Recently, China’s Government Work Report (hereinafter referred to as the “Report”) was released at the Fourth Session of the 14th National People's Congress. The Report comprehensively reviewed the government work of 2025 and outlined the main targets for China’s economic and social development in 2026. According to the Report, the Chinese government will maintain the overall principle of “seeking progress while maintaining stability” in 2026, setting an economic growth target that provides flexibility for “structural adjustment, risk prevention, and reform promotion.” Meanwhile, fiscal policy will continue its proactive stance with a steady intensity. Overall, China's sovereign credit fundamentals remain solid, underpinned by strong policy resolve and a continuously improving debt structure.
Economic targets set to balance flexibility and quality. China's GDP growth target for 2026 is set as an interval of “4.5%-5%” with an emphasis on striving for better results in practice, reflecting a shift in the macroeconomic regulation paradigm from a rigid target of “anchoring a fixed growth rate” to the expected guidance of “flexible interval management.” The “4.5%-5%” economic growth both aligns with the long-term goal of “doubling China's per capita GDP by 2035” and leaves room for flexibility given the current economic situation. China is currently at a critical stage of transforming its growth drivers and resolving local government debt, compounded by external uncertainties such as geopolitical conflicts and tariff risks. Managing economic growth within an interval helps the Chinese government create space for “structural adjustment, risk prevention, and reform promotion,” guiding the economy from “pursuing quantitative expansion” to “focusing on qualitative development.” Furthermore, the Report emphasises developing new quality productive forces, persisting in expanding domestic demand, and proposes in-depth rectification of involuted competition, reflecting a policy inclination towards promoting high-quality development driven by internal economic vitality. The target for CPI in 2026 was set at around 2%, unchanged from last year. Against the backdrop of continued “anti-involution” policies and imported inflationary pressures from commodities like energy and metals, China's GDP deflator is expected to turn positive in 2026, and consumer prices are anticipated to experience a reasonable and moderate recovery.
Fiscal policy maintains a proactive stance, and the debt burden level rises. China's official deficit-to-GDP ratio is planned at around 4% for 2026, unchanged from 2025. Considering nominal economic growth, the scale of the fiscal deficit in 2026 will expand, reaching RMB 5.89 trillion, an increase of RMB 230 billion from the previous year. On a broad fiscal basis, the general government total revenue (national general public budget revenue plus national government fund revenue) for 2026 is RMB 27.9 trillion, and general government total expenditure (national general public budget expenditure plus national government fund expenditure) is RMB 41.9 trillion. The broad deficit scale is RMB 14 trillion, and the broad deficit-to-GDP ratio is expected to be 9.5%, the highest level in recent years. This reflects that China's fiscal policy continues with a proactive stance, aiming to support the expansion of domestic demand by enlarging the fiscal expenditure scope. In recent years, under the backdrop of expansionary fiscal policy, deficit scales have been covered by government borrowing, leading to a continuous rise in China's net general government debt-to-GDP ratio. We estimate that China's net general government debt-to-GDP ratio was 64% in 2025 and is expected to reach around 70% in 2026. Although China's government debt burden level continues to rise, we expect the future increase in government debt burden to moderate marginally, given that fiscal policy will no longer be deployed in an extraordinary manner in 2026.
Debt structure continues to optimise. According to the Report, China plans to issue RMB 1.3 trillion in ultra-long-term special treasury bonds in 2026, with the same scale as the previous year, to support major national projects and programs, and the large-scale renewal of equipment and consumer goods trade-in; it plans to allocate RMB 4.4 trillion in local government special bonds, unchanged from the previous year, to support major projects, replace hidden debt, and settle government arrears; and it plans to issue RMB 300 billion in special treasury bonds (a decrease of RMB 200 billion from last year) to replenish capital of large state-owned commercial banks. This aims to enhance the banking system's ability to withstand risks, particularly its stability amid property market adjustments and local debt resolution.. Additionally, the fiscal deficit scale for 2026 is RMB 5.89 trillion, which will primarily be covered by the central government by issuing treasury bonds. In total, the new government debt issuance for this year amounts to RMB 11.89 trillion. Considering the RMB 2 trillion of refinancing bond quota this year, the total new government debt scale for 2026 is expected to be RMB 13.89 trillion. Compared to last year's “extraordinary” debt increment, this year's debt increment has slightly decreased. In addition, preventing and defusing local government debt risks remains a key focus of fiscal work this year. This is reflected in the fact that a significant portion of the newly issued local government special bonds will still be used to replace hidden debt, with a firm stance on curbing illicit increases in such liabilities. It is worth noting that despite the continuous rise in the government debt balance in recent years, new debt is predominantly in the form of treasury bonds, indicating that the structure of government debt continues to be optimised with the central government steadily increasing its leverage. We estimate that by the end of 2026, the share of treasury bond balance in total general government debt will rise to 43.6%. Compared to major global economies, China's central government leverage ratio remains relatively low, possessing significant room for further leveraging. Increasing leverage at the central level helps to enhance the government’s role in overall coordination, macro-control, and cross‑cycle regulation, while also alleviating the debt burden on local governments and further reducing the overall macro‑level cost of debt. We estimate that against the backdrop of structural optimisation of government debt and moderately loose monetary policies, the comprehensive average interest cost of government debt has decreased from 3.09% in 2022 to 2.73% in 2025, and is expected to remain low in 2026.
Fiscal expenditure structure optimised, and fund usage improves in quality and efficiency. The national general public budget expenditure scale for 2026 reaches RMB 30.01 trillion, an increase of 4.4% compared to the previous year. Against the backdrop of a continuously expanding fiscal expenditure scope, this year's fiscal policy emphasises “improving quality and efficiency,” with its core focus on continuously optimising the expenditure structure and enhancing the efficiency of fund utilisation. Firstly, fiscal efforts will place greater emphasis on tilting towards social livelihoods and human development, explicitly stating a need to “support consumption boost, invest in people, and ensure people's livelihoods.” This means fiscal resources will be primarily directed towards promoting employment and income growth, supporting education initiatives, improving healthcare coverage, and enhancing the social security system, thereby stimulating the endogenous momentum of consumption across society. Secondarily, fiscal expenditure also faces new requirements regarding the efficiency of fund utilisation. Measures such as separately listing and increasing the quota of local government special bonds for project construction, improving the negative list management for special bond projects, and expanding the pilot program of “self-review and self-issuance” are implemented to incentivise regions with well-prepared project reserves and high fund utilisation efficiency, thereby enhancing the leveraging role of special bond funds in stimulating government investment. Furthermore, the quota for new-type policy-based financial instruments has been increased and deployed in advance, aiming to strengthen fiscal-financial coordination, better supplement project capital, and support the construction of major projects under the 15th Five-Year Plan, as well as the stabilisation and recovery of private investment. Overall, the 2026 fiscal policy is driven by structural optimisation and efficiency improvement, focusing on livelihood security and domestic demand stimulation. Through coordinated innovation of financial instruments, it ensures that funds accurately and efficiently serve national strategies and economic growth. The above measures are conducive to China's economy achieving effective qualitative enhancement and reasonable quantitative growth under complex internal and external environments, laying a solid fiscal foundation for the smooth realisation of the 15th Five-Year Plan development goals.
Note: This report is translated from the Chinese version. In case of any discrepancies, the Chinese version shall prevail.
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