Beijing boosts its spending to give Chinese economy a lift as credit dries up
Fastest growth in government expenditure since July 2012 amid surprise drop in new loans that comes despite monetary easing measures
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.
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.
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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.
The Ministry of Finance said central government spending rose 16.8 per cent last month, a reversal from a drop of 2.5 per cent in September, while local government expenditure rose 39.9 per cent, a mild rise from the previous month's pace of 31.7 per cent.
"[Fiscal expenditure sped up] obviously despite a slowdown in fiscal income growth," said the ministry, as it warned of difficulties in rasing fiscal income over the rest of the year.
The National Development and Reform Commission said it had approved 237 projects in the first 10 months of the year, representing an investment of 1.9 trillion yuan - including 86.4 billion yuan approved in October.
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"Enterprises are unwilling to increase investment while monetary policy alone is not enough to help the economy," said Zhang Yiping, an economist with China Merchants Securities. "The situation forces the central government to increase leverage to stimulate the economy."
Slowing growth in property and manufacturing, as well as limited progress in attracting private capital in public-private partnerships, meant Beijing's investment in infrastructure and public facilities was now a "one-man show" in addressing downward risks, said State Information Centre researcher Li Ruoyu.
The PBOC said total social financing - the broadest measure for overall liquidity conditions - rose only 476.7 billion yuan last month, a plunge from September's rise of 1.3 trillion yuan, with declines in direct financing such as bond and share issues.
The credit contraction came after the central bank cut benchmark interest rates in the middle of October, its sixth cut in the current cycle since a year ago.
"In future, the fiscal and monetary policies should shift to more proactive stances," said China International Capital Corporation in a research note.
