Shenwan Hongyuan's Zhao Wei examines the reasons behind the lack of counter-cyclical performance in fiscal policy. The Ministry of Finance released fiscal revenue and expenditure data for the period of January to April 2026 on May 20th. During this period, the national general public budget revenue was 8.3404 trillion yuan, while the national general public budget expenditure was 9.4809 trillion yuan, representing a year-on-year increase of 1.3%.
The core observation is that broad fiscal measures have continued a trend of stabilizing revenue alongside slowing expenditure, with a contraction in traditional infrastructure-related spending. In April, broad fiscal revenue and expenditure maintained a divergent pattern, failing to demonstrate counter-cyclical characteristics. Broad fiscal revenue grew by 2% year-on-year, whereas broad expenditure growth continued to decelerate to -7.3% year-on-year. This ongoing fiscal expenditure slowdown is directly reflected in the macroeconomic data, corroborating the significant cooling of infrastructure investment in April, which saw its monthly growth rate decline by 12.5 percentage points to -5.9%. Considering that April's economic data revealed some structural features of "stagflation," fiscal policy in the second quarter may simultaneously face stronger demands for stabilizing growth.
The decline in land finance remains a core constraint on local governments' ability to implement counter-cyclical measures. General fiscal revenue in April grew by 6.7% year-on-year, with tax revenue maintaining a relatively high growth rate of 8.2%. In contrast, government-managed fund revenue saw its decline widen to -26.4% in April. This aligns with the data on real estate development investment for the same month, both indicating that the downturn in land-based revenue is still a key factor limiting local fiscal capacity.
The structure of fiscal expenditure is tilting towards technology-related spending, while traditional infrastructure expenditure has contracted noticeably, constrained by policies aimed at clearing overdue payments and slower fiscal fund disbursements. General fiscal expenditure in April fell by 3.2% year-on-year, with infrastructure-related expenditures (such as those for agriculture, forestry, water conservancy, and urban and rural community affairs) cooling significantly. This corresponds with the sharp monthly decline of 12.7 percentage points in narrow infrastructure investment within the economic data. The underlying reasons are a combination of intensified policies to clear arrears, which has dampened investment by state-owned enterprises, and a slowdown in the allocation of fiscal funds. Expenditure on science and technology has shown relative resilience, with both its growth rate and share of total expenditure increasing.
Infrastructure-related expenditures continue to cool, with local government-managed fund expenditure being the primary drag on the slowdown in broad expenditure. Within general fiscal spending in April, expenditures related to urban and rural communities and agriculture, forestry, and water conservancy saw their growth rates drop sharply compared to March. Concurrently, government-managed fund expenditure in April recorded a year-on-year decline of 20.8%, primarily dragged down by local government-managed fund expenditure, which fell by 22.2% year-on-year. The divergence in expenditure growth rates between central and local governments may stem from stringent local government debt regulation, a shortage of high-quality local projects, and relatively slow disbursement of local fiscal funds.
Amid internal and external disturbances, the economy for the full year may exhibit an "N-shaped" recovery. Stabilizing growth in the second quarter will likely still rely on accelerating fiscal expenditure and monetary policy coordination to expand domestic demand. To some extent, previous consumption has been "overdrawn," and coupled with the impact of high oil price cost pressures and disruptions from policies to clear arrears, economic growth in the second quarter may face pressure. With the issuance of ultra-long-term special government bonds commencing in April and a peak in new special bond issuance, incremental fiscal funds may urgently need to increase support for local fiscal capacity to alleviate local financial constraints. Simultaneously, greater coordination between fiscal and monetary policies may be required to help stabilize investment and promote consumption.
Routine tracking indicates that general fiscal revenue has maintained resilience, while both revenue and expenditure of government-managed funds have slowed significantly. The growth rate of broad fiscal revenue has decelerated, with government-managed fund revenue remaining sluggish. In April 2026, broad fiscal revenue grew by 2% year-on-year, a slowdown of 1.3 percentage points compared to March. Within this, government-managed fund revenue continued to be weak, declining by 26.4% year-on-year, while general fiscal revenue showed resilience, growing by 6.7%. In terms of budget completion, broad fiscal revenue achieved 8.4% of its annual budget in April 2026, higher than the five-year average of 7.8% and on par with the level from the same period in 2025.
Both general fiscal expenditure and government-managed fund expenditure have slowed, leading to a continued decline in the growth rate of broad fiscal expenditure. In April 2026, broad fiscal expenditure fell by 7.3% year-on-year, with the rate of decline widening by 4.8 percentage points compared to March. Specifically, general fiscal expenditure declined by 3.2% year-on-year, a slowdown of 4.2 percentage points from March, while government-managed fund expenditure fell by 20.8% year-on-year, a deceleration of over 6.5 percentage points. Broad fiscal expenditure achieved 6% of its annual budget in April 2026, below the five-year average expenditure progress rate of 6.3%.
Potential risks include policy changes exceeding expectations and economic changes exceeding expectations.