China's combined fiscal deficit under the general public budget and government fund budget narrowed by 4.1% in the first five months of 2026 compared to a year earlier, reaching about 3.16 trillion yuan, the Ministry of Finance reported on June 22 [1, 2, 3, 4]. This marked the first deficit reduction since 2023.
Government expenditure fell 3.9% year-on-year in May 2026, extending a three-month consecutive decline. Total government spending from January to May dropped 0.3% year-on-year, while total government income rose 0.8% over the same period [1, 2, 3, 4]. Tax revenue increased by 6.8% in May, lifting the January-May gain to 4.4%, helped by stronger collections on overseas capital gains and foreign income [1].
However, revenue from land sales plunged about 36% in May, marking an eighth straight month of double-digit declines amid ongoing property market weakness [1]. Fixed asset investment and retail sales in May also hit pandemic-era lows, signaling persistent domestic demand weakness [2, 4].
Exports remained strong thanks to global AI infrastructure demand, reducing pressure for broad stimulus support to offset sluggish domestic consumption [1, 2, 3, 4]. Goldman Sachs economist Lisheng Wang said, "Fiscal policy has become less supportive of growth in the second quarter versus the first, on the back of falling land sales revenue and shrinking policy bank support. Given strong exports and this year’s modest growth target, we do not expect significant, broad-based stimulus in the near-term." [1]
Local governments’ acceleration in reducing hidden debt also slowed fiscal spending momentum recently [3]. The central government plans more than 7 trillion yuan in infrastructure investment in 2026, including about 2 trillion yuan over five years to build data centers supporting AI development [2, 5, 4].
Looking back at 2025, China's central government posted a fiscal deficit of about 4.86 trillion yuan as planned, with revenue at 9.74 trillion yuan and expenditure of 14.6 trillion yuan. Audits found some misuse of funds earmarked for strategic projects and urban infrastructure [6].
Goldman Sachs lowered its forecast for China’s third-quarter GDP growth to 4.5%, near the low end of the government’s annual target [1, 2, 3, 4]. The Ministry of Finance Statement on June 22 confirmed the fiscal deficit narrowing and weaker spending trends through May, amid subdued domestic demand but stable export growth [1, 2, 3].
