Slow Fiscal Fund Deployment Increases Downside Risks to China's Third-Quarter Economic Growth

Overview

The report notes that the deployment of China's fiscal and quasi-fiscal funds remains slow. Although improved corporate bond issuance lifted broad credit growth slightly, continued household deleveraging and weaker medium- to long-term corporate loans indicate that private-sector credit demand remains soft. Delayed fiscal deployment may postpone an acceleration in infrastructure capital expenditure until late September or early Q4.

Core views

Government bond issuance was flat year on year in July, while issuance during August was also notably slower than last year, indicating that public financing has yet to accelerate. Stronger areas of the economy, including exports and high technology, are still insufficient to offset weakness in property and consumption, making the fiscal impulse a key variable for near-term growth. If August–September data continue to weaken, the probability of further easing or stimulus in autumn will rise.

Analysis framework

The report assesses the impact of fiscal implementation on near-term economic growth by tracking broad credit growth, utilization of annual government bond quotas, policy-tool balances, the pace of public financing, and quarterly GDP growth performance.

Methodology notes

• Macro TrackingFiscal Impulse Analysis

  Measures the effective implementation of fiscal support through government bond issuance, budget quota utilization, and policy-tool balances.

  A high level of unused quotas implies that potential fiscal support has not yet translated into current demand, potentially deferring its boost to infrastructure and economic growth.

• Macro TrackingCredit Demand Analysis

  Assesses financing demand by combining broad credit, corporate bond financing, medium- to long-term corporate loans, and changes in household leverage.

  Improved corporate bond financing has not offset weaker medium- to long-term corporate loans, while households continue to deleverage, reflecting an insufficient foundation for private-sector credit expansion.

Asset mapping & comparison

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

• China Macroeconomy

  The pace of fiscal deployment directly affects the near-term growth trajectory.

  Strengths

  Improved corporate bond issuance, exports, and high technology continue to provide some support.

  Weaknesses

  Property, consumption, household credit, and medium- to long-term corporate loans remain weak.

  Comparison

  Stronger sectors such as exports and high technology are still insufficient to offset weaker sectors including property and consumption.

  Risks

  Public financing remaining below expectations could weigh on infrastructure investment and Q3 GDP growth.

• China Government Bonds and Policy-Related Rate Assets

  The pace of government bond issuance reflects the speed of fiscal implementation and potential supply changes.

  Strengths

  The large unused quota indicates room for further issuance and fiscal support.

  Weaknesses

  The current issuance pace is slower than expected, resulting in insufficient near-term fiscal transmission.

  Comparison

  As of end-July, unused government bond quotas were higher than in the same period of 2025.

  Risks

  If issuance becomes concentrated later, it could alter expectations for bond supply and liquidity.

Key data

• Year-on-Year Broad Credit Growth7.6%Up 10 basis points from the prior month, versus market expectations of 7.5%.
• Q3 GDP Growth Tracking Forecast4.5% YoYSlow public financing in July–August creates downside risks.
• Q2 GDP Growth4.3%Below target, reflecting divergence within the economy.
• Unused Annual Government Bond QuotaRmb6.1trn（44%）As of end-July, above Rmb4.4trn in the same period of 2025.
• Unused Policy ToolsRmb800bnRmb500bn in the same period last year.
• On-Budget Fiscal ImpulseAbout Rmb2trnUnused government bond quotas and policy tools together maintain an elevated fiscal impulse.

Impact & implications

If fiscal funds continue to be deployed with delay, infrastructure investment and third-quarter growth may come under pressure, potentially increasing market concerns over achieving the growth target. Conversely, if August–September data remain weak, September–October may become a policy catalyst window for additional fiscal or monetary support.

Risks

• Tighter reviews of local projects and an insufficient pipeline of 'six-network' projects may continue to slow fiscal fund deployment.
• Household deleveraging and weaker medium- to long-term corporate loans may constrain private-sector credit expansion.
• Continued weakness in property and consumption may make it difficult for exports and high-technology sectors to support growth on their own.
• If fiscal deployment does not accelerate within the expected window, Q3 GDP growth may fall below the tracking forecast.

What to watch

• Whether government bond issuance and policy-tool utilization accelerate in August–September.
• Whether infrastructure capital expenditure improves meaningfully by late September or early Q4.
• Changes in household loans, medium- to long-term corporate loans, and corporate bond financing.
• Whether August–September growth data weaken further, and whether additional stimulus or easing policies emerge in September–October.