China Continued augmented fiscal deficit narrowing in August suggests fiscal tightening has yet to reverse

Economics Research 18 September 2026 | 6:51PM HKT

China: Continued augmented fiscal deficit narrowing in August suggests fiscal tightening has yet to reverse

Bottom line: Lisheng Wang | On-budget fiscal revenue growth fell to +4.7% yoy in August from +11.7% yoy in July, Goldman Sachs (Asia) L.L.C.

as slower tax revenue growth more than offset faster non-tax revenue growth. On-budget fiscal expenditure growth also eased to -0.1% yoy in August from +0.5% yoy in July, with infrastructure-related spending growth staying subdued. Property-related government revenue remained weak in August, although its year-on-year contraction narrowed from July thanks partly to a low base. Combining on-budget and off-budget financing channels, our proprietary “augmented fiscal deficit” (AFD) metric narrowed in August on both a 3-month and 12-month moving average basis, pointing to continued fiscal tightening. While we see a higher possibility for incremental easing measures later this year, recent fiscal development suggests a downside risk to our 2026 AFD forecast of 11.5% of GDP.

Fiscal revenue growth: +4.7% yoy in August (-5.3% mom sa non-annualized, estimated by GS), vs. +11.7% yoy in July (+3.2% mom sa non-annualized).

Fiscal expenditure growth: -0.1% yoy in August (-2.5% mom sa non-annualized), vs. +0.5% yoy in July (+2.0% mom sa non-annualized).

Land sales revenue growth: -12.3% yoy in August (+4.7% mom sa non-annualized), vs. -27.1% yoy in July (+6.1% mom sa non-annualized).

Property-related tax revenue growth: -1.9% yoy in August, vs. -1.1% yoy in July.

Effective fiscal deficit ratio (after GS seasonal adjustment): -3.6% of GDP 3mma and -4.5% 12mma as of August, vs. -3.7% of GDP 3mma and -4.5% 12mma as of July.

Augmented fiscal deficit (AFD) ratio (after GS seasonal adjustment): -6.9% of GDP 3mma and -9.3% 12mma as of August, vs. -7.4% of GDP 3mma and -9.8% 12mma as of July.1

1. On-budget fiscal revenue growth fell to +4.7% yoy in August from +11.7% yoy in July (Exhibit 1), as slower tax revenue growth (to +5.6% yoy in August from +13.9% yoy in July) more than offset faster non-tax revenue growth (to +0.3% yoy from

1 Our measure of augmented fiscal deficit is a sum of effective on-budget fiscal deficit and off-budget fiscal deficit. We estimate the off-budget spending by major channels that finance quasi-fiscal activities, which include new local government special bonds (LGSB), land sales revenue, local government financing vehicle (LGFV) bonds, policy banks support, shadow banking loans, etc.

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-5.4% yoy). The July-to-August deceleration in year-on-year tax revenue growth was broad-based but led by individual income tax, corporate income tax and consumption tax. On-budget fiscal expenditure growth also eased to -0.1% yoy in August from +0.5% yoy in July, as slower spending growth in transportation, and agriculture & water conservancy more than offset faster spending growth in urban & rural community affairs, and energy saving & environmental protection. Based on our estimates, growth in infrastructure-related on-budget fiscal spending2 remained weak at -3.7% yoy in August (vs. -3.6% yoy in July), broadly consistent with the significant year-on-year contraction in infrastructure investment (-16.8% yoy in August, vs. -16.4% yoy in July, based on GS definition and estimates).

2. Property-related government revenue remained weak in August despite an improvement from July — year-on-year contraction in off-budget land sales revenue narrowed to -12.3% in August from -27.1% in July thanks partly to a low base, while on-budget property-related tax revenue growth slowed to -1.9% yoy from -1.1% yoy (Exhibit 2).3 Combining these two items, we estimate that government revenue directly from the property sector contracted 9.7% yoy in August (vs. -17.8% yoy in July). Despite recent green shoots in home prices in some large cities, most property activity indicators such as land sales, new home starts and property investment were weaker than market expectations so far this…