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China Posts Wider Fiscal Deficit in First Five Months Despite Revenue Acceleration
China booked a general public budget deficit of 1.34 trillion yuan in the first five months of 2026, as national expenditure of 11.39 trillion yuan outpaced revenue of 10.05 trillion yuan despite an acceleration in tax collections.The deficit widened from 1.14 trillion yuan in the January-April period, with May alone adding about 1.71 trillion yuan in revenue against about 1.91 trillion yuan in spending, according to data from the Ministry of Finance on Sunday.This suggests a single-month deficit of about 200.7 billion yuan in May.The pace of expenditure growth, however, slowed to 0.8% year over year through May from 1.3% through April, suggesting the gap may begin to narrow in the coming months as revenue momentum builds.In March, Fitch Ratings forecast that China's fiscal deficit will slightly narrow as policy support for the economy is predicted to ease modestly in 2026."We expect China's fiscal deficit to decline slightly to 7.3% of GDP in 2026 on a like-for-like basis under Fitch's fiscal deficit measure, from 7.6% in 2025, but to remain elevated," Fitch said at the time.During the government's "Two Sessions" congress in March, authorities announced that China will aim to increase the government deficit by 230 billion yuan in 2026 over last year as part of its economic stimulus measures.China set a deficit-to-GDP ratio of around 4% this year, with total government deficit projected at 5.89 trillion yuan.General public budget revenue rose 4% year over year in the January-May period, accelerating from the 3.5% pace recorded through April.National tax revenue climbed 4.4% to 8.26 trillion yuan, outpacing the 2.2% rise in non-tax revenue to 1.78 trillion yuan.Among the main growth drivers were stamp duties, which jumped 35.8% year over year in the January-May period to 242.6 billion yuan, with securities transaction stamp duty alone surging 88.8% to 126.2 billion yuan.Value-added tax on imported goods and individual income tax also delivered strong gains, rising 10.4% and 12.2%, respectively, suggesting robust cross-border trade and wages.Vehicle purchase tax climbed 12.6% to 94.3 billion yuan amid increased adoption of new-energy vehicles. NEV sales in May alone accounted for 56.9% of overall new car sales in China, compared with 50.8% in 2025 and 40.9% in 2024, according to the China Association of Automobile Manufacturers.Domestic value-added tax jumped 6.2% to 3.28 trillion yuan, while corporate income tax inched up 0.2% to 2.19 trillion yuan.In terms of spending, China's total general public budget expenditure during the period was up 0.8% year over year to 11.39 trillion yuan.In breakdown, spending among central and local governments and the general public jumped 6.5% year over year to 1.68 trillion yuan, while spending among local governments inched down 0.1% to 9.71 trillion yuan.The latest data highlighted the ongoing financial strain faced by local governments.The South China Morning Post on Monday noted that local governments in China have faced worsening fiscal stress in recent years due to a prolonged property downturn that continues to weigh heavily on land-sales revenues, which previously served as a key revenue source.In the January-May period, while urban land use tax rose 3.6% to 122 billion yuan, farmland occupation tax fell 1.2% to 63.5 billion yuan.Earlier this month, China's State Council issued a plan to accelerate agricultural and rural modernization during the 15th Five-Year Plan through 2030. The plan includes speeding up the modernization of agriculture and rural areas.
Shanghai Composite^SZSE
