China Narrows Its Budget Deficit for the First Time Since 2023 as Beijing Holds Back Stimulus
China’s combined fiscal deficit narrowed for the first time in more than two years, pointing to a more restrained policy stance even as domestic demand stays soft and the economy faces pressure from the property downturn.
Bloomberg calculations based on Ministry of Finance data released on 22 June show that the combined deficit across China’s two largest government budget accounts fell 4.1 percent year on year in the first five months of 2026 to about 3.16 trillion yuan, equivalent to roughly US$466 billion. Combined spending across the two accounts declined 3.9 percent in May from a year earlier, a third consecutive monthly fall, while total spending in January to May slipped 0.3 percent. Combined revenue rose about 0.8 percent over the same period.
A deliberate restraint
The data suggest Beijing is choosing fiscal restraint over a broad stimulus push, despite weaker domestic indicators. Economists at Goldman Sachs said fiscal policy had become less supportive of growth in the second quarter than in the first, reflecting weaker land sales revenue and reduced policy bank support, and added that they did not expect large, broad based stimulus in the near term given resilient exports and China’s official 2026 growth target of 4.5 to 5 percent. The bank trimmed its third quarter growth forecast to 4.5 percent, the lower bound of that target.
Pressure remains visible across several budget lines. Infrastructure related spending fell about 12 percent year on year in May, after a sharper drop the previous month, while revenue from land use rights transfers stayed under strain, falling about 36 percent in May and 28.7 percent over January to May as the property downturn continued to weigh on local government finances. Tax revenue offered a partial offset, with national tax revenue rising 4.4 percent over the first five months of the year, helped by intensified collection efforts.
Why it matters
China’s fiscal stance has global reach. As the world’s largest commodity importer and a major engine of industrial demand, Beijing’s willingness, or reluctance, to accelerate spending directly shapes expectations for energy, metals and global trade. For Gulf oil producers in particular, Chinese demand is a key variable for crude markets, so a more restrained Beijing that leans on strong exports rather than domestic investment could limit upside pressure on commodity demand, with implications for oil pricing and fiscal planning across energy exporting economies.
Spending could still accelerate later in the year. China has signalled large infrastructure ambitions for 2026, including computing networks and other investment, and as ING’s greater China chief economist Lynn Song noted, a government led investment recovery remains possible in the second half, though it is uncertain whether it would be enough to offset weaker private investment.
Outlook
The central question is whether exports and targeted support can keep growth within the official target range without a broader fiscal push. If domestic demand stays weak, authorities may face pressure to accelerate infrastructure spending in the second half. For global markets, the next signals to watch are the pace of infrastructure outlays, land sales revenue, policy bank financing and any shift from targeted measures toward broader stimulus, all of which would shape the outlook for China linked commodity demand.
Sources: Bloomberg; China Ministry of Finance.
