As one of only two provinces nationwide selected for the comprehensive fiscal management pilot program, Shandong has taken on all 11 designated pilot tasks. Guided by the "Grand Fiscal" philosophy, the province has developed a "1+4" pilot framework centered on "Grand Budgeting" as the pathway, "Grand Performance" as the lever, "Grand Digital Intelligence" as the support, and "Grand Security" as the baseline. This integrated approach has led to a series of innovative measures being implemented with tangible results.

In the second half of last year, Hou Zhihong, director of the Government Debt Management Division at the Shandong Provincial Department of Finance, received a notable phone call. The finance director of a provincial department said: "Our department has many secondary budget units and numerous projects, so we need to strengthen staff training. This year, we plan to re-examine every single project when compiling the budget." This proactive request to undergo scrutiny was previously unimaginable. The shift stems from a new methodology: when preparing the 2026 budget, the provincial finance department refined its recent innovations in zero-based budget reform into the "Three-Four-Five" working method, using this approach honed on the front lines of budget compilation to recalculate expenditures.

The "Three" refers to making three key judgments. For each project, the first step is to review the boundaries of authority: can the market solve this, or must the government step in? Should it be handled at the provincial level or the city/county level? Next, expenditure standards are verified: over 500 standards are embedded into the integrated budget management system, multiplying quantity by standard to ensure precise budget allocation. Finally, the path is determined: should it be funded through fiscal allocation or market-based financing? Should it be a one-time payment or spread over several years?

The "Four" encompasses four principles. For "Three Guarantees" (wages, operations, and basic livelihood) and debt service payments, full protection is ensured. For items with clear national or provincial investment standards, efforts are made to meet them. For national or provincial requirements without set standards, overall planning is applied. For reasonable departmental needs, support is provided according to capacity. The "Five" establishes five lists, incorporating all departmental expenditures into categories for "Three Guarantees" and debt service, public services, industrial development, key construction, and government operations. Similar projects from different departments now compete head-to-head, with justification, urgency, and robustness of plans compared horizontally.

"The 'Three-Four-Five' method has brought about a fundamental shift in mindset," Hou Zhihong observed. She has noticed that project submissions from various departments this year are noticeably more substantial, with implementation plans, performance targets, and pre-assessment reports all more thorough. This philosophical change is occurring simultaneously at the provincial, city, and county levels. Tang Fei, head of the Budget Division at the Qingdao Municipal Finance Bureau, noted, "I've worked in budgeting for 16 years, and the current management model is far more refined, implementing differentiated support for expenditure items." While compiling the 2026 budget, Tang and his colleagues reviewed the funding calculations for all 1,278 projects one by one. Despite fiscal constraints, Qingdao's science and technology innovation investment has still grown by 15% annually for two consecutive years in 2025 and 2026, achieved by cutting general expenditures to prioritize key areas.

With clear benchmarks established, the entrenched pattern of rigid spending is being broken. In Fei County, nestled in the heart of the Yimeng Mountain area, a "horse race" determined the winner. The Shangye Town urban-rural integration zone applied for rural revitalization funds, competing against two other townships. The county finance department integrated funds from central, provincial, city, and county levels, scoring each project on maturity and development prospects. "Only those with the best performance enter the priority funding sequence," explained Yang Yang, head of the Fei County Finance Bureau's Budget Division. The project approval fully utilized the "rapid pre-performance assessment" mechanism, compressing the evaluation cycle to just seven working days. Ultimately, Shangye Town emerged victorious, securing 70 million yuan in funding.

Behind that 70 million yuan lies a self-revolutionary effort. Fei County established a categorized support mechanism with four lists covering "Three Guarantees," special policies, operational support, and urban operations and construction, with rural revitalization as a key priority. Concurrently, expenditure policies in effect for over three years underwent individual "health checks," resulting in the cancellation or merger of 13 inefficient policies and a reduction of 178 million yuan in funds. By breaking rigid spending patterns while safeguarding basic livelihoods, the county "squeezed out" the startup capital for the zone. Today, Shangye Town boasts row after row of greenhouses and thriving enterprises: seven food processing projects have landed, generating an additional 4 billion yuan in output value; zucchini cultivation has expanded beyond 10,000 mu; and white-feathered broiler chicken production reaches 80 million birds annually. Eleven backbone enterprises have formed "one-to-one" partnerships with 11 administrative villages, with the 70 million yuan expected to leverage 2.25 billion yuan in social capital.

Strengthening the coordination of fiscal resources represents another crucial channel for unlocking existing potential. Recently, the Provincial Bureau of Statistics urgently needed a large batch of tablet computers for an agricultural census. Conventional procurement would have been costly and time-consuming. The request was routed to the administrative institution asset sharing platform operated by Shandong Caixin Asset Operation Co., Ltd., and the devices were delivered within just two or three days of dispatch—faster than direct purchasing and without spending a cent of procurement funds. "The company can also provide market-based allocation services to address resource sourcing at the root," said Su Changlei, a Party Committee member and deputy general manager of Shandong Caixin. If equipment needed by an institution isn't in the warehouse, the group purchases it with its own funds and leases it to the user, keeping the asset circulating within the platform. To date, the provincial level has completed 188 batches of transfers involving over 60,000 devices, saving more than 100 million yuan in fiscal funds.

Qingdao's approach offers a different kind of innovation: since 2025, its administrative institution asset sharing platform has facilitated 9,101 asset transfers and become the first in the country to implement AI-powered intelligent matching—when units submit needs, the system automatically "matches" them. The potential unearthed from existing stock is transforming into developmental vitality. By revitalizing existing assets and integrating 50 million yuan in rural revitalization funds at all levels into zone construction, the tea industry, study tours, and cultural tourism in Aojiao Village, Jimo District, Qingdao, have been woven into a cohesive chain. "Previously, we just grew and sold tea. Now, with new business models like tea picking, study tours, and cultural experiences, we earn over 1 million yuan more each year," said Li Jiandao, general manager of Qingdao Aofu Tea Factory.

Over the past two years, facing fiscal tight-balance pressures, Shandong has persistently pursued internal potential and asset revitalization. Rigid, inefficient, and fragmented expenditures have been cleaned up and reduced, allowing fiscal funds to be further concentrated on major events and priorities, making resource allocation more precise and efficient. For 2026, Shandong's provincial government operations expenditure budget is projected to decrease by 5.7% year-on-year, while industrial development and key construction expenditure budgets are set to grow by 2.5% and 3.1%, respectively.

If strengthening fiscal scientific management is likened to a surgical procedure, then budget performance management is one of its sharpest scalpels. In Shandong, the edge of this scalpel is the nationally pioneering performance evaluation elimination system, which reduces or eliminates projects ranked at the bottom. Since implementation, the provincial level has cumulatively cut back or cancelled over 890 inefficient or ineffective projects, recovering 4.2 billion yuan. In 2026, the provincial finance department optimized this system: full departmental coverage is now required, but departments with fewer than five projects are no longer subject to mandatory elimination, reflecting managerial flexibility and avoiding a one-size-fits-all approach. Project performance rankings now incorporate departmental evaluations, routine management, and performance monitoring dimensions, reinforcing the management responsibilities of supervisory authorities. For projects that genuinely cannot be cancelled or reduced, red and yellow card warnings are issued with a remediation period for standardized improvement.

Simultaneously, Shandong is working to squeeze the moisture out of self-evaluations. This year, finance departments are specifically hunting for clues in anomalous data: projects with execution rates below 60% that self-rated as "excellent," or execution rates below 30% rated as "good," are designated for key review. Six projects at the provincial level and five in the transfer payment sphere have been selected for individual "look-back" assessments. "The combined 'designated and self-selected' key review approach is designed to push departments to make their self-assessments credible," said Hou Xiaobo, director of the Budget Performance Management Division at the Shandong Provincial Department of Finance. "Previously it was 'evaluate because I'm told to'; now it's 'evaluate because I want to.' With bottom-ranking projects facing funding cuts, no one will be lenient with their own projects anymore."

Under the elimination system, performance indicators have become crucial. "If indicators are set accurately, evaluations are reliable, and results are actionable," Hou Xiaobo explained. In the past, some projects had dozens of performance indicators—seemingly comprehensive but often evading the core issues. Shandong is exploring the establishment of industry-specific, field-specific, and tier-specific performance indicator systems, and has prudently launched a pilot for "core performance indicator focus." For 33 projects across 11 departments in fiscal year 2026, each project is being streamlined to retain only about five core indicators. With fewer indicators, evaluations have become faster and more precise. For example, the quick evaluation of the Provincial Education Department's school health, sports, and arts development funds in 2026 was completed in just 15 days, focusing on core indicator completion and identifying nine issues across three categories, achieving "evaluate this year, use results this year."

The provincial finance department has also embedded AI natural language processing technology into the integrated budget management system, automatically parsing project implementation plans and construction content, matching and verifying performance indicators, and generating review comments. Zhang Liming, deputy director of the Digital Finance Division at the Shandong Provincial Department of Finance, noted that for issues like vague objectives, manual comparison was time-consuming and prone to oversights. "Now AI conducts the preliminary review, making the checks more accurate and solid."

Spending must be effective, and ineffectiveness must be accountable. Qingdao's exploration begins by tackling the "pre-approval" gateway. "Previously, a policy had to go through departmental self-evaluation first, then fiscal key evaluation—two steps that were time-consuming and laborious, and the reliability of conclusions left room for improvement," explained Wang Rui, director of the Budget Performance Management Division at the Qingdao Municipal Finance Bureau. Qingdao has established a joint evaluation mechanism between finance and budget departments. When a budget department has a policy idea, it consults with the finance department; the finance department invites experts to participate in research and validation, with evaluation conclusions determined by a vote of at least three-fifths of the experts. The process has been streamlined, yet conclusions are more defensible. The rigidity of evaluation is now firmly established: Qingdao mandates that all new major policies meeting the threshold undergo "evaluation whenever introduced," preventing inefficient or ineffective expenditures at the source. The city has also conducted a comprehensive "dragnet" evaluation of existing municipal industrial and livelihood expenditure policies, phasing out 26 inefficient or ineffective policies and freeing up 941 million yuan.

In recent years, Shandong has continued to deepen budget performance management reform under the principle of being "pragmatic, effective, and efficient." Departments at all levels have deepened their awareness of wielding the performance "scalpel," transforming "spending must be effective, ineffectiveness must be accountable" from a conceptual consensus into institutional constraints and conscious action.

Budget and performance management address "how to spend," while the fiscal system determines "how to divide." At the end of 2025, the Shandong Provincial Government issued a plan to further improve the fiscal system below the provincial level and deepen the reform of provincial direct county management, accelerating the construction of a clearly delineated, financially coordinated, and robustly supported fiscal system below the provincial level. The centerpiece of the reform is the long-standing provincial direct county system. "The traditional direct management system focused on weak and struggling counties. In this new round of reform, we deliberated extensively: should we only support the weak, or also nurture the strong?" Hou Zhihong told reporters. Shandong's answer is "categorized strategies—support the weak and nurture the strong." The number of directly managed counties has expanded from 41 to 48, with the additions being counties with relatively weak fiscal capacity. Provincial livelihood transfer payments to these counties are tilted by at least 10%, with subsidy ratios raised concurrently, "first solving the food and clothing problem and securing the 'Three Guarantees' baseline." Simultaneously, 15 counties with solid development foundations and strong potential have been selected to participate in pilot programs modeled on direct management, with development funds such as special bonds and science and technology innovation also receiving a 10% boost—"giving a pair of running shoes to those who can run faster."

Fei County is among the pilot counties. For Fan Hao, a member of the Standing Committee of the Fei County Party Committee and deputy county head, inclusion in the reference direct management pilot means provincial funds now connect directly to the county and to projects, with an additional allocation of development funds. "The county has more confidence and greater space for development." The system rationalizes relationships, and transfer payments convey direction. This year, Shandong has rolled out concrete measures. One is "subsidies": the provincial finance department, along with relevant departments, has implemented a new round of ecological civilization construction fiscal reward and subsidy mechanisms, creating an upgraded "Shandong model" for ecological protection compensation. This new round extends compensation to broader fields and restructures reward and punishment mechanisms, making the orientation of "protectors benefit, beneficiaries pay" more pronounced.

Another is "rewards": the establishment of a fund to incentivize high-quality development, rewarding cities and counties with outstanding fiscal resource cultivation performance. This sets the precedent that "the higher the development quality, the more benefits received," mobilizing enthusiasm for cultivating fiscal resources and growing revenue. The subsidy and reward mechanisms send a clear signal—those who safeguard green mountains and clear waters won't lose out, and those who pursue development with tangible results have a bright future. Transfer payments ensure basic needs and promote balance, while special bonds fuel development. Shandong strictly controls project selection, fund allocation, and benefit realization, ensuring bond funds follow quality projects and good policies yield strong outcomes.

At the Chery Qingdao Super Factory's final assembly workshop, 661 robots swing their mechanical arms while AGV unmanned vehicles shuttle parts, with a vehicle rolling off the line every 85 seconds on average. A Chery Qingdao base official explained that the local government used special government bonds to build standard factories and a supporting industrial park, allowing the company and its 16 core suppliers to "move in with just their luggage." Orders placed today see parts on the assembly line tomorrow, dramatically reducing logistics and inventory costs. "It truly solved a major problem for our enterprise." Quality projects are "screened" through rigorous processes. To ensure precious bond funds are used where they matter most, Qingdao has established a comprehensive management mechanism, with finance, development and reform, and housing and construction departments collaborating, guiding subordinate levels against their respective priority task lists, and promptly including high-quality projects in the special bond support scope.

As one of the first national pilots for "self-review and self-issuance" of special bond projects, Shandong continues to refine its project application and review mechanism characterized by "regular reserves, rolling reviews, joint departmental review, and a unified list," ensuring bond quotas are tilted toward regions with well-prepared projects, higher investment efficiency, and better fund utilization. In 2025, the province issued 419.1 billion yuan in new special bonds, supporting the construction of over 3,000 key projects, effectively fulfilling the policy functions of special bonds in strengthening foundations, filling gaps, benefiting livelihoods, and expanding investment.

"The comprehensive pilot represents a systemic reshaping," said Li Feng, Secretary of the Party Leadership Group and Director of the Shandong Provincial Department of Finance. He stated that Shandong will continue to anchor its position of "leading the way and shouldering major responsibilities," persistently deepening fiscal scientific management, striving to introduce another batch of leading and landmark reform measures. Through efficient coordination of fiscal resources, effective improvement of fiscal governance, and more sustainable fiscal operations, the province aims to better serve the overarching goal of high-quality development.