China is currently implementing a more proactive fiscal policy, emphasizing front-loaded efforts and targeted measures to maintain necessary fiscal expenditure intensity. The approach focuses on combining investment in physical assets with investment in human capital, while leveraging fiscal funds as a "four-ounce lever" to drive broader economic momentum, providing robust support for the economy's continuous improvement and high-quality development.
On August 21st, the State Council Information Office held a press conference themed "A Strong Start to the 15th Five-Year Plan." Vice Minister of Finance Liao Min stated that from 2021 to 2025, national general public budget revenue is projected to total 106 trillion yuan, with expenditures reaching 135 trillion yuan, both representing significant increases compared to the 13th Five-Year Plan period. "This year, fiscal expenditure budget arrangements have exceeded 30 trillion yuan for the first time; newly issued government bonds have reached 11.89 trillion yuan, the largest scale in history; and central government transfer payments to local governments have surpassed 10 trillion yuan for the fourth consecutive year, reaching 10.42 trillion yuan. In the second half of the year, more than 2 trillion yuan in local government special bonds and ultra-long-term special treasury bonds are yet to be issued and utilized," Liao Min explained.
Wang Qing, Chief Macro Analyst at Oriental Jincheng, told reporters that policy measures will increasingly focus on boosting domestic demand, with consumer promotion policies expected to be further strengthened. Trade-in subsidy programs may see increased funding, support for service consumption could shift from the supply side to the demand side, and policy tools such as childbirth subsidies and early childhood education allowances, which help unleash residents' consumption potential, are likely to be enhanced or innovated. On the other hand, the Political Bureau of the CPC Central Committee meeting on July 30th explicitly required "accelerating the pace of fiscal expenditure and bond fund utilization, and vigorously advancing the 'two major' projects," which indicates that infrastructure investment progress will accelerate significantly. Combined with this year being the opening year of the "15th Five-Year Plan," ample infrastructure project reserves, and the 800 billion yuan in new policy-based financial instruments set to take effect in the second half, infrastructure investment growth is expected to turn positive from negative.
Real Money as a "Four-Ounce Lever"
Behind the more proactive fiscal policy lies tangible financial commitment. Liao Min noted that this year, China has adopted multiple measures to support and encourage consumption, allocating 187.5 billion yuan for consumer goods trade-in programs, which drove related product sales of approximately 1.32 trillion yuan and benefited 178 million people. A key highlight is the innovative launch of a comprehensive fiscal-financial coordination package to boost domestic demand. The central government has earmarked 100 billion yuan specifically to support residential consumption and consumer industry operators. Through a transmission chain of fiscal guidance, financial investment, and market operations, the policy simultaneously targets both supply and demand sides, achieving a "1+1>2" policy effect. This policy has benefited 113 million residents. Invoice lottery activities in 50 pilot cities have driven related sales exceeding 370 billion yuan.
On the investment front, the issuance and utilization of ultra-long-term special treasury bonds have been accelerated, with 800 billion yuan of "two major" funds fully allocated to support 1,417 key major project constructions. Leveraging the driving role of local government special bonds, 2.4 trillion yuan in new special bonds for 2026 have been issued nationwide by the end of July, supporting the construction of over 18,000 projects.
"Regarding people's livelihood, this year, the national general public budget has allocated 12.4 trillion yuan for education, social security, health, and housing, an increase of 5.4% year-on-year, 1 percentage point higher than the growth rate of overall general public budget expenditure," said Wang Xinxiang, Director of the Budget Department of the Ministry of Finance. For instance, the social security net is being woven ever tighter. Systems for basic living assistance, special social assistance, and emergency social assistance are being continuously improved. It is estimated that over 44 million people will receive basic living assistance such as subsistence allowances and support for extremely poor individuals this year. Services for the elderly and children are becoming more robust. Focusing on the elderly and children, living security levels such as pension and medical care are being continuously elevated. Across the country, consumption subsidies for elderly care services are being distributed to moderately and severely disabled seniors. Meanwhile, 24.1 billion yuan in subsidy funds have been allocated to support local implementation of policies waiving childcare and education fees for the year before primary school, and approximately 100 billion yuan in subsidies have been allocated for child-rearing allowances.
In supporting the cultivation and expansion of new quality productive forces, 200 billion yuan in ultra-long-term special treasury bond funds have been allocated to support large-scale equipment renewal and promote industrial upgrading. Fiscal reward and subsidy policies have been implemented to support over 1,500 specialized and innovative "little giant" enterprises in tackling new technologies. Government-backed financing guarantees have cumulatively supported over 38,000 small and medium-sized tech enterprises in obtaining approximately 150 billion yuan in loans, with the average guarantee fee rate for guaranteed enterprises falling below 1%.
On risk prevention, 1.73 trillion yuan in swap bonds have been issued by various regions by the end of July, completing 86.7% of this year's 2 trillion yuan quota. However, Xiong Yuan, Chief Economist at Guosheng Securities, noted that July economic indicators show both supply and demand declining, with weakening industrial and services production, a slight drop in exports from highs, softening consumption, and continuously widening investment declines. This underscores prominent demand insufficiency issues. Combined with negative new household loans in July, the still relatively slow pace of fiscal policy implementation, and the seasonal decline in manufacturing PMI, the impact of high oil prices on the economy is gradually emerging, further highlighting the dilemma of insufficient confidence.
Policy Intensification for Further Economic Stabilization
Regarding current economic issues, the short-term focus is on further strengthening implementation and "fully utilizing" existing policies, while subsequent incremental policies are being "planned in a timely manner," but not as strong stimulus, with a "walk-and-see" pace. For example, the over 2 trillion yuan in bonds for the second half of the year all have clear directions. Supervision will be strengthened over regions with persistently slow expenditure progress to improve fund utilization efficiency. Relevant subsidy funds will be allocated and distributed promptly to accelerate the implementation of livelihood policies. Simultaneously, domestic demand expansion will be intensified. The comprehensive fiscal-financial coordination package to boost domestic demand will be optimized, with greater efforts to stimulate private investment and promote residential consumption. In coordination with relevant departments, the role of new policy-based financial instruments will continue to be leveraged to support major project construction. Additionally, 300 billion yuan in special treasury bonds will be issued to support capital replenishment for relevant central financial enterprises, guiding them to enhance their capacity to serve the real economy.
Wang Qing stated that the July 30th Political Bureau meeting explicitly required "increasing counter-cyclical adjustment intensity" and "fully leveraging the effectiveness of existing policies while promptly planning pragmatic and effective incremental policies." Going forward, growth-stabilizing policies are expected to take full effect. In the third quarter, consumption and investment momentum will strengthen, and new quality productive forces, represented by high-tech manufacturing, will continue to experience high growth.
"It is anticipated that the pace of growth-stabilizing policy intensification will follow a 'two-step' approach. First, in the short term, the focus will be on accelerating fiscal expenditure and government bond issuance and utilization, expediting the effective implementation of the 800 billion yuan in new policy-based financial instruments to stabilize investment. On the monetary policy front, the focus is on further promoting the supportive role of various structural monetary policy tools in areas like technology finance and inclusive finance, continuously advancing the transition between old and new growth drivers. Second, after fully leveraging the effectiveness of these existing policies, a batch of pragmatic and effective incremental policies may be introduced around the end of the third quarter," Wang Qing explained.
Forecasts suggest that on the fiscal policy front, there may be an additional issuance of government bonds, primarily aimed at boosting consumption and stabilizing investment. Estimates indicate that before year-end, an additional 700 billion yuan in new local government special bonds could be issued, with even greater room for increased central government borrowing. On the monetary policy front, the central bank may implement interest rate cuts and reserve requirement ratio (RRR) cuts, with estimated rate cuts of 10 basis points and an RRR cut of 0.5 percentage points. Structural monetary policy tools may also see rate cuts, increased quotas, and expanded scope.
"It is expected that exports will maintain double-digit high growth in the third quarter, domestic consumption and investment momentum will strengthen, and growth rates will further recover in the fourth quarter, with new quality productive forces, represented by high-tech manufacturing, remaining in a high-growth state," Wang Qing added.