China’s Fiscal Revenue Improves but Spending Fades as Industrial Profits Surge

China’s economy presented a sharply mixed picture in the first four months of 2026, as fiscal revenue continued to improve while government spending momentum faded, and industrial profits surged to their highest level in over two years, driven by booming AI-related demand and rising energy prices.

General public budget (GPB) revenue — the largest of China’s four fiscal budgets — rose 6.7% year-on-year in April to 2.18 trillion yuan, marking the second consecutive month of growth above 6%, according to data from the Ministry of Finance reported by Caixin Global. Tax revenue reached 1.96 trillion yuan, up 8.2% year-on-year, while non-tax revenue fell 5.3% to 219.9 billion yuan, signaling an improving revenue structure driven by economic fundamentals rather than one-off items.

Yet in a striking divergence, GPB spending fell 3.2% year-on-year in April, a notable decline after slowing in March. Over the January-April period, cumulative spending rose just 1.3%, well below the full-year budget target of 4.4%. Analysts at Huatai Securities described the divergence as “a clear departure from the revenue side,” noting that central government spending rose 5.5% while local government spending fell 5.0%.

Fiscal Revenue: Tax Recovery Broadens

The revenue improvement was broad-based. Domestic value-added tax (VAT) rose 9.4% year-on-year in April, its third consecutive month of acceleration, as recovering factory-gate prices and steady industrial activity boosted tax receipts. Corporate income tax returned to growth at 8.2%, reaching 688 billion yuan — the highest April figure since 2020 — reflecting the pass-through of strong first-quarter industrial profits.

Personal income tax surged 21.2% year-on-year, driven by standardized collection management, while securities transaction stamp duty jumped 62.9%, cumulative up 74.8%, reflecting active capital markets. However, consumption-related taxes remained weak: domestic consumption tax rose just 1.3%, and vehicle purchase tax growth slowed to 8.2%, pointing to soft domestic demand.

Property-related taxes continued to underperform, with deed tax down 12.4% and land VAT down 19.0%, reflecting the persistent downturn in the real estate sector.

Spending Slowdown: Local Governments Pull Back

The spending contraction was most acute at the local level. Infrastructure spending across four major categories fell approximately 18.6% year-on-year in April, with cumulative spending down 5.3%. In contrast, social welfare spending — covering social security, healthcare, and education — rose about 1.4% in April and 5.2% cumulatively, reflecting Beijing’s continued “investment in people” policy orientation.

According to the Huatai Securities analysis, the spending-revenue divergence may reflect several factors: front-loaded spending early in the year naturally pulling back; energy price shocks causing both enterprises and governments to delay investment; and local governments facing project screening constraints, debt pressures, and policy direction uncertainty.

Notably, the fund surplus in the first budget for January-April reached approximately 720.7 billion yuan, significantly higher than the 2023-2025 average of 238.9 billion yuan, suggesting fiscal authorities are reserving room for later deployment.

Industrial Profits: AI and Energy Drive Surge

On the industrial side, the picture was far more buoyant. Industrial profits for enterprises above a designated size grew 24.7% year-on-year in April, the highest since December 2023, according to the National Bureau of Statistics as reported by Xinhua News. For the January-April period, cumulative industrial profits reached 2,435.84 billion yuan, up 18.2% year-on-year.

The profit surge was heavily concentrated in sectors tied to artificial intelligence and energy. The electronics industry saw profits soar 107.7% in the first four months, contributing 43.8% of total industrial profit growth, as reported by Caixin. High-tech manufacturing profits rose 44.8%, while raw materials manufacturing — boosted by elevated international oil prices — jumped 88.1%. The non-ferrous metals sector (aluminum, copper, gold, lithium) posted a 117.8% profit increase, driven by demand from AI, new energy, and next-generation information technology industries.

“Driven by surging AI-related industry demand and rising international oil prices boosting raw material costs, April 2026 saw domestic industrial enterprise profits grow 24.7% year-on-year, the highest growth rate since end-2023,” Caixin reporter Cheng Siwei wrote.

The revenue profit margin reached 5.43% for January-April, up 0.60 percentage points year-on-year and the highest for the period since 2023.

Property Sector Remains a Drag

The property downturn continued to weigh heavily on local government finances. Land sales revenue plunged 34.8% year-on-year in April, with cumulative land sales revenue for January-April falling to 680.1 billion yuan, down 27.2%. Real estate development investment fell 13.7% and new commercial housing sales dropped 14.6% over the same period.

Government-managed fund revenue — the second fiscal budget, heavily dependent on land sales — fell 26.4% in April, widening its decline.

Analysis and Outlook

The data suggests Chinese policymakers are navigating a complex environment, balancing stimulus with fiscal discipline. The spending slowdown may weigh on economic growth in the second quarter, but the preserved fiscal space — estimated at roughly 480 billion yuan above trend in the first budget — could be deployed later in the year if needed.

“Looking at the cumulative January-April data, several fiscal characteristics are clear: tax revenue recovery is better than early-year expectations, with improving revenue structure; government-managed fund revenue continues to weaken; and spending pace is fast-then-slow, with fiscal policy seemingly reserving some room for later use,” the Huatai Securities analysts wrote.

Key questions remain: whether the AI and semiconductor-driven profit growth can broaden to other sectors, how the property downturn will continue to affect local government finances, and whether the preserved fiscal space will be deployed in the second half of the year to support growth.

For now, China’s economy presents a study in contrasts — a booming high-tech industrial sector generating record profits alongside cautious government spending and a property market that continues to drag on the broader fiscal picture.