China’s fiscal revenue falls 2.6% in the first seven months of 2024

China’s fiscal revenue fell 2.6 per cent in the first seven months of 2024 from a year earlier, narrowing slightly from a 2.8 per cent slide in the first half, finance ministry data showed on Monday, as the economy struggles for a pick-up in growth.

Fiscal expenditure grew 2.5 per cent in the January-July period, versus a 2 per cent increase in the first half.

For July alone, fiscal revenue fell 1.9 per cent on year, narrowing from a 2.6 per cent decline in June, while fiscal spending jumped 6.6 per cent, compared with a 3 per cent fall in June, according to Reuters’ calculations based on the ministry’s data.

Fiscal revenue has been running at low levels, partly due to a high base last year, state media reported, citing the finance ministry.

The ministry said in a statement that macro-policy implementation in the coming months and the fading year-earlier effects will “underpin fiscal revenue growth.” It also expected fiscal spending to steadily rise.

July economic data, including a fall in household loans and a slowdown in industrial output growth, points to underlying demand weakness and the need for bolder stimulus measures, analysts have said.

China’s leaders signalled at a key policy meeting at the end of July that fiscal support for the rest of the year will “focus on consumption”, days after they unveiled plans to support trade-ins for consumer goods.

China’s central bank rolled over maturing medium-term loans and injected cash through its liquidity instruments on Monday, underlining market expectations for further easing as the economy struggles to gain traction.

The People’s Bank of China (PBOC) said it was keeping the rate on 300 billion yuan ($42.11 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions at 2.30 per cent, unchanged from the previous operation.

And it injected another 471 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 1.70 per cent.

“Today’s outcome adds to expectation for a near-term reserve requirement ratio (RRR) cut,” said Frances Cheung, head of FX and rates strategy at OCBC Bank.

“Meanwhile, as US rates fell further, there may also be renewed expectations for an interest rate cut in China.”

China is struggling with a prolonged property crisis that has curbed investment and dented consumer demand.

Monday’s reverse repo operation was meant to “keep month-end banking system liquidity conditions reasonably ample,” the central bank said in an online statement.

A batch of 401 billion yuan worth of MLF loans was due earlier this month, when the PBOC said it would postpone the loan rollover.

The postponement and the sequence of a string of key interest rate cuts last month suggested that the central bank has changed its monetary policy framework, market watchers said, shifting the short-term rate to being the main signal guiding markets.

OCBC’s Cheung expected the difference in yields between 5-year and 30-year, and 2-year and 30-year China government bond yields, to steepen.

PBOC Governor Pan Gongsheng, in remarks published in state media on Saturday, said the central bank would adhere to supportive monetary policy to guide reasonable growth in credit lending and help the world’s second-largest economy.

On Friday, Federal Reserve Chair Jerome Powell made it clear the US central bank would not shy away from pivoting to interest rate cuts in the final weeks of a presidential election campaign and that protecting the job market was now its top priority.

Meanwhile China’s yuan hovered near a three-week high against the dollar on Monday, underpinned by broad greenback weakness following Federal Reserve Chair Jerome Powell’s dovish pivot suggesting an imminent rate cut in the world’s largest economy.

Fed Chair Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2 per cent target.

By 0305 GMT, the onshore yuan traded at 7.1218 per dollar, after edging up to hit a three-week high of 7.1135 in early trades.

The yuan is up 1.4 per cent against the dollar this month, recouping nearly all its losses in the first half of the year.

Having spent all year trying to put a floor under the tumbling yuan, market watchers said China’s central bank is suddenly faced with the opposite problem and is turning to subtle ways to stop the currency from appreciating sharply.

Still, the yuan’s recent gains lagged behind its regional peers such as Indonesian rupiah and Malaysian ringgit, which both advanced about 5 per cent against the dollar in August.