China announced a target budget deficit of 2.3% of GDP early in 2015, a fiscal expansion compared to the 1.8% budget deficit last year. The fiscal expansion has yet to materialize. As of June this year, fiscal revenues have exceeded expenditures by more than 200 billion RMB. And, at the halfway point of the year China has to spend more than double the money to reach the 2015 fiscal expenditure total. Those numbers mean that China's much-anticipated fiscal stimulus is either on its way in the second half of 2015, or Beijing has decided to be more frugal than advertised this year.
Just how much potential fiscal stimulus? To meet the budget deficit target of 2.3%, China needs to spend 1.8 trillion RMB in excess of revenues in the second half of this year. Beijing also needs to deploy over 9 trillion RMB in the second half to reach its total expenditure targets. These sums are meaningful, and if deployed would finally add the fiscal boost we have been waiting to see all year.
Overnight, two of China's main policy banks announced that they will issue 1.5 trillion RMB in bonds to fund infrastructure spending. The spending will flow to the usual sectors: shantytown renewal, railways, urban transportation. If the spending materializes this year, it will be additive to industry and construction growth.
Added to a housing market cyclical recovery (see my posting China's Property Market Continues To Improve. for details), the numbers should help boost growth prospects in the short-term. It is important to note that last year's budget deficit fell short of targets, resulting in a lower fiscal boost than many expected. If Beijing deploys capital in the amount planned, the second half of this year will look better. Whether a boost can be sustained is up for debate.