Grasping the Main Themes and Significance of China's Proactive Fiscal Policy

The Central Economic Work Conference underscored the need to intensify counter- and cross-cyclical adjustments through macro policies and to continue with a proactive fiscal policy. It also called for steps to enhance the intensity of our proactive fiscal policy and to improve its quality and effectiveness. These constitute a major decision made by the Central Committee of the Communist Party of China (CPC) based on a comprehensive assessment of China’s overarching strategic context and development dynamics.

Enhancing the intensity of China’s proactive fiscal policy will require better coordination of fiscal resources and a combination of policy instruments, including deficits, special-purpose bonds, ultra-long-term special government bonds, preferential tax and fee policies, and government subsidies, in order to maintain an appropriate level of spending.

First, we will optimize the mix of policy instruments to increase fiscal spending. A ceiling of 3.9 trillion yuan has been set for new special local government debt. We will appropriately extend the list of areas to which funds from the sale of special-purpose bonds can be channeled, as well as the scope for using such funds as project capital. Funds will be weighted toward regions where projects are well prepared and investments are made efficiently. A total of one trillion yuan of ultra-long-term special government bonds will be issued, to be used for implementing major national strategies and building security capacity in key areas. Furthermore, we will ensure carryover funds from the issuance of additional government bonds in 2023 are put to good use by enhancing oversight over the distribution, release, and use of such funds to see tangible progress being delivered as soon as possible. The deficit-to-GDP ratio has been set at 3% for the year, remaining at a relatively high level and bringing the total government deficit to 4.06 trillion yuan. In the central government budget, 700 billion yuan has been earmarked for investment. Steps will also be taken to improve both the mix and performance of government investment. Second, we will enhance transfer payments to local governments to provide them with greater fiscal support. Central government transfer payments to local governments will be kept at an appropriate level, reaching 10.2 trillion yuan. Excluding one-time special transfer payments made in both 2023 and 2024, this figure represents an increase of 4.1%. In accordance with the reform of fiscal systems at and below the provincial level, we will optimize the distribution of fiscal resources to channel more funds toward lower-level governments, so as to boost local capacities for high-quality development. Third, we will make tax and fee policies more targeted and effective. Considering the need for macro regulation, fiscal sustainability, and improved taxation, we will carry out policies on structural tax and fee reductions with a focus on supporting scientific and technological innovation and manufacturing. To further regulate the management of non-tax revenues, we will enforce a strict prohibition on arbitrary fees, fines, and charges.

Improving the quality and effectiveness of the proactive fiscal policy will require fiscal management that is based on the rule of law, sound practices, and standard procedures, as well as efforts to deliver better value for money through policy synergy.

Expenditure in the national general public budget is projected to be 28.55 trillion yuan. Considering the magnitude of this spending, even minor enhancements in management will lead to further gains in efficiency. It is imperative that Party and government bodies become accustomed to keeping their belts tightened. Efforts should be made to improve the structure of government spending. While using limited new resources well, we will also devote greater energy to adjusting spending to make the best use of existing funds and strengthen fiscal guarantees for the country’s major strategic tasks and people’s basic wellbeing. To improve the effectiveness of fiscal policy, we will strengthen performance-based budget management. We will ensure that budgets are compiled based on specific objectives, their implementation is subject to oversight, assessments are conducted on their completion, assessment results are fed back to relevant departments, and feedback is well taken in practice. We will keep government finances in good order and continue to improve the efficiency of fiscal resource allocation and the performance of government funds. We will conduct further fiscal capacity assessments and coordinate fiscal policy with monetary, employment, industrial, regional, sci-tech, environmental protection, and other policies to ensure that the orientation of macro policies remains consistent.

Editor: Wang Cuifang