns, they distinguished between policy intent and actual execution, leading to the core conclusion of 'policy patience' rather than 'policy withdrawal.' The report also applied a 'quantity-price decomposition' method—splitting fiscal revenue into tax (+8.2% YoY) and non-tax (-5.3% YoY) components, and expenditures into general budget and government-managed funds—to precisely pinpoint the root cause in land finance rather than overall fiscal health. By comparing current data against historical benchmarks (e.g., full-year 2025, Jan–Mar 2026) and seasonal norms, the report highlighted the abnormality of April’s figures, strengthening its conclusions.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Linkage between fiscal expenditure and infrastructure investment

  The report treats government fiscal spending (supply side) as the key driver of infrastructure investment (demand side), arguing that the contraction in fiscal outlays directly caused the infrastructure investment slump, representing a classic 'supply-constrained' economic slowdown rather than weak demand.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Transmission mechanism from land finance to local government spending

  The report clearly illustrates how land transfer revenue (upstream) directly affects local government-managed fund income (midstream), which in turn impacts infrastructure and public service spending (downstream), revealing local governments’ heavy reliance on—and vulnerability to—the land market.

• Cyclical and Sentiment FrameworkInflection Point Analysis

  Lags in fiscal policy execution and economic turning points

  By comparing fiscal data with GDP growth expectations, the report assesses whether the current economic slowdown has reached a policy inflection point and evaluates whether the 'delay' in fiscal spending is a temporary phenomenon or a structural shift, thereby forecasting potential policy pivots.

• Company Fundamentals and Financial FrameworkInterlinkage of the Three Financial Statements

  Interrelationship among fiscal revenue, expenditure, and surplus

  The report jointly analyzes fiscal revenue, expenditure, and fiscal deposit balances (analogous to a government 'balance sheet'), using the anomaly of 'revenue not fully converted into expenditure' to reveal low fiscal execution efficiency rather than insufficient revenue.

Key data

• General Public Budget Expenditure (April YoY)-3.2%Reverses Q1's 2.6% growth; first monthly contraction in recent months
• Infrastructure Expenditure (April YoY)-18.6%Far worse than the 2.4% growth in Jan–Feb; main drag on total expenditure
• Land Transfer Revenue (April YoY)-34.8%Significantly deeper than the full-year 2025 decline of -14.7%, indicating persistent property market weakness
• Government-Managed Fund Expenditure (April YoY)-20.8%Mirrors land revenue decline, reflecting local fiscal stress
• Increase in Fiscal Deposits (April)RMB 739 billion2–3x typical seasonal increase; balance reached RMB 1.2 trillion, a multi-year high
• Central Government Bond Issuance (May)AcceleratedEspecially special treasury bonds, earmarked for 'Two Upgrades' and 'Two Major Projects'
• Local Special-Purpose Bond Issuance (Apr–May)Sharply SlowedStark contrast with central government issuance pace

Impact & implications

The report argues that the contraction in fiscal spending exerts downward pressure on the macroeconomy, particularly affecting infrastructure and real estate investment, potentially pushing Q2 GDP below expectations. However, since fiscal funds have not disappeared but are instead sitting idle in treasury accounts, there remains room for intensified policy support in H2. If economic data remains weak, the government could accelerate bond issuance and fund disbursement to revive infrastructure investment. Yet, given the wide annual GDP target range, policymakers remain cautious about immediate stimulus. Markets should closely monitor Q2 GDP figures and the pace of local special-purpose bond issuance.

Risks

• Persistent weakness in the land market further deteriorates local government fiscal revenue
• Prolonged idling of fiscal funds reduces policy transmission efficiency and misses the window for stabilizing growth
• If H2 economic performance falls short of expectations, policy space may be constrained by debt risks

What to watch

• Whether Q2 2026 GDP growth significantly undershoots the 4.5%-5% target range
• The pace and utilization efficiency of local government bond (LGB) issuance in May and June
• Trends in fiscal deposit balances—whether they begin declining, signaling accelerated spending