Historic Decline: China Slashes Government Spending at Fastest Pace Since 2021, Hurting Economic Growth

China's general public fiscal spending witnessed a sharp decline in October, marking the largest rate of decrease since at least early 2021, which negatively impacted a key driver of economic growth and investment in the country.

Details of the Decline and Its Impact

• Scale of the Drop: Total expenditure in China's two main budgets – the general account and the government-managed funds book – fell by 19% in October compared to the previous year, reaching 2.37 trillion yuan ($334 billion), according to Bloomberg News estimates.

• Largest Since 2021: This decline is the largest since comparable data became available in early 2021, and the fiscal spending value hit its lowest level since July 2023.

• Reduced Fiscal Support: This decrease reflects a shift in government policies and underscores the diminishing fiscal support for the world's second-largest economy, at a time when the economy is experiencing weakening performance across various sectors.

• Impact on Investment: The contraction in government spending led to an unprecedented decline in investment (which heavily relies on government support) in October, exacerbating pressures resulting from weak consumption and declining external demand.

This contraction also suggests that the new stimulus packages implemented since late September may require a longer time before their positive effects gradually materialize in the economy.