According to a report by China Daily on March 19…
China will maintain a proactive fiscal policy stance in 2026, stepping up government spending, widening the deficit and expanding bond issuance to support domestic demand and stabilize growth, as external uncertainties continue to rise.
The policy direction, outlined in official budget documents released after the annual “Two Sessions”, underscores Beijing’s growing focus on addressing weak demand despite relatively strong supply conditions in the economy.
Larger Deficit and Rising Government Debt
According to the budget report, China’s general public expenditure is set to exceed 30 trillion yuan ($4.37 trillion) this year, up 4.4% and marking a record high.
The headline fiscal deficit target remains at 4% of GDP, unchanged from 2025, but in absolute terms rises to 5.89 trillion yuan.
Including local government special-purpose bonds and various forms of special treasury bonds, total new government debt issuance is expected to reach 11.89 trillion yuan.
On a broader measure — which includes off-budget items — the fiscal deficit is estimated at around 8.1% of GDP, broadly in line with last year but significantly higher than levels seen in 2023 and 2024.
Policy Shift Toward Supporting Consumption
Officials have acknowledged that the imbalance between strong supply and weak demand remains a key challenge.
Speaking recently, Finance Minister Lan Fo’an of the Ministry of Finance of China said consumer spending lacks momentum and private investment remains subdued.
To address this, the government has introduced a fiscal-financial policy package worth 100 billion yuan, combining tools such as interest subsidies, financing guarantees and risk-sharing mechanisms to support private investment and household consumption.
This comes on top of an expanded consumer goods trade-in programme, bringing total fiscal support for consumption above last year’s level.
Leveraging Fiscal Funds to Unlock Credit
Authorities are also aiming to amplify the impact of fiscal spending through coordination with financial policies.
Officials estimate that every 100 billion yuan in fiscal funding could support up to 1 trillion yuan in credit — highlighting Beijing’s focus on using public funds to catalyse broader financing activity.
Structural Shift in Fiscal Strategy
Economists say China’s fiscal policy is undergoing a gradual rebalancing.
Rather than focusing primarily on infrastructure and supply-side investment, policymakers are placing greater emphasis on boosting consumption, supporting households and improving social welfare.
This could involve increased spending on areas such as pensions and childcare, as part of a broader effort to strengthen domestic demand.
Balancing Support with Fiscal Constraints
Despite the more proactive stance, officials have stressed that fiscal resources remain constrained.
Authorities are therefore pushing ahead with reforms aimed at improving fiscal efficiency, including expanding the use of “zero-based budgeting” — a system that requires all expenditures to be justified from scratch each year.
Other planned measures include refining the local tax system and adjusting the scope and structure of consumption-related taxes to strengthen local government revenues.
A Clear Policy Signal
Taken together, the measures point to a continued policy pivot toward demand-side support, even as China seeks to maintain overall fiscal stability.
For investors and policymakers alike, the key question is whether stronger fiscal support can translate into a sustained recovery in consumption — an area that remains central to China’s medium-term growth outlook.