China's fiscal growth may slow down

Impact of tax reductions might be felt from next month, says official

The Chinese government's fiscal revenue may grow at a slower pace from the second quarter, under pressure from intensive tax cuts, weaker industrial price inflation and external uncertainties, said an official from the Ministry of Finance on Wednesday.

A more ambitious tax and administrative fee reduction plan－more than 1 trillion yuan ($159 billion) in total this year, could moderate fiscal revenue growth in the coming months, and the "effects of tax cuts will emerge from May", Lou Hong, director-general of the Finance Ministry's National Treasury Department, said on Wednesday.

Other factors may include the expected easing of industrial products' factory-gate prices, or the producer price index, and the instability of the global economic environment, according to Lou.

On Tuesday, the ministry released a total fiscal revenue, in terms of budgeted general public income, of 5.05 trillion yuan in the first quarter, up 13.6 percent year-on-year. The growth rate almost doubled from 7.4 percent at the end of last year.

Tax income has contributed 4.43 trillion yuan, or 87.72 percent, to total fiscal revenue, with a growth rate of 17.3 percent, up from 10.7 percent in 2017, according to the ministry.

From January to March, the total fiscal expenditure was 5.0997 trillion yuan, up 10.9 percent year-on-year, compared with 7.7 percent in 2017, according to the official data.

"The government may stimulate economic growth through a proactive fiscal policy in the coming months, especially through strengthening expenditure with tax cuts, as the economic growth pressure has increased since March," said Gao Gu, general manager of the fixed-income department of Changan Securities.

China's GDP was stable in the first quarter but March data points to weakness ahead, led by the eased growth of industrial production and slowed fixed asset investment. The PPI rose 3.1 percent year-on-year in March down from 3.7 percent in February, according to the National Bureau of Statistics.

Some economists expected that may lead to higher fiscal deficit pressure when expenditure growth overwhelms the income slowdown. The government has set the 2018 annual fiscal deficit goal at 2.6 percent, down from last year's 3 percent.

"But that may not be the true story, as fiscal income still expands based on a sound and stable economic growth outlook, while the efficiency of fiscal expenditure may be improved," said Qiao Baoyun, head of the academy of public finance and public policy under the Central University of Finance and Economics.

Besides, the government still has room for bond issuance to support major project investment, added Qiao.

The ministry said that during the first three months, 10 provinces issued local government bonds worth a total of 219.5 billion yuan, of which 76.9 billion was in special bonds, the Chinese version of the municipal bond, which offers local governments a financing route after they were banned from borrowing through local government financing vehicles, an off-budget financing channel.