China is preparing a significant expansion of fiscal policy in 2026 as the government seeks to support economic growth amid weak private investment and cautious household spending.
Premier Li Qiang’s annual government work report, delivered at the National People’s Congress on March 5, outlined a more aggressive fiscal strategy designed to stabilize the economy as China transitions away from its traditional growth drivers.
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The report said the government plans to run a budget deficit equivalent to about 4 percent of GDP, near historic highs. Total public spending is expected to exceed 30 trillion yuan for the first time, underscoring Beijing’s growing reliance on government-led investment.
Officials said the central government will play a larger role in borrowing, while local governments — many of which are heavily indebted — will attempt to reduce leverage.
Central government to absorb fiscal burden
China’s fiscal deficit is expected to reach 5.89 trillion yuan, with the entire increase from the previous year being absorbed by the central government.
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That shift reflects concerns that local authorities no longer have the capacity to drive economic expansion after years of heavy borrowing tied to property development and infrastructure.
“Public finance must fulfill the role of lender and investor of last resort,” analysts at SinoInsider said in an assessment of the report.
The government plans to deploy several policy tools to stimulate economic activity.
These include 1.3 trillion yuan in ultra-long-term treasury bonds for major national projects, 4.4 trillion yuan in local government special bonds largely aimed at restructuring debt, and 300 billion yuan in special treasury bonds to recapitalize major state-owned banks.
Another 250 billion yuan in ultra-long-term bonds will fund programs encouraging consumers to trade in older goods such as cars and appliances.
The government is also establishing a 100 billion yuan fiscal-financial fund aimed at boosting domestic consumption.
Still, economists say the scale of support for household spending remains relatively modest compared with the size of China’s economy.
Low consumer spending, high risks remain weak points
In recent years, China has struggled to boost consumption despite repeated policy initiatives. Household spending remains constrained by high precautionary savings, partly due to limited social welfare coverage and concerns about healthcare, education and retirement costs.
According to the government report, the minimum monthly pension for urban and rural residents will rise by 20 yuan, while fiscal subsidies for medical insurance will increase slightly.
However, analysts say these measures may not be sufficient to significantly shift consumer behavior.
SinoInsider, a New York-based risk consultancy focusing on analysis of Chinese politics, noted that a major driver of China’s high savings rate is uncertainty about future social costs.
“A large share of household savings is held as protection against healthcare, education and elderly care expenses,” the firm said.
As a result, simply distributing subsidies may not meaningfully boost consumption without deeper reforms to the social safety net.
The fiscal expansion also faces constraints on the revenue side.
Property-related tax income has weakened alongside China’s housing downturn, and several provinces have already lowered their fiscal revenue forecasts for 2026.
If government borrowing continues to rise faster than revenues, SinoInsider warns that China could face growing fiscal rigidity. New debt may increasingly be used to roll over existing liabilities rather than fund productive investments.
That dynamic could make it harder for fiscal policy to generate long-term growth. For now, however, Beijing appears willing to tolerate higher deficits to stabilize the economy during a period of structural transition.
