China Clings to Austerity Despite Intensifying Economic Slowdown

China’s public spending plunged last month by the most since October, suggesting the government tightened fiscal policy further despite increasing calls for more support as economic growth slips.

A broad measure of expenditure tumbled 11.9% in June from a year earlier, according to Bloomberg calculations based on Ministry of Finance data released Wednesday. By contrast, broad fiscal revenue gained 1.8%.

That took the broad deficit in the first half to 4.57 trillion yuan ($675 billion), 13% less than a year earlier.

Prolonged fiscal tightening has been a drag on overall investment, with economic expansion weakening more than expected in the second quarter. A shift toward looser policy is still likely as top officials call for faster deployment of pro-growth measures that have already been approved to ensure Beijing’s annual target of 4.5%-5% is achieved.

The Ministry of Finance said it will continue to carry out what it called a “more active” fiscal policy, according to a statement made in a video clip released as part of its quarterly briefing.

Among other steps, it said officials will “push for all existing policies to be rolled out on the ground and look to “reasonably accelerate the pace of spending,” along with stronger expenditure aimed at improving people’s wellbeing. The ministry also pledged continued backing for “the expansion of effective investment,” possibly suggesting that finding enough quality projects will remain a hurdle for faster spending.

The government on Monday vowed to expedite the construction of a massive “Six Networks” program — a strategic national infrastructure push involving data centers, power grids and telecom networks aimed at positioning China for long-term growth in the new era of artificial intelligence.

Prior to that, Premier Li Qiang promised to fully leverage existing policies and study a pipeline of additional measures as part of a more active response to the economic slowdown.

Chinese provinces are already ramping up fundraising for capital expenditure.

In June, local governments issued 291.7 billion yuan of bonds primarily to be used for infrastructure investment, according to Bloomberg-compiled data. That’s the highest since February and more than double the amount sold in the previous month, although it remains slightly below its year-earlier level.

The trend will likely continue in the coming months, as provinces still have nearly 1.9 trillion yuan in remaining bond quota to draw down in the second half.

Separately, the government has also planned 800 billion yuan in new policy financing tools — a quasi-fiscal instrument used to drive investment — for this year.

The funding hasn’t yet been tapped and is set for an aggressive rollout in the third quarter, the state-run Securities Times reported Wednesday.