China Approves Budget Strategy for 2026: Focus on Spending Efficiency

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China plans to increase budget spending in 2026, focusing on efficiency and targeted use of funds, writes Bloomberg, citing data from the Ministry of Finance of the PRC. Fiscal policy is aimed at supporting economic growth while containing debt risks and shifting priorities toward domestic sources of demand.

Government debt

China’s Minister of Finance Lan Fo’an said that the methods of using public funds are more important than their nominal volume. Policy is being implemented within a narrow corridor between the need to mitigate external economic risks and the task of preventing financial system destabilization caused by internal debt pressure. In this context, authorities intend to accelerate the resolution of hidden regional debt formed through off-balance-sheet borrowing by municipal and provincial investment vehicles.

In recent years, China’s total government debt has risen noticeably, as fiscal instruments were actively used to support the economy amid weak consumer and business sentiment. In 2025, authorities raised the planned expanded budget deficit to nearly 10% of GDP; however, actual spending execution remained below stated targets. Over the first 11 months of the year, around CNY 34 trillion ($4.8 trillion) was disbursed, equivalent to less than 81% of the annual plan.

Property and trade

Additional pressure on regional finances comes from the downturn in the property market. UBS analysts note that the slowdown in 2025 had a negative impact on local budget revenues. In 2026, housing sales and construction investment are expected to decline by 5–10%. At the same time, the share of investment in innovative and technology sectors is set to continue rising, partially offsetting weakness in traditional segments of the economy.

Support for domestic consumption is becoming a separate priority amid risks of slower exports due to heightened trade tensions. The Ministry of Finance has confirmed its intention to stimulate household income growth and maintain the nationwide trade-in programme for consumer goods, which provides subsidies for energy-efficient appliances and electric vehicles. In 2025, the programme became one of the few drivers of retail sales growth.

A study by Goldman Sachs notes that Chinese exports could grow by 5–6% in the coming years despite tariff risks, which would further support overall economic activity and create room for reallocating domestic spending.

Outlook for 2026

Ding Shuang, Chief Economist for Greater China and North Asia at Standard Chartered, notes that the focus in 2026 will be on improving the returns on budget spending and aligning policy with the economy’s structural priorities. These include the so-called “new productive forces” — advanced manufacturing and technological innovation. Inefficient tax incentives and subsidies are set to be reduced.

Expectations for 2026 remain cautious. Ding Shuang allows for an expansion of actual spending through more complete execution of approved programmes, which could strengthen the contribution of fiscal policy to growth without adding pressure to debt indicators. The International Monetary Fund estimates China’s GDP growth at 4.9% in 2025 and forecasts a slowdown to 4.5% in 2026. Consumer activity, however, is expected to remain under pressure from the same factors, while investment will receive only limited support from recent fiscal decisions.

Analysts at International Investment note that China’s economic situation in 2026 will remain challenging. The combination of subdued domestic demand, debt constraints and external trade risks will continue to limit room for a strong acceleration, leaving fiscal policy as a tool for stabilization rather than rapid economic expansion.