Chinese government spending surged in May as Beijing sought to reinvigorate growth as fears persisted over an economic slowdown and the bursting of a property bubble.
Expenditure by local and central governments in China jumped nearly 25 per cent from the same month a year earlier, a sharp acceleration from the 9.6 per cent growth registered in the first four months of the year, according to figures released by the finance ministry.
Spurred by this year’s sharper slowdown than expected, the government has tried to support growth, by ramping up spending on infrastructure and gradually loosening monetary policy.
On Wednesday evening, China’s cabinet set out more state-led infrastructure investments in highways, railways, petrochemical plants and ports along the Yangtze river.
The rise in spending contrasts with slower expansion of fiscal revenues, which expanded 7.2 per cent in May from a year earlier, compared with a 9.2 per cent rise in April.
The finance ministry blamed the slowdown on cooling economic growth and falling property transactions in particular.
Fewer property sales and lower prices in many cities across China weigh on a growth model that has come to rely on credit-fuelled infrastructure investment in the past five years.
Much of the investment in property construction and local government infrastructure in recent years has been funded by unregulated “shadow banks”, so a property slump would -ripple out and could have implications for financial stability.
Even senior Communist party officials have started to issue public warnings about the potential consequences of the slowdown.
“Under the macroeconomic situation right now, overcapacity and the rapid build-up of local government debt are the two -problems the central authorities are most concerned about,” Wang Baoan, vice-minister of finance, said in a speech published by his ministry. “These two issues could lead to a financial crisis.”
Data scheduled for release today are expected to show further weakness in industrial production, fixed asset investment, property and retail sales.
The world’s second-largest economy expanded 7.4 per cent in the first quarter from the same period a year earlier, down from 7.7 per cent growth in the fourth quarter of last year.
Even if the economy does grow by the government’s target of 7.5 per cent for the year, that would still be the slowest pace since 1990, when the country faced international sanctions in the wake of the Tiananmen Square massacre.