Fiscal spending has been a key driver of China’s economic stabilization so far this year, along with the improvement in corporate credit growth. However, we expect the fiscal impulse to weaken by about 0.3% to 0.8% of GDP in the second half of the year compared to the first half, limiting the scope and longevity of the current macroeconomic stabilization. The fading fiscal impulse is partially caused by some of the planned front-loading in local government spending in 1H 2019, but it is also a function of recent restrictions on local government financing and stresses building in the property market, particularly falling land sales.
