Fiscal measures expected to expand investment

China is expected to channel more fiscal resources toward bolstering investment and improving people's well-being while easing pressure on local finances, as policymakers seek to strengthen domestic demand and consolidate economic recovery in the fourth quarter, experts said on Friday.

That policy outlook came as fresh fiscal data for the first three quarters painted a mixed picture, with growth in major fiscal revenues indicating an increase in economic activity, even as falling land-sale revenues strained local finances.

General public budget revenue rose 5.1 percent year-on-year to 17.23 trillion yuan ($2.58 trillion) in the first three quarters, the Ministry of Finance said on Friday. Tax revenue, the main driver of the increase, grew 6.1 percent year-on-year, 0.8 percentage points faster than in the first half.

"The pickup in tax revenue growth points to an improvement in real economic activity," said Liu Chunsheng, an associate professor of international economics at the Central University of Finance and Economics.

Liu attributed the acceleration to firmer activity in industry and services, and greater resilience in foreign trade, adding that improving corporate earnings may have helped broaden the tax base.

Higher industrial prices also helped lift tax revenue, he added, as China's producer price index rose 5 percent year-on-year in September, its fastest jump in more than four years, amid higher oil and metals prices.

The stronger fiscal performance was in line with economic data released on Monday, which showed economic growth picking up to 4.5 percent year-on-year in the third quarter from 4.3 percent in the second.

The same data, however, showed investment remained under pressure, particularly in the property sector. Nationwide revenue from government-managed funds fell 18.6 percent year-on-year to 2.50 trillion yuan in the first three quarters, said the ministry. Land sales, which account for the bulk of that revenue, generated 1.61 trillion yuan, down 27.9 percent.

"Fiscal funds and policy-based financing should be deployed faster to bolster effective investment and revive private investment," said Luo Zhiheng, chief economist at Yuekai Securities. New policy-based financial instruments should prioritize ongoing projects, urban renewal, public service improvements and upgrades to existing infrastructure to accelerate construction, Luo said.

To broaden consumption recovery, he called for stronger support for household incomes, suggesting one-off living allowances for low- and middle-income groups and families facing financial hardship.

Local governments have stepped up new special-purpose bond issuances. In September, issuances reached 633.9 billion yuan, reflecting a marked acceleration in issuance, said Zhao Zeyong, deputy director-general of the ministry's debt management department, at a news conference in Beijing on Friday.

Earlier this month, the ministry announced it would tap 550 billion yuan in unused local government debt quotas to bolster county and county-level district finances, and expand effective investment. The quotas have been allocated, with Guangdong and Sichuan provinces planning to issue 36.1 billion yuan and 10 billion yuan, respectively, in special-purpose bonds next week to fund priority projects, the ministry said.

Such policy support is expected to help domestic demand "recover further", Deutsche Bank Research said in a report released on Friday.