China Strong fiscal revenue and slower spending led to a narrower deficit in July

Economics Research 21 August 2026 | 7:19PM HKT

China: Strong fiscal revenue and slower spending led to a narrower deficit in July

Bottom line: Lisheng Wang | On-budget fiscal revenue growth rose further to 11.7% yoy in July despite lower PPI Goldman Sachs (Asia) L.L.C.

inflation and weaker activity growth, led by faster tax revenue growth, while anecdotal evidence suggests some local governments have tightened tax collection recently. On-budget fiscal expenditure growth slowed to 0.5% yoy in July and its gap with fiscal revenue growth widened further. Property-related government revenue remained weak in July, although its year-on-year contraction narrowed from June. Combining on-budget and off-budget financing channels, our proprietary “augmented fiscal deficit” (AFD) metric narrowed further in July on a 12-month moving average basis, implying that policy support has not been significantly stepped up and fiscal policy has remained a growth drag in early Q3. Given recent policy signals from the July Politburo meeting and today’s Ministry of Finance press conference, we expect the government to accelerate disbursement of existing fiscal resources and keep the door open to additional easing later this year if growth continues to slow.

Fiscal revenue growth: +11.7% yoy in July (+3.7% mom sa non-annualized, estimated by GS), vs. +8.7% yoy in June (+2.8% mom sa non-annualized).

Fiscal expenditure growth: +0.5% yoy in July (-0.3% mom sa non-annualized), vs. +4.0% yoy in June (+2.5% mom sa non-annualized).

Land sales revenue growth: -27.1% yoy in July (+5.1% mom sa non-annualized), vs. -42.1% yoy in June (-8.9% mom sa non-annualized).

Property-related tax revenue growth: -1.1% yoy in July, vs. -12.3% yoy in June.

Effective fiscal deficit ratio (after GS seasonal adjustment): -3.7% of GDP 3mma and -4.5% 12mma as of July, vs. -3.9% of GDP 3mma and -4.7% 12mma as of June.

Augmented fiscal deficit (AFD) ratio (after GS seasonal adjustment): -7.2% of GDP 3mma and -9.8% 12mma as of July, vs. -7.2% of GDP 3mma and -10.2% 12mma as of June.1

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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1. On-budget fiscal revenue growth rose further to +11.7% yoy in July from +8.7% yoy in June (Exhibit 1) despite lower PPI inflation and weaker activity growth, as faster tax revenue growth (to +13.9% yoy in July from +10.8% yoy in June) more than offset slower non-tax revenue growth (to -5.4% yoy from +2.9% yoy). Anecdotal evidence suggests fiscally strained local governments have tightened tax collection recently, while markets continue to assess the impact of new taxes on offshore trusts and income from offshore issuance products. The June-to-July acceleration in year-on-year tax revenue growth was led by VAT, consumption tax and individual income tax, and corporate income tax revenue growth remained elevated at 22% yoy in July.

2. Year-on-year growth in on-budget fiscal expenditure fell to +0.5% in July from +4.0% in June, as slower spending growth in social security & employment, urban & rural community affairs, and energy saving & environmental protection more than offset faster spending growth in agriculture & water conservancy. Based on our estimates, growth in infrastructure-related on-budget fiscal spending2 slowed to -3.6% yoy in July from -1.8% yoy in June, broadly consistent with the wider year-on-year contraction in infrastructure investment.

3. Property-related government revenue remained weak in July despite an improvement from June — year-on-year contraction in off-budget land sales revenue narrowed to -27.1% in July from -42.1% in June, and on-budget property-related tax revenue growth rose to -1.1% yoy from -12.3% yoy…