Beijing is taking on a larger role in funding economic growth, as the central government increases spending at the beginning of the year. This shift in responsibility aims to maintain investment levels while addressing concerns about local government debt. According to data from the Ministry of Finance, public expenditure in January and February combined rose 14% from the previous year to 482.8 billion yuan ($66.8 billion), marking the fastest pace in five years.
To address credit risks associated with local government financing vehicles (LGFVs), Beijing has been encouraging the sale of assets and converting some liabilities into government bonds. This strategy aims to support growth while mitigating risks, as noted by Xing Zhaopeng from Australia & New Zealand Banking Group Ltd. In the first two months of the year, central and local authorities allocated nearly 700 billion yuan towards agriculture, forestry, irrigation, and urban and rural community development. This represents a 22% increase from the previous year, with funding coming from the sovereign bond issuance launched last year for 15,000 projects.
While local government spending rose by 5.8% in the first two months, down from 6.8% the previous year, there was an 11.1% decline in spending under the government-managed fund budget. This drop is attributed to limitations related to sluggish land sales. The data reflects Beijing’s efforts to balance growth while addressing financial constraints at the local level.