Huachuang Securities: This year, the capital for fiscal projects is relatively abundant, with less resistance to the start of construction for infrastructure projects than last year.

Recently, Huachuang Securities released a report on financial data analysis for January-February. The year-on-year growth rate of general fiscal revenue for January-February was -1.4%, compared to -18.5% in December 2025; the year-on-year growth rate of general fiscal expenditure for January-February was 6.1%, compared to -0.7% in December 2025. This year, the fiscal front is not inferior to last year, and in terms of infrastructure, further analysis suggests that physical fiscal funds can be formed, and the growth rate may be even higher - estimated to reach 26.3% in Q1, achieving a new high since 2022. This year's new government debt is basically flat compared to last year, land sales revenue is still under pressure, but with the carry-over of two 500 billion increment policies in the fourth quarter of last year and the supplementary issuance of 800 billion new policy financial instruments this year, it is estimated that the fiscal funds that can be formed physically will grow by 9.7% for the whole year, reaching a new high since 2022. In addition, it is observed that the project capital provided by the fiscal year is relatively sufficient this year, and the resistance to project commencement and construction may be less than last year. Key points from Huachuang Securities: The year-on-year growth rate of general fiscal revenue for January-February was -1.4%, compared to -18.5% in December 2025; the year-on-year growth rate of general fiscal expenditure for January-February was 6.1%, compared to -0.7% in December 2025. The high growth rate of infrastructure at the beginning of the year has sparked discussions in the market. We explore the causes and sustainability of this growth from a fiscal perspective: 1. Examination of high infrastructure growth from a fiscal perspective (a) Evaluation of overall fiscal efforts at the beginning of the year: Not inferior to last year's efforts This year's fiscal front is not inferior to last year's efforts, as shown by: 1. In terms of deficits, there was a strong subjective willingness at the beginning of the year to push forward fiscal efforts - the "double deficit" reappeared at the beginning of the year: - The second occurrence of a narrow fiscal deficit at the beginning of the year in nearly 30 years: A fiscal deficit was recorded for January-February (255.2 billion, compared to 124 billion last year, which was the first time in nearly 30 years, and deficits in the years 2017-2024 were only recorded by March due to large expenditures at the end of the quarter, with earlier years being even later). - The highest broad deficit at the beginning of the year in recent years: A broad fiscal deficit of 1036.3 billion was recorded for January-February (compared to 621.7 billion last year, with broad fiscal deficits recorded only in January-February of 2020, 2023, and 2024, at 230.9 billion, 78.4 billion, and 311.3 billion respectively. Prior to 2018, deficits were only recorded in June). 2. In terms of expenditures, there was a significant objective effort at the beginning of the year - the growth rate of the two major accounts (general fiscal) for January-February was 6.1%, reaching a new high since 2022 (for January-February from 2020 to 2025: -5.2%, 3.3%, 11.9%, 2.1%, 2.7%, 2.9%). (b) Analysis of the causes of high infrastructure growth at the beginning of the year from a fiscal perspective: A double hit from funds and projects 1. On the funding side: After confirming the overall vigor of fiscal efforts at the beginning of the year, further examination of physical fiscal funds for infrastructure shows a growth rate that may be even higher - estimated to reach 26.3% in Q1, setting a new high since 2022 (for Q1 from 2020 to 2025: 4.5%, -20%, 50.9%, 2.3%, -19%, 19%; including four sub-items such as two revenue accounts, one debt account (net financing of national bonds + new general debt), a second debt account (new special debt, *no special national bond issuance at the beginning of the year), quasi-fiscal funds + excess budget limits used for projects and other fiscal funds outside the budget, calculated based on the proportion of physical funds that can be formed). 2. On the project side: Both central and local governments had no shortage of projects at the beginning of the year. - Central: In December of last year, the National Development and Reform Commission issued a list of "two heavy" construction projects for 2026 and a central budget investment plan totaling about 295 billion yuan; it approved multiple major infrastructure projects with total investments exceeding 400 billion yuan. - Local: The two 500 billion increment policies in the fourth quarter of last year (500 billion excess budget limits activated, with 200 billion used for projects in major provinces + 500 billion new policy financial instruments) correspond to projects that can continue construction at the beginning of the year. (c) Examination of the sustainability of high infrastructure growth for the whole year from a fiscal perspective: Fiscal adequacy reaches a new high since 2022, local projects under pressure, still to be observed 1. On the funding side: New government debt is basically flat compared to last year, land sales revenue remains under pressure, but with the carry-over of the two 500 billion increment policies from the fourth quarter of last year and the supplementary issuance of 800 billion new policy financial instruments this year, it is estimated that physical funds that can be formed will grow by 9.7% for the whole year, setting a new high since 2022 (for Q1 from 2020 to 2025: 21.2%, -5.2%, 17%, -8.4%, 3.8%, 3.2%; assumptions for calculations are detailed in the text); Furthermore, it is noted that the project capital provided by the fiscal year this year is relatively abundant, and the resistance to project commencement and construction may be less than last year: Capital in place is a necessary condition for project commencement and construction, thanks to all new policy financial instruments used to supplement project capital, it is estimated that project capital provided by the fiscal year will increase by 841.6 billion, compared to a decrease of 609.1 billion last year (Note: Project capital provided by the fiscal year mainly includes... 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