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China: Beyond the official fiscal balance – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 26, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the official fiscal data cannot fully reflect the fiscal stance of the Chinese government with off-budget fiscal measures missing from the picture.

    Key Quotes

    “China’s official fiscal balance to GDP ratio has remained in a relatively narrow range, suggesting the fiscal stance has changed little over time, even in 2009, when massive fiscal stimulus was implemented. Meanwhile, off-budget fiscal measures play a key role for the government in maintaining overall growth stability, but are not reflected in official fiscal data. We aim to construct “augmented” fiscal balance data with monthly frequency to obtain a comprehensive picture of the fiscal stance.

    “Augmented” fiscal balance suggests a more counter-cyclical fiscal policy and a change of fiscal stance in the recent two years: Compared to the official deficit ratio, the augmented fiscal deficit ratio shows more volatility, which is primarily driven by discretionary expenditure items. It shows a change in fiscal stance from a tightening during the second half of 2014, partly due to the negative impacts of local government debt reform on off-budget activities, to a loosening in 2015, mainly supported by on-budget spending.

    Acceleration of spending will remain the key in 2016: In light of the pressures from slower government revenue growth and a larger stimulus effect of infrastructure spending, we expect the government will continue to turn to acceleration of both on-budget and off-budget spending as it seeks a more forceful active fiscal policy.”
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