HTSC: March fiscal easing to be further intensified, focus on the subsequent incremental stability of domestic demand policies and their pace

According to the Zhitong Finance APP, Huatai Securities released a research report stating that in the first quarter, general fiscal expenditure (general public budget + government funds) recorded a year-on-year increase of 5.6%, higher than the nominal GDP growth rate of 4.6% in the first quarter, indicating that the expansion of fiscal policy provides strong support for economic growth. Considering that the impact of the U.S. "reciprocal" tariffs on exports may become apparent in the second quarter of this year, and global growth may also slow down in the second quarter, it is necessary to maintain a loose fiscal policy to hedge against the potential impact of external demand slowdown and solidify the foundation for the recovery of domestic demand since the first quarter. Minister of Finance Lan Fo'an stated at the press conference on the economic theme of the Two Sessions that in response to potential uncertainties both domestically and externally, the central government has reserved sufficient reserve tools and policy space, focusing on the subsequent incremental stabilization of domestic demand policy strength and pace.

The main points of Huatai Securities are as follows:

Commentary on March Fiscal Data

In the first quarter, general fiscal expenditure (general public budget + government funds) recorded a year-on-year increase of 5.6%, higher than the nominal GDP growth rate of 4.6% in the first quarter, indicating that the expansion of fiscal policy provides strong support for economic growth. Among them, the general public budget/government fund expenditure recorded year-on-year increases of 4.2%/11.1%, with the front-loading of special bond issuance or promoting the acceleration of government fund expenditure, but general fiscal revenue in the first quarter recorded a year-on-year decrease of 2.6%, mainly dragged down by an 11% decline in government fund revenue. In March, the year-on-year growth rate of general fiscal expenditure significantly rebounded from 2.9% in January-February to 10.1%, maintaining strong expenditure strength, with significant acceleration in expenditures related to infrastructure, agriculture, forestry, water affairs, energy conservation, and environmental protection, corroborating the high upward trend in infrastructure investment growth in March. Meanwhile, general fiscal revenue year-on-year slightly rebounded from -2.9% in January-February to -1.7%, indicating that the momentum for the recovery of domestic demand still needs to be solidified. In March, the general fiscal deficit recorded 1.7 trillion yuan, an increase of 366.1 billion yuan compared to the same period last year, indicating an increase in the expansion of fiscal policy. In addition, fiscal deposits year-on-year continued to rise from 14.9% in February to 17%, possibly reflecting the front-loading of government bond financing at the beginning of the year.

Looking ahead, the implementation of tariff policies in April may disrupt exports, increasing the necessity for further loosening of fiscal policy in the second quarter. At the same time, whether the growth rate of fiscal revenue can stabilize is key to the sustainability of fiscal expansion. Considering that the impact of the U.S. "reciprocal" tariffs on exports may become apparent in the second quarter of this year, and global growth may also slow down in the second quarter, it is necessary to maintain a loose fiscal policy to hedge against the potential impact of external demand slowdown and solidify the foundation for the recovery of domestic demand since the first quarter. This year's Two Sessions saw a fiscal policy apparent deficit rate and deficit scale higher than last year, with the total new financing scale of general (central + local) fiscal reaching 13.9 trillion yuan, an increase of 2.9 trillion yuan compared to last year's target. On March 6, Minister of Finance Lan Fo'an stated at the press conference on the economic theme of the Two Sessions that in response to potential uncertainties both domestically and externally, the central government has reserved sufficient reserve tools and policy space, focusing on the subsequent incremental stabilization of domestic demand policy strength and pace.

The specific analysis of March fiscal revenue and expenditure items is as follows: 1. Revenue Side: Q1 Tax and Land Transfer Revenue Growth Weak, Fiscal Revenue Under Pressure

In Q1, general public budget revenue fell by 1.1% year-on-year, slower than last year's 1.3%. In terms of single months, the year-on-year growth rate of general public budget revenue in March turned positive to 0.3% from -1.6% in January-February. Among them, the year-on-year growth rates of tax/non-tax revenue in Q1 were -3.5%/8.8%, both lower than last year's -3.4%/25.4%. In March, the year-on-year decline in tax revenue narrowed to 2.2% from 3.9% in January-February, while non-tax revenue slowed from 11% in January-February to 5.8%. In terms of components, the year-on-year growth rates of corporate income tax, value-added tax, and consumption tax in March all accelerated compared to January-February, while the year-on-year growth rate of personal income tax slowed.

• In Q1, consumption tax grew by 2.2% year-on-year, slightly slower than last year's 2.6%. In March, the year-on-year growth rate of consumption tax rebounded to 9.6% from 0.3% in January-February, corresponding to a nominal year-on-year increase in total retail sales of consumer goods from 4% in January-February to 5.9% in March; the year-on-year decline in vehicle purchase tax narrowed from 32.5% in January-February to 13.8%, and the year-on-year growth rate of retail sales of automobiles in total retail sales rebounded by 9.9 percentage points to 5.5%, which also serves as confirmation.

• In Q1, corporate income tax grew by 7.1% year-on-year, faster than the -0.5% in the same period last year. In terms of single months, the year-on-year growth rate of corporate income tax in March turned significantly positive to 15.9% from -10.4% in January-February, and the year-on-year growth rate of value-added tax revenue also accelerated from 1.1% in January-February to 5%. Additionally, personal income tax grew by 7.1% year-on-year in Q1, up from -1.7% last year, with the single-month growth rate turning negative to -58.4% from 26.7% in January-February, possibly reflecting the impact of the misalignment of the Spring Festival this year—some units may have issued year-end bonuses around the Spring Festival holiday, and if the Spring Festival is earlier, personal income tax revenue will be recorded in February, thus partially suppressing the year-on-year growth rate of personal income tax in March.

• Driven by the increased activity in the securities market, stamp duty grew by 21.1% year-on-year in Q1, significantly higher than last year's -9.5%. In terms of single months, the year-on-year growth rate of stamp duty in March fell to 8.5% from 16.9% in January-February, corresponding to a year-on-year decline in A-share trading volume from 68.2% in January-February to 37.1%.

In Q1, the year-on-year decline in government fund revenue narrowed to 11% from last year's 12.2%, while the year-on-year decline in government fund revenue in March widened to 11.7% from 10.7% in January-February, which may indicate that real estate prices are still bottoming out. The year-on-year decline in land transfer revenue also widened from 15.7% in January-February to 16.5%, but the year-on-year decline in land transfer revenue in Q1 slightly narrowed to 15.9% from last year's 16%. The total year-on-year growth rate of five taxes related to real estate rebounded to -10.8% from -11.4% in January-February; from the demand-side data, the year-on-year decline in commodity housing transaction volume narrowed from 2.6% in January-February to 1.6% in March, and the decline significantly narrowed compared to last year's 17.1%, providing support for real estate-related tax revenue 2. Expenditure Side: In the first quarter, broad fiscal expenditure accelerated and outpaced nominal GDP growth

In the first quarter, broad expenditure grew by 5.6% year-on-year, faster than the 4.6% growth of nominal GDP in the first quarter, indicating that the overall broad fiscal stance remains accommodative; specifically, general public budget/government fund budget expenditure grew by 4.2%/11.1% year-on-year, faster than the full year of 2024. On a monthly basis, the growth rate of broad fiscal expenditure in March rebounded significantly to 10.1% from 2.9% in January-February, among which the year-on-year growth rate of general public budget expenditure rebounded to 5.5% from 3.4% in January-February, and the year-on-year growth rate of government fund expenditure rebounded significantly to 27.9% from 1.2% in January-February. Specifically,

• In March, the year-on-year growth rate of general public budget expenditure rebounded to 5.5% from 3.4% in January-February, with the year-on-year growth rate of infrastructure-related agricultural, forestry, and water affairs rebounding from -10.5% in January-February to 2.6%, and the year-on-year growth rate of energy conservation and environmental protection also rising significantly from 1% in January-February to 16.4%, mainly reflecting the front-loading of fiscal efforts since the beginning of the year, with the speed of new infrastructure projects landing accelerating. In addition, the year-on-year growth rates related to people's livelihoods, such as health, social security, and employment, rebounded from 0.6%/6.7% in January-February to 4.7%/10%, which may indicate that the steady growth policies have made efforts in stabilizing people's livelihoods and employment, while the year-on-year growth rate of scientific and technological expenditure turned negative to -4.7% from 10.6% in January-February.

• With a low base, the year-on-year growth rate of government fund expenditure in March rebounded significantly to 27.9% from 1.2% in January-February, with the front-loading effect of fiscal efforts since the beginning of the year boosting the growth of government fund expenditure. In addition, from January to March, local special bonds issued totaled 960.3 billion yuan, an increase of 326.2 billion yuan year-on-year, with 363.5 billion yuan of new local special bonds issued in March alone, an increase of 132.8 billion yuan year-on-year, thus the funding effect brought by the issuance of special bonds provides certain support for the growth of government fund expenditure.

Risk Warning: The intensity of fiscal expansion may be less than expected, and the issuance progress of local special bonds continues to lag