The growth rate of the government's fiscal income slipped to 3.1 percent in the year's first seven months, the slowest in four years.

Moderation in fiscal income will not weaken authorities' capacity for expansion of fiscal spending in the second half to back economic growth, economists said.

On Aug 16, the Ministry of Finance reported 12.56 trillion yuan ($1.78 trillion) in fiscal revenue in the first seven months, representing a year-on-year growth rate of 3.1 percent. That's down from a 3.4 percent growth rate in the first half of the year.

Fiscal spending grew 9.9 percent from a year earlier to 13.8 trillion yuan in the first seven months. Given the widening gap between increased spending and the slower expansion of income, some local governments, especially at the county level, are facing fiscal pressure. But the central government will transfer more funds to local governments to ensure stable fiscal spending and further implement tax and fee cuts, the ministry said.

By the end of July, local governments had issued 2.55 trillion yuan in new bonds for the year, accounting for 82.8 percent of the annual quota of 3.08 trillion yuan.

A quota of 2.15 trillion yuan for local governments' special bonds — mainly meant to support infrastructure projects — had been 65 percent used up by the end of July, the Ministry of Finance said.

Market speculation is that there will be additional bond quota space to bolster fiscal spending in coming months. But a senior official at the Financial Department of the Ministry of Finance said in an interview this week: "It is unlikely that the government will raise the quota for local government bonds, or for the special bonds."

Local government special bonds are seen as an important measure to support infrastructure investment, and they also are not included in local budgeted debt. The annual quota was set by the Government Work Report in March.

About 1.55 trillion yuan in local government special bonds had been issued in the first half, the Ministry of Finance said. The remaining 600 billion yuan issuance must be finished by September — a State Council requirement to speed financing for key projects.

China should have an expansionary and much stronger fiscal policy in order to increase public spending and prevent a further slowing of economic growth, said Yu Yongding, a senior economist at the Chinese Academy of Social Sciences. Yu spoke at a recent forum.

The fiscal deficit ratio, which may surpass the government target of 2.8 percent of GDP this year, should be compensated by issuing more central government bonds, said Yu, who also suggested the central bank lower interest rates for the bond issuance.

The economy slowed slightly in July. The National Bureau of Statistics indicated the infrastructure investment growth rate, year-to-year, retreated to 3.8 percent in the first seven months, compared with 4.1 percent in the first six months.

Economists have said they think the policy stance likely will be loosened again in August to support economic growth. As a result, growth is expected to be stronger in the next two months.

"In the current environment, we believe economic growth is likely to be strong only when there is clear policy support, like in the first quarter and in June," said Song Yu, chief China economist at Beijing Gao Hua Securities.

Goldman Sachs research showed on Aug 16 that by the end of June, the official general government spending balance recorded a deficit of 1.6 percent of GDP, the largest half-year deficit since 2011. The greater than expected half-year deficit is from the combined effects of tax and fee cuts and more public spending.

Despite some fiscal challenges and rising debt levels, the government will continue to step up fiscal support, as needed, to ensure the economy doesn't slow more than policymakers can tolerate in the near term, said Wang Shengzu, co-head of Investment Strategy Group Asia at Goldman Sachs.