China reveals misuse of funds, raising concerns over current fiscal measures

China's stimulus has failed to ignite demand in the second-largest economy. In the latest discovery, China has now discovered that officials allowed cash raised from the central government's budget to be invested in subpar or halted projects.

Almost $3.9 billion of funds involving 522 projects were untapped or used for different purposes. This is according to a statement by the National Audit Office. Progress was slow in the 721 projects, leaving over 41 billion yuan unused. Some projects got funds even beyond the planned total investment. This misuse of funds means the government pays interest on bonds with no substantial investment returns. This increases the risks of future debt repayment, especially when major developers have recently defaulted on their debt obligations.

This comes as China struggles to revive the ailing property market. Major developers are facing a liquidation threat amid subdued domestic demand. China's stimulus aims to inject the economy with some cash to spur demand, but the misuse of funds revealed in the recent report casts a shadow on the revival prospects of China's real estate sector.

Another report revealed how China's stimulus measures could be more balanced. While cities like Shanghai are witnessing demand in the luxury property segment, with some apartments oversubscribed five times, most cities still face a bleak economic outlook. Chinese homeowners are also scrambling to pay the high mortgage costs.

This improper dispersal of funds can further dent China's economic growth prospects. Households and businesses seem reluctant to spend amid economic slowdown and geopolitical uncertainties.