China Starts the Year in Deficit as Land Sales Continue to Slump

China’s started the year already in deficit for the first time since 2020, with weak land sales due to the real estate slump slashing government revenue.

(Bloomberg) — China’s started the year already in deficit for the first time since 2020, with weak land sales due to the real estate slump slashing government revenue. 

The broad deficit in the budgets for all levels of government was 78.4 billion yuan ($11.4 billion) in the first two months of this year, according to Bloomberg calculations based on data released Friday by the Ministry of Finance. That compares with a surplus of 309 billion yuan at the same point a year ago, and shows the balance sheet weakness and already high debt levels that may limit stimulus to spur growth.

The now abandoned Covid Zero policy and the housing crisis helped push the budget into a record shortfall of almost 9 trillion yuan last year. Finance Minister Liu Kun said last month that any recovery in fiscal revenue will likely be soft this year and warned of “outstanding conflicts” between income and spending. 

China has set a relatively modest target for gross domestic product to expand around 5% this year amid headwinds posed by falling exports and a feeble property market. Policy makers have signaled they’d rely on a post-Covid rebound in consumption to fuel growth, rather than resorting to credit-driven infrastructure investment.

The central government plans to sell more general debt to pay for spending on public services this year, but the quota for special local government bonds, which are largely invested in infrastructures, is smaller than the amount of those bonds sold last year. 

Friday’s fiscal data suggest that the budding economic recovery and the signs of a bottoming out in the real estate sector are yet to translate into a rebound in land sales or an increase in taxes paid by businesses and individuals.

General public revenue fell 1.2% from a year earlier to 4.56 trillion yuan. Including the fund budgets, total income was 5.26 trillion yuan in the first two months of this year.

Revenue from the sale of land fell 29% year on year to 563 billion yuan, highlighting that the early signs of a stabilization in the housing market have been insufficient to convince developers to ramp up investment so far.

Total government spending in January-February was 5.34 trillion yuan. This includes 4.1 trillion yuan in general public expenditure, which covers areas such as education, health care, defense and scientific research. Expenditure under the government fund budget slid 11%.

Other highlights of the release:

  • Income from deed taxes, which are paid when a property is bought or sold, fell 4% on year in January-February.
  • Tax revenue from vehicle purchases dropped 32.8% in the period. Purchases of cars, especially of internal combustion models, have lost steam this year as a policy to halve the levy paid on some new passenger cars expired.
  • Revenue from taxes on corporate income gained 11.4% and that from individual income taxes fell 4%.

Note: A positive number for balance means surplus, while a negative figure indicates deficit.

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