Slow fiscal deployment in the second quarter leaves greater implementation room for the second half of the year

Overview

This report discusses the slow fiscal deployment in China during the second quarter and its implications for policy room in the second half of the year. In June, both general public budget revenue and expenditure improved, especially with a rebound in tax revenue, but government fund accounts continued to be dragged down by falling land sales. J.P. Morgan believes that fiscal deposits increased in the first half of the year and remained above the norm of recent years, and together with the relatively slow pace of government bond issuance, this implies that there is still considerable room for fiscal execution in the second half of the year.

Core views

The core view is that fiscal accounts have clearly diverged: the general public budget has improved, while land-related government funds have weakened significantly; the slow fiscal execution in the second quarter does not mean policy room has been exhausted, but rather reflects a combination of project reserves, debt repayment priorities, bond issuance, and the pace of fund deployment. The near-term policy focus is on accelerating the execution of existing budget and bond funds, and the probability is low that the July Politburo meeting will release signals of additional fiscal support. Only if third-quarter growth again falls significantly below the full-year target range of 4.5%-5.0% would the possibility of additional fiscal support rise.

Analysis framework

The report assesses the pace of fiscal execution and policy room in the second half of the year by comparing monthly year-over-year changes in general public budget and government fund revenue and expenditure, together with fiscal deposits, government bond issuance, infrastructure fixed-asset investment, and progress toward the GDP target.

Methodology notes

• Macro Fiscal AnalysisFiscal Account Component Tracking

  Analyze the general public budget separately from government funds

  The general public budget reflects improvements in tax revenue and regular spending, while government funds rely more on land sales and the deployment of special bond proceeds. The divergence between the two helps assess the true intensity of fiscal policy execution.

• Policy Path AssessmentTwo-stage Fiscal Path

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

  The first stage focuses on implementing the budget, fiscal deposits, and government bond funds; the second stage depends on whether third-quarter growth falls significantly below the full-year target range.

Asset mapping & comparison

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

• China Macroeconomy

  The pace of fiscal execution affects growth momentum in the second half of the year

  Strengths

  General public budget revenue and expenditure have improved, and fiscal deposits and bond funds leave room for the second half of the year.

  Weaknesses

  Government funds and land sale revenue have fallen sharply, putting pressure on local public finances.

  Comparison

  Compared with the first quarter, expenditure growth slowed significantly in the second quarter; compared with full-year 2025, the June decline in land sales was deeper.

  Risks

  If fund deployment continues to be slow, the recovery in infrastructure and public investment may fall short of expectations.

• Infrastructure and Public Investment

  Directly affected by fiscal spending, special bonds, and project reserves

  Strengths

  The base effect is more favorable in the second half of the year, and growth could improve if project approvals and the deployment of bond funds accelerate.

  Weaknesses

  The pipeline of eligible projects was limited in the second quarter, and infrastructure-related fiscal spending remained in negative growth.

  Comparison

  The contraction in infrastructure spending narrowed in June compared with May, but it has not yet turned positive.

  Risks

  Delays in special bond issuance and fund utilization, and a greater local government preference for debt repayment, could weaken the investment boost.

• Local Government Finances

  Land sales and government fund accounts are the key pressure points

  Strengths

  Central government and budgeted funds can still provide support through subsequent execution.

  Weaknesses

  Land sale revenue has fallen sharply, and government fund revenue and expenditure have contracted simultaneously.

  Comparison

  The year-over-year decline in land sale revenue in June was far larger than the full-year decline in 2025.

  Risks

  A prolonged property downturn would further constrain local governments’ ability to deploy fiscal resources.

Key data

• June general public budget revenue YoY8.7%Faster than the full-year budget target of 2.2%, and the fastest since January 2025.
• June tax revenue YoY10.8%Corporate income tax rose 29.7% year over year, and securities transaction stamp duty revenue increased 145.3% year over year.
• June general public budget expenditure YoY4.0%Ending the previous two consecutive months of contraction, but second-quarter expenditure rose only 0.2% year over year, below 2.6% in the first quarter and the full-year budget target of 4.4%.
• June government fund revenue YoY-31.1%Land sale revenue fell 42.1% year over year, the steepest monthly decline in more than a decade.
• June government fund expenditure YoY-43.7%Showing that fiscal deployment is constrained amid tight local public finances.
• Second-quarter GDP YoY4.3%Below the full-year target range of 4.5%-5.0%, but first-half growth of 4.7% is still consistent with the full-year target.
• Infrastructure fixed-asset investment YoY-10.6%Infrastructure spending remains in contraction, weighing on investment performance.
• Public fixed-asset investment YoY-7.1%Reflecting pressure on public investment from slow fiscal execution.

Impact & implications

The implication for assets and the macro outlook is that faster fiscal execution in the second half of the year could support a recovery in infrastructure and public investment, but the policy focus looks more like implementing existing budget and bond funds rather than immediately adding stimulus. Continued declines in land sales mean local government fiscal constraints remain strong, and policy effectiveness will depend on whether project approvals, special bond issuance, and fund utilization can genuinely accelerate.

Risks

• Continued deterioration in land sale revenue would drag on local government fiscal conditions and government fund expenditure.
• If special bond issuance, project approvals, and fund deployment continue to be slow, the recovery in infrastructure investment may be delayed.
• If third-quarter growth falls significantly below the full-year target range, the market may reprice expectations for additional fiscal support.
• Policymakers remain relatively comfortable with the near-term macro backdrop, which may reduce the urgency of immediate policy easing.

What to watch

• Whether the July Politburo meeting releases signals of additional fiscal support.
• The pace of special local government bond issuance and the actual speed of deploying the raised funds.
• The pace of reduction in fiscal deposits and the implementation progress of the budget already approved by the NPC.
• Whether third-quarter GDP falls significantly below the full-year target range of 4.5%-5.0%.
• Whether land sale revenue and government fund expenditure stabilize.
• Whether year-over-year growth in infrastructure fixed-asset investment and public fixed-asset investment improves.