Beijing boosts its spending to give Chinese economy a lift as credit dries up

Beijing has increased spending to boost the economy amid a surprise weakening in credit creation last month that comes despite monetary easing measures.

Growth in government spending hit a three-year high in October despite a moderation of growth in fiscal income, as Beijing attempted to boost infrastructure investment to offset slowing expansion in the property and manufacturing sectors.

Fiscal expenditure rose 36.1 per cent last month from a year earlier to 1.35 trillion yuan (HK$1.64 trillion), the fastest growth since July 2012, according to the finance ministry. Meanwhile, fiscal income rose 8.7 per cent to 1.44 trillion yuan, down from a rise of 9.4 per cent in September.

At the same time, new loans in October fell to 513.6 billion yuan, half their September levels and the lowest since July 2014, according to the People's Bank of China.

Net growth in medium- to long-term corporate loans fell to less than half their September levels, showing little incentive for companies to increase investment, while net growth in medium- to long-term residential loans hit the lowest since April, reflecting a fragile recovery in property sales, said Liu Dongliang, an economist with China Merchants Bank.

Read more: Chinese government spending jumps over 25 per cent amid efforts to revive slowing economy

The massive fall in credit creation suggests monetary easing has had limited effect in lifting demand, and changes in policy now seem likely as Vice-Finance Minister Zhu Guangyao has hinted at raising the deficit.