Looking at China's economy from the first quarter report: the willingness to consume needs to be strengthened, and the real estate is still bottoming out

Reporter Wang Zhen

The overall performance of fiscal revenue and expenditure in the first quarter was good, reflecting the upward trend of the economy. However, the first quarter report hints that there are still some structural problems to be solved in China's economic operation, such as the low willingness of residents to consume and the real estate market is still bottoming out.

In the first quarter, general public budget revenue fell by 2.3% year-on-year, and 27.2% of the budget was completed, slightly lower than the average revenue progress for the same period in the past five years. General public budget expenditure increased by 2.9% year-on-year, completing 24.5% of the budget, which is higher than the average for the same period in the past five years.

Analysts said that the sluggish growth of public finance revenue in the first quarter was mainly based on the increase in the base of tax deferrals for small and medium-sized enterprises in the same period last year, as well as the warping effect of some tax reduction policies introduced in the middle of last year, after deducting these two special factors, public finance revenue increased by about 2.2% year-on-year in the first quarter, and still maintained the momentum of recovery growth.

"In the first quarter, the fiscal policy continued to exert front-loaded force, supporting infrastructure investment to maintain a rapid growth level, effectively hedging the impact of the continuous decline in real estate investment, and promoting a good start to economic operation. Feng Lin, director of the research and development department of Oriental Jincheng International Credit Rating Co., Ltd., said to Jiemian News.

According to data from the Ministry of Finance, in the first quarter, fiscal support for infrastructure construction increased significantly, with urban and rural community expenditures and agriculture, forestry and water expenditures increasing by 12.1% and 13.1% year-on-year respectively.

Personal income tax revenues fell slightly

From January to March, personal income tax fell by 4.5% year-on-year, of which it fell by 15.9% from January to February, and increased by 75.0% in March.

Analysts pointed out that the "big ups and downs" of individual income tax are mainly due to the postponement of the year-end bonus issued this year due to the wrong month of the Spring Festival, and the delay in the storage time of individual income tax compared with the previous year. However, the negative growth of individual income tax in the first quarter also reflects the slow growth of residents' income to a certain extent.

Zhang Jun, chief economist of Galaxy Securities, previously said in the research report that the reduction of personal income tax revenue at the beginning of the year was affected by some tax reduction policy factors introduced in the middle of last year. In August 2023, the Ministry of Finance issued three special additional deduction standards for infant and child care under the age of 3, children's education and support for the elderly. However, the new special deduction policy does not fully reflect the decline in individual income tax.

He pointed out that more than 60% of the mainland's individual income tax revenue is contributed by "Beijing, Shanghai, Guangzhou, Shenzhen", Zhejiang, and Jiangsu. Combined with income statistics, the income growth rate of middle-income groups in mainland China has declined more in the past few years. According to relevant market research, the proportion of the middle class in first- and second-tier cities expecting future consumption reduction is significantly higher than that in third- and fourth-tier cities. Based on the above factors, the decrease in individual income tax revenue may also reflect the decline in the income of the middle class in first- and second-tier cities.

"In the first quarter, the individual income tax fell by 4.5% year-on-year, 20 billion less than the 444 billion yuan in the same period last year. This is highly consistent with the decline we measured last month after deducting the Spring Festival effect and policy factors, so we believe that it still reflects a decrease in household income. Zhang Jun said to Interface News.

Tao Chuan, an analyst at Soochow Securities, also pointed out in the research report that from the perspective of the entire first quarter, the year-on-year growth rate of personal income tax was -4.5%, indicating that wages and salaries may decline, and also paved the way for a slight decline in residents' willingness to consume and invest.

After the Spring Festival, the willingness to consume has cooled down. In March, consumption tax fell by 3.2% year-on-year, a growth rate of 17.2 percentage points slower than that in January-February, and vehicle purchase tax fell by 22.0% year-on-year, compared with an increase of 29.8% in January-February.

Income from land sales weakened again

In March, the revenue of government funds was 324.5 billion yuan, down 15.9% year-on-year. Among them, the income from the transfer of state-owned land use rights was 252.2 billion yuan, a year-on-year decrease of 18.7%, and the growth from January to February was zero.

Zhang Jun believes that the decrease in land auction income is expected, and according to the high-frequency data of the total land transaction price, there is still a possibility of a decline in land transfer income in April.

Zhao Wei, an analyst at Guojin Securities, pointed out in the research report that the transaction of new houses continued to be sluggish at the beginning of the year, the premium rate and transaction area of land transactions were still at a low level in the past, and it remains to be seen whether the income from land transfer can stabilize. According to the calculation of the proportion of land transfer revenue in 2023, if the fiscal revenue of state-owned land falls by 10%, the corresponding growth rate of fiscal expenditure in the broad sense will drop by nearly 2%.

Since last year, although many local governments have introduced a series of policies such as lowering down payments, lowering mortgage interest rates, and relaxing purchase restrictions, residents' willingness to buy houses is still not high, new home sales continue to be sluggish, and the financing and collection of real estate enterprises have not improved significantly.

From the sales side, from January to March, the sales area of newly built commercial houses decreased by 19.4% year-on-year, and the sales volume decreased by 27.6%. In March, the price of new homes in the country's 70 largest and medium-sized cities fell by 0.3% month-on-month, falling for 10 consecutive months. The situation on the investment side is also not optimistic, with the completion of real estate development investment in the first quarter falling by 9.5% year-on-year, an increase of 0.5 percentage points from January to February.

Huajin Securities believes that in the first quarter, the real estate market in both the demand for housing and development investment have continued the decline since the second quarter of last year, and it is expected that the annual land transfer income will still grow negatively year-on-year, or drag down the government fund budget revenue is lower than the annual budget of the slight positive growth expectation.

Broad fiscal spending is weak

In the first quarter, broad fiscal expenditure, including the budget of government funds, fell by 7.8% year-on-year. Analysts believe that the decline in land sales revenue and the slow progress of the issuance of new special bonds by local governments are the main reasons for the weak broad fiscal expenditure in the first quarter.

From January to March this year, the scale of new special bond issuance was 577.36 billion yuan, only 14.8% of the annual progress. This is down from 34.3% in the same period last year.

The Ministry of Finance said that the scale of issuance in the first quarter was smaller than in previous years, on the one hand, in order to cope with the impact of special factors such as the impact of the epidemic in previous years, the increase in the scale of issuance at the beginning of the year, and on the other hand, it was also related to factors such as the demand for local project construction funds, construction conditions in winter and spring, and bond market interest rates.

"At the same time, we have also done a lot of work in improving the quality of special bond projects and strengthening the preliminary preparation of projects, and on the whole, the annual issuance scale is still in line with expectations. Wang Jianfan, director of the budget department, said in response to relevant questions at a press conference on Monday.

The National Development and Reform Commission announced on Tuesday that it has completed the screening of local government special bond projects in 2024 in conjunction with the Ministry of Finance, and a total of about 38,000 special bond projects have been screened and approved, and the demand for special bonds in 2024 is about 5.9 trillion yuan, laying a solid project foundation for the issuance and use of 3.9 trillion yuan of special bonds this year.

Analysts expect that the pace of new special bond issuance will accelerate from the second quarter, and at the same time, the 1 trillion yuan ultra-long-term special treasury bond arranged in this year's government work report may also be issued in the second quarter.

According to the statistics of GF Securities, the issuance of new special bonds by local governments in the second quarter will increase by about 550 billion yuan from the first quarter and by about 250 billion yuan from the same period last year.

Qin Tai, an analyst at Huatai Securities, pointed out in the research report that in the first quarter, the broad fiscal revenue showed certain signs of poor income pressure due to low inflation and deep adjustment of real estate, while the issuance of special bonds was relatively slow, forming a phased restriction on the intensity of expenditure. It is expected that starting in the second quarter, the issuance of new special bonds and ultra-long-term special treasury bonds is expected to accelerate, and in the second half of the year, the government may also consider issuing about 1 trillion yuan of additional treasury bonds to make up for the potential gap between fiscal revenue and expenditure in the broad sense, and effectively guarantee the financial support in the fields of equipment renewal, consumer goods replacement, and infrastructure investment.