China’s fiscal spending remained in contraction in the third quarter. How much lift can faster bond issuance provide in the fourth?

How much did fiscal spending improve in the third quarter?

China’s broad fiscal spending fell 4.7% year on year in the third quarter, an improvement from the 8.5% decline in the second quarter, but remained in contraction. The measure includes general public budget and government-managed fund spending. On this basis, Nomura concluded that government spending remained a drag on growth even as third-quarter GDP growth picked up.
There is little sign of a marked acceleration in spending. Broad fiscal spending fell 3.6% year on year in September, narrowing from a 6.5% decline in August. General public budget spending was flat year on year, while government-managed fund spending fell 12.1%. This means that policy statements at the end of August calling for faster spending had yet to produce a noticeable increase by September.
General public budget spending rose just 1.0% in the first three quarters, while government-managed fund spending fell 16.2%, trailing the respective full-year growth targets of 4.4% and 5.1%. Considerable pressure remains to catch up on spending by year-end.

Broad fiscal revenue rose 2.4% year on year in the third quarter, slightly above 2.1% in the second quarter, but the improvement was uneven. Government-managed funds, for which land sales are an important source of revenue, remained under pressure. Land revenue continued to contract, constraining local fiscal spending.
General public budget revenue was relatively strong, rising 5.1% in the first three quarters, above the full-year target of 2.2%. Nomura attributed tax resilience mainly to PPI turning positive, stronger taxation of companies and high-income earners, and capital gains tax revenue from the stock market’s rise earlier in the year, rather than a broad-based economic recovery.
Some taxes have shown signs of weakness. Corporate income tax revenue fell 0.4% year on year in September, compared with growth of 11.6% in August. Nomura believes rising raw material prices could erode downstream companies’ profits. Consumption tax revenue also fell 5.7% in the third quarter, compared with a 2.0% decline in the second quarter, indicating continued structural pressure on revenue.

Financing has been noticeably weighted toward later in the year. After an additional 550 billion yuan in local government bond quota was added in early October, the full-year government bond net financing quota for 2026 rose to 14.44 trillion yuan, slightly above the 14.36 trillion yuan in 2025. But Nomura estimates that net financing in the first three quarters was only 10.4 trillion yuan, about 1.1 trillion yuan less than a year earlier.
If the full-year planned quota is fully used, Nomura calculates that government bond net financing could reach approximately 4 trillion yuan in the fourth quarter, above 2.3 trillion yuan in the same period a year earlier. Approximately 1 trillion yuan in net financing was already achieved from 1 October through the 23rd, exceeding the 528 billion yuan for the whole of October 2025. The data thus already support the observation that bond issuance has accelerated.

Nomura expects the effects of faster government bond issuance and new policy financing instruments to become more apparent in the fourth quarter. But if local governments use bond proceeds to meet basic spending needs, the fiscal multiplier could be weak: each yuan of fiscal funds would generate only a limited increase in economic activity.
The new policy financing instruments also need to leverage other sources of funding. Rising intercompany arrears are eroding mutual trust and could limit this financing leverage. Therefore, beyond the amount of new funding, how the money is used and whether it can mobilize complementary investment also determine the strength of the policy impact.