中国：12 月财政收入增速大幅下滑，支出增速改善；更新 2026 年财政赤字预测-China_ Fiscal revenue growth declined sharply in December while expenditure growth improved; updating our 2026 AFD forecast

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the fiscal situation in China, particularly the trends in fiscal revenue and expenditure as well as property-related government revenue. Core Insights and Arguments 1. Fiscal Revenue Growth Decline: On-budget fiscal revenue growth fell sharply to -25.0% year-on-year (yoy) in December from 0% yoy in November, primarily due to a high base effect. Sequentially, it also experienced a slight decline [7][1] 2. Tax Revenue Drop: Tax revenue growth decreased significantly to -11.5% yoy in December from +2.8% yoy in November, attributed to increased value-added tax (VAT) rebates for exporters and reduced corporate income tax revenue [7][1] 3. Non-Tax Revenue Contraction: Non-tax revenue saw a year-on-year contraction of -47.9% in December, worsening from -10.8% in November, reflecting a high base from last year due to one-off profit transfers from central state-owned enterprises (SOEs) [7][1] 4. Fiscal Expenditure Improvement: Fiscal expenditure growth improved to -1.8% yoy in December from -3.7% yoy in November, driven by increased spending in urban and rural community affairs and agriculture [7][1] 5. Property-Related Revenue: Property-related government revenue remained weak, with off-budget land sales revenue contracting by -22.8% yoy in December, slightly improving from -26.6% in November. On-budget property-related tax revenue grew marginally by +0.1% yoy in December [8][1] 6. Augmented Fiscal Deficit (AFD): The AFD metric widened marginally in December, indicating a slight increase in the fiscal deficit. The fiscal "spend-through" ratio decreased to 98.2% in December from 99.0% in November, suggesting a slowdown in fund deployment by the government [9][1] 7. Outstanding Fiscal Deposits: As of December, outstanding fiscal deposits were approximately RMB700 billion above the previous year's level, indicating that policymakers have some easing space for 2026 [9][1] 8. 2025 Fiscal Performance: For the full year 2025, on-budget fiscal revenue fell by 1.3% yoy, missing the budget projection of a 0.1% gain, primarily due to weaker-than-expected tax revenue growth [10][1] 9. Future Fiscal Policy Outlook: Policymakers are expected to adopt conservative fiscal parameters in the upcoming budget report while keeping the option for extra-budget funding open if necessary. The official on-budget fiscal deficit target is anticipated to remain at 4.0% of GDP in 2026 [11][1][13][1] Additional Important Insights - The report indicates that the contraction in land sales revenue is a significant concern, as it directly impacts government revenue from the property sector, which declined by 20.7% yoy in December [8][1] - The adjustments in the 2026 budget parameters reflect a cautious approach by the government in response to the current economic conditions, with expectations of a widening AFD to 12.0% of GDP in 2026 [13][1] This summary encapsulates the critical financial metrics and trends affecting China's fiscal landscape, highlighting both challenges and potential policy responses.