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Gov't steps on fiscal pump

Policymakers in China stepped on the fiscal accelerator in May as they moved to stimulate the economy through more government spending.

According to data from the Ministry of Finance released on Wednesday, fiscal spending jumped 24.6 percent year-on-year in May to 1.3 trillion yuan ($208 billion). [Company Incorporation USA]The surge in growth was in sharp contrast to the 9.6 percent rise in the first four months.

In the first five months, fiscal revenue climbed 8.8 percent while fiscal expenditures rose 12.9 percent from a year earlier, the ministry said.

Central government spending rose 15.8 percent in May, while local government expenditure soared 26.9 percent, the ministry said on its website.

"The May data may seem shocking, but it really was just a correction from the relatively conservative fiscal policy (that's been in place) since late last year," said Xu Gao, chief economist for Everbright Securities Co.

Government spending has been increasing as the economy softens. GDP expanded 7.4 percent in the first quarter, its slowest pace in 18 months.

The central government has repeatedly promised to pursue a proactive fiscal stance, [Company Formation | Offshore Company | Company Incorporation]but local officials have been cautious about spending amid expectations for reform measures in the first half.

The Ministry of Finance recently urged State agencies and local governments to quicken budget spending, warning that they risked losing 2014 budget funds not allocated by the end of June. China's fiscal year ends on Dec 31.

During the first five months, there was double-digit growth in spending on projects to raise living standards, according to the data.

"Faster fiscal spending is part of the government's effort to stabilize economic growth, especially when the housing market is sliding," said Xu.

However, he said, it's been shown that fiscal policy can only provide limited support for economic growth, because fiscal expenditure accounts for less than 10 percent of fixed-asset investment.

"It is more of a signal. There hasn't been a fundamental change in the policy stance," Xu said.

Fiscal expenditure in May was shown as a separate figure on the ministry's website, unlike the first four months where there was only cumulative data.

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