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China fiscal support to re-accelerate in H2 on infrastructure push

Standard Chartered expects broad spending to fall further after Q2 softness, then lift in H2 as authorities accelerate local government special bond issuance and infrastructure investment.

Reported · Written up by our desk · Central Banks

Standard Chartered economists Carol Liao and Hunter Chan say China’s fiscal support softened in Q2 2026 after a strong Q1, with April-May data pointing to slower investment momentum. They cite a 5.7% year-on-year decline in broad spending in April-May even as broad revenue growth picked up to 2.2% year-on-year, narrowing the broad deficit to a three-year low.

The slowdown appears tied to weaker infrastructure activity, they said, noting that infrastructure fixed-asset investment moderated sharply in a pattern similar to H2 2025. Under the government funds budget, local government special bond issuance slowed notably in Q2, while land sales revenue continued to deteriorate, limiting local governments’ spending capacity.

Looking ahead, the economists expect the government to re-accelerate fiscal support in H2 2026, particularly through infrastructure investment. They expect authorities to use existing quotas to accelerate local government special bond issuance, and they add that issuance could be front-loaded into 2027 if exports or housing weaken further.

Standard Chartered also characterizes the earlier Q1 strength as consistent with a deliberate timing of fiscal implementation, where front-loaded fiscal support and strong exports helped lift activity. For April-May, they add that general public budget spending fell 2.4% year-on-year, despite revenue rising 6.6% year-on-year.

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