What are the challenges in implementing proactive fiscal policies? Scholars recommend accelerating reforms on the government revenue side.

Caixin: In 2026, China will continue to implement more proactive fiscal policies, with budget deficit ratios and total government debt remaining at historic highs. Some scholars warn that implementing proactive fiscal policies faces certain challenges. Although government debt financing continues to expand, fiscal revenue shows a downward trend, which may weaken the intensity and growth rate of fiscal expenditures. It is recommended to accelerate reforms on the revenue side, including tax system reforms, revitalizing existing assets, and increasing the proportion of revenue collected from state-owned enterprises.

The National People’s Congress is currently reviewing the “Report on the Implementation of the 2025 Central and Local Budget and the Draft Budget for 2026” (hereinafter referred to as the “Budget Report”), which makes specific arrangements for fiscal policy in 2026: the official deficit ratio, i.e., the budget deficit ratio, is set at around 4%, maintaining the same level as the previous year’s historic peak; beyond the budget deficit, it is planned to issue 1.3 trillion yuan of ultra-long special government bonds to continue supporting the “two major” and “two new” constructions, and to allocate 4.4 trillion yuan of new local government special bonds for major project construction, replacing implicit debt, and clearing government arrears.