China will expand government expenditure and refine its deployment of resources in 2026 as leaders seek to support economic growth while preventing debt risks from spiraling, according to the Ministry of Finance.
Following a year-end policy conference, the ministry announced plans to boost spending, with a particular emphasis on strengthening the financial capabilities of local governments. The measures will utilize improved transfer payments rather than sweeping stimulus initiatives, indicating Beijing’s intent to better coordinate fiscal and financial efforts.
The strategy underscores Beijing’s attempt to navigate competing priorities: shielding the economy from external pressures while guarding against any domestic debt challenges that could threaten financial stability. Finance Minister Lan Fo’an reaffirmed commitments to address hidden local government debt, referring to off-the-books borrowing by investment arms that have strained repayment capabilities for many provinces and cities.
With a prolonged real estate slump and persistent trade tensions weighing on the nation’s growth outlook, fiscal policy is being tasked with an increasingly pivotal role. However, the scope for further monetary easing remains limited amid mounting debt risks.
According to the official statement, the government aims to channel investment into “new productive forces”—a term used to describe advanced manufacturing and technology innovation—while prioritizing returns and channeling resources toward critical national objectives.
Other components of the plan include refining tax incentives and reducing fiscal subsidies to eliminate wasteful inter-provincial competition, in pursuit of a more cohesive and unified domestic market.
The heightened attention to efficiency comes amid a sharp rise in China’s total government debt, following years of stimulus efforts to jump-start subdued business activity and consumer confidence.
Although Beijing set its 2025 broad fiscal deficit at nearly 10% of GDP, actual disbursement has repeatedly lagged. In the year’s first 11 months, government outlays stood at just 34 trillion yuan, amounting to less than 81% of the annual budget. An analyst from Standard Chartered anticipates actual government spending will increase in 2026, even if the official budget grows only marginally.
With trade headwinds threatening export growth, China plans to pivot toward bolstering domestic consumption. The Ministry of Finance reiterated its commitment to making internal demand the primary engine of expansion, pledging further efforts to lift household incomes and continue the national trade-in program for consumer products.
That scheme, which offers subsidies for energy-efficient appliances and electric vehicles, has provided a rare lift for retail sales in 2025. By extending these measures, policymakers hope to stabilize spending as households contend with declining property values and a tepid job market.
