A recent news conference held by the State Council Information Office provided an important indication of how China's fiscal policy will develop during the 15th Five-Year Plan period (2026-30). While reviewing the results achieved in recent years, Ministry of Finance officials also outlined the priorities for the next stage of fiscal reform.

These priorities were presented as six goals: strengthening fiscal capacity, improving the composition of expenditure, making macroeconomic regulation more effective, deepening fiscal and tax reform, raising the quality of fiscal management, and addressing risks in key areas.

The six goals are closely related. Adequate fiscal resources are needed to support public spending, but the effectiveness of that spending depends on where the money goes and how well it is managed. Reform can improve the allocation of public resources, while stronger oversight and risk control are necessary to keep public finances sufficient and sustainable. Taken together, these priorities show that fiscal policy will increasingly focus on the quality of spending as well as its scale.

The most immediate point is that a proactive fiscal stance will remain important. China's budgeted fiscal expenditure will exceed 30 trillion yuan ($4.47 trillion) for the first time in 2026. New government bond issuances will reach 11.89 trillion yuan, the highest level on record. Central government transfer payments to local authorities will also remain above 10 trillion yuan for the fourth consecutive year, reaching 10.42 trillion yuan.

The size of these figures reflects the government's intention to maintain sufficient support for the economy at a time when external uncertainty remains high and domestic demand still needs to be strengthened. The deficit-to-GDP ratio has been set at around 4 percent for a second year.

However, a more proactive fiscal policy is not simply about spending more. It also requires funds to be made available at the right time and directed toward areas where they can have the greatest effect. Fiscal policy must support aggregate demand in the short term while helping to resolve longer-term structural problems. This explains the emphasis on combining countercyclical measures with policies designed around a longer economic cycle.

How public funds are allocated will therefore matter as much as the total amount of spending. The wider adoption of zero-based budgeting is an important part of this change. Under this approach, expenditures cannot continue automatically simply because they appeared in previous budgets. Each item must be reviewed and justified according to current needs and its likely public benefits.

Zero-based budgeting is more than a new method of drawing up budgets. It can help reduce rigid spending arrangements that have accumulated over time and redirect money from less effective programs to areas with greater economic or social value.

The growing emphasis on "investing in people" is another important development. In 2026, combined public spending on education, social security, healthcare and housing is budgeted at 12.4 trillion yuan, with expenditure in these areas growing faster than overall fiscal spending.

More than 25 million young children and their families have received childcare subsidies. Around 24 million enrollments will benefit from the waiver of fees for the final year of preschool, while student financial assistance is expected to reach about 150 million recipients. Public funds are also supporting the development of long-term care insurance and providing eldercare service subsidies for nearly 2 million people with moderate or severe disabilities.

These policies can support growth in ways that traditional infrastructure investment cannot. Better social protections reduce the need for households to save large amounts against possible future expenses. Education and healthcare spending can improve workforce quality, while childcare and eldercare services can ease some of the pressures faced by working families.

They can also help strengthen consumption. Final consumption expenditure contributed 52 percent of China's economic growth in 2025. As consumption becomes a more important source of demand, fiscal policy needs to pay greater attention to household income, public services and social security. Investing in people should therefore be understood as part of China's economic rebalancing, rather than as social spending alone.

Closer coordination between fiscal and financial policy is also taking shape. The central government has allocated 100 billion yuan to six measures intended to support domestic demand. Four are aimed at private investment and two at consumption.

Through interest subsidies, guarantees and risk-sharing arrangements, these measures supported more than 20 trillion yuan in new lending to relevant sectors during the first seven months of the year. They benefited households on approximately 113 million occasions and supported 6.22 million enterprises, most of which were small and medium-sized businesses.

The value of this approach lies in the ability of a relatively limited amount of public money to mobilize much larger financial resources. Fiscal funding helps reduce the cost or risk of lending, while banks and other financial institutions provide the capital. The measures have supported both traditional industries and newer fields such as advanced equipment, artificial intelligence, green and low-carbon technologies, and biomanufacturing.

The policies are being adjusted as practical problems emerge. Since Aug 1, interest subsidies have been extended from fixed-asset loans to new working-capital loans. Eligible consumer finance now includes credit-card installment payments for purchases such as cars, white goods and home improvements.

The number of participating financial institutions has increased from about 100 to roughly 400, and the ceilings for eligible loans and individual subsidies have also been raised. These changes should make the measures more accessible to households and businesses, thus allowing them to respond more speedily and accurately to actual financing needs.

Local government debt remains another major concern. The authorities have made preventing any illegal increase in hidden local debt a firm requirement. By the end of July, local governments had issued 1.73 trillion yuan in refinancing bonds, completing 86.7 percent of the annual quota.

Replacing short-term, high-cost liabilities with longer-term and less expensive bonds can reduce immediate repayment pressure. But resolving local debt cannot rely on debt reduction alone. What matters is whether the projects and assets financed by borrowing can produce adequate economic or social returns.

A sharp contraction in local spending might reduce reported debt, but it could also weaken investment, employment and local fiscal revenue. That would make repayment more difficult over time. Debt swaps and tighter supervision should therefore be accompanied by efforts to improve the use of public assets and develop more stable sources of local revenue.

Central government transfers can help local authorities deal with current pressures and protect basic public services, salary payments and government operations. Over the longer term, reform of central-local fiscal relations is needed to bring local spending responsibilities into better balance with the revenues available to meet them.

Several other reforms announced at the news conference deserve attention. A broader review of preferential tax policies should reduce fragmented incentives and irregular tax rebates offered by some local governments. This would help prevent regions from competing mainly through special tax arrangements and encourage them to attract businesses through better services and a stronger business environment.

Government procurement also needs to become more transparent and consistent. State-owned, private and foreign-invested enterprises should receive equal treatment when their products meet required standards. Removing discriminatory conditions and addressing collusion in bidding would improve competition and make public spending more efficient.

China's fiscal policy is entering a stage in which the effectiveness of expenditures will carry more weight. Physical investment will remain necessary, but more resources will be directed toward households, human capital and public services. Short-term support for growth will continue, but it will be accompanied by changes to budgeting, taxation, debt management and central-local fiscal relations.

The success of these policies will depend on implementation. The key questions are whether public funds can reach the areas where they are most needed, whether they can generate additional consumption and productive investment, and whether this support can be provided without weakening fiscal sustainability.

The 15th Five-Year Plan period will be an important stage in China's modernization. Better allocation of fiscal resources can help stabilize growth, improve public services and reduce financial risks. The task now is to turn the priorities announced at the news conference into lasting improvements in the way public money is raised, allocated and utilized.

(Source: China Daily)