The conflict in the Middle East has yet to pose a major threat to the Asian nation
Published Sat, Apr 25, 2026 · 04:10 PM
[BEIJING] China pulled back on fiscal spending in March as the economy rebounded at the start of the year despite disruptions caused by the war in Iran.
A broad measure of public expenditure fell 2.5 per cent last month from a year earlier, its biggest decline since October, according to Bloomberg calculations based on Ministry of Finance data released on Friday (Apr 24).
By contrast, broad fiscal revenue climbed 3.4 per cent, the most since July, leaving a deficit of over 1.5 trillion yuan (S$280 billion).
The world’s second-biggest economy saw growth pick up more than expected in the first quarter, in a turnaround from the end of last year as manufacturing powered ahead. The conflict in the Middle East has yet to pose a major threat to China, thanks in part to the country’s past moves to beef up energy security.
The surprise upswing in growth may have reduced the need for fiscal stimulus beyond what’s planned in the budget for this year. Policymakers are also careful in extending support because of mounting debt concerns and shrinking government income.
And there’s less urgency for Beijing after it lowered its annual growth target to 4.5 to 5 per cent this year, the least ambitious goal since 1991.
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“The priority is to fully implement the policies already in place,” said Yang Zhiyong, director of the government-backed Chinese Academy of Fiscal Sciences.
Infrastructure-related expenditure under China’s main budget dropped 8.5 per cent in March from a year earlier after increasing in the previous month, according to Bloomberg calculations.
The pullback was more significant than the slowdown in infrastructure investment growth, according to Goldman Sachs economists, including Lisheng Wang. That implies “some off-budget government financing channels may have provided support”, they wrote in a note after the data release.
China kept the 2026 government bond quota little changed from last year, as Beijing tries to contain local debt risks after a long borrowing binge. Meanwhile, it raised the amount of new policy financing tools, a quasi-fiscal instrument, by 60 per cent to 800 billion yuan this year to help drive investment.
Constrained by narrowing fiscal space, policymakers are also experimenting with ways to amplify the reach of government expenditure on economic activity. This year, they announced measures to fund financial tools such as loan guarantees and an interest subsidy with public money, in an attempt to encourage business investment and consumer spending.
The conflict in the Middle East could still complicate stimulus plans, since the blocking of the Strait of Hormuz, a vital waterway for energy, is pushing up oil prices and risks weakening foreign demand for Chinese exports.
The government has room to “adjust or optimise” measures depending on how the situation evolves, Yang said, acknowledging external uncertainty has “intensified”.
Goldman’s Wang estimates the amount of outstanding fiscal deposits as at March was 5.3 per cent – or 340 billion yuan – above its level a year ago. The cash is a handy source of funding should the government have to ramp up stimulus to offset any unexpected economic woes.
Tax revenue rose 2.2 per cent on year in January to March, the strongest cumulative gain since 2023, the ministry’s data showed. The rebound suggests government efforts to close tax loopholes and tighten collection are paying off.
Broad government income fell in the past two years as slowing economic growth dented tax receipts and a prolonged housing slump led to a contraction in land sales revenue.
As a result, Chinese authorities are having to take unusually strong measures to boost income, since more public spending needs to go towards spurring consumption, alongside trying to make up for waning private investment.
Still, in a sign that weakness still plagues the property market, local income from selling land continued to decrease at double-digit rates, tumbling 24.4 per cent in the first quarter. BLOOMBERG
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