Move set to help stimulate domestic demand and ensure stable growth

China will continue to adopt a proactive fiscal policy this year, employing tools such as increased expenditure, a wider deficit and government bond issuance, to stimulate domestic demand and ensure stable economic growth amid rising external uncertainties, officials and economists said.

As the contradiction of strong supply relative to weak demand still remains pronounced, expanding the overall fiscal spending envelope will help boost consumption and investment and facilitate the construction of a robust domestic market, they added.

China's general public budget expenditure is projected to reach over 30 trillion yuan ($4.37 trillion) this year, an increase of 4.4 percent, a record high, according to the budget report unveiled during the recently concluded two sessions.

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Meanwhile, the budget deficit target has been kept at 4 percent of GDP for this year, unchanged from 2025. The absolute deficit reaches 5.89 trillion yuan, an increase of 230 billion yuan from the previous year.

Including new local government special-purpose bonds of 4.4 trillion yuan, ultra-long-term special treasury bonds of 1.3 trillion yuan, and special treasury bonds for financial institution capital injection of 0.3 trillion yuan, total new government debt this year will reach 11.89 trillion yuan.

The broad fiscal deficit — the sum-up of narrow deficit plus off-balance-sheet items like special-purpose bonds and special treasury bonds — stands at 8.1 percent for 2026, said Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities.

This is roughly equivalent to last year's 8.5 percent but significantly higher than the 6.7 percent recorded in 2023 and 6.6 percent in 2024, Luo said, noting that it indicates continued fiscal support for economic growth while maintaining overall stability.

The Government Work Report, outlining this year's fiscal policy, states that government expenditures will maintain considerable scale while intensifying efforts to optimize the spending structure, with greater emphasis on supporting consumption, and ensuring livelihoods.

Finance Minister Lan Fo'an said that China's economy is demonstrating resilience and advancing toward higher-quality development, yet the persistent contradiction between robust supply and insufficient demand remains pronounced, with consumer spending lacking vitality and private investment growth remaining weak.

To address this challenge, the central government has allocated 100 billion yuan this year for a comprehensive fiscal-financial coordination package comprising six policies — four specifically targeting private investment and two supporting household consumption.

"This package of policies comprehensively utilizes tools including loan interest subsidies, financing guarantees, and risk compensation," Lan said. "The key is to leverage the synergistic effect of fiscal, financial, and industrial policies working in coordination."

When combined with this year's 250 billion yuan consumer goods trade-in program, the total fiscal support for consumption exceeds last year's level, Lan added.

Preliminary estimates, according to Lan, suggest that every 100 billion yuan in fiscal funds can support up to 1 trillion yuan in credit, achieving a "four-ounce leverage moving a thousand-pound weight" multiplier effect.

China's fiscal expenditure structure is expected to undergo a fundamental transformation, shifting from prioritizing investment to balancing investment and consumption, from focusing on supply to balancing supply and demand, and from emphasizing enterprises to balancing enterprise and household support, said Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International.

This strategic reorientation would direct more resources toward the household sector and livelihood protection, with Wang suggesting it may be necessary to further increase childcare subsidy amounts and raise pensions for rural and nonworking urban residents.

Minister Lan also stressed that the financial resources are not unlimited, yet the demands of economic development and livelihood protection require continuous expenditure, making revenue growth, expenditure control, and strengthened fiscal scientific management imperative.

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To promote sound fiscal management, the Government Work Report has highlighted that the country will advance zero-based budgeting reforms, a financial method where all expenses must be justified and approved for each new period from a "zero base", and expand reform trials in central departments.

Moreover, efforts will be made to improve local tax systems and expand the sources of tax revenue at the local level, as well as optimize the scope and rate of excise tax and move its collection on some items further down the production-to-consumption chain.

Yuan Haixia, dean of the research institute at China Chengxin International Credit Rating, said that fiscal and tax reform should prioritize alleviating current local government fiscal gaps and accelerating the resolution of challenges in local fiscal self-generation capacity.

Contact the writers at wangkeju@chinadaily.com.cn