Fiscal Policy Overview - The 2026 government work report maintains an active fiscal policy with a deficit rate of 4% and a deficit scale of 5.89 trillion yuan, marking a historical high for several fiscal budget indicators[2] - The broad deficit scale is approximately 11.89 trillion yuan, with a year-on-year increase of only 300 billion yuan, indicating a relative decrease in the stimulus effect of fiscal policy[2][8] Economic Context - In 2025, GDP growth was 5.0%, but internal demand remains insufficient, with fixed asset investment down 3.8% and retail sales growth at only 3.7%[3] - The CPI remained flat year-on-year, while the PPI has been negative for three consecutive years, indicating persistent deflationary pressures[3][17] Fiscal Space Constraints - Fiscal revenue growth is slow, with a 1.7% year-on-year decline in general public budget revenue for 2025, and land transfer income has decreased by over 50% from its peak[3][19] - The government debt ratio has risen to 68.5%, with a broad government debt ratio of approximately 74.2%, indicating limited fiscal space for further expansion[3][25] Policy Directions - The 2026 fiscal policy focuses on optimizing expenditure structure, shifting from investment-led to a balanced approach between investment and consumption, with 250 billion yuan allocated for consumption support[4][31] - A new 100 billion yuan fiscal-financial collaborative fund aims to stimulate domestic demand, potentially leveraging 8-10 trillion yuan in commercial bank loans[4][34] Debt Management - The government plans to issue 2.8 trillion yuan in debt to address overdue payments to enterprises and mitigate risks associated with financing platforms, marking a shift from quantity-based to quality-based debt management[4][36] - The focus on clearing government arrears is expected to improve cash flow for affected enterprises, thereby restoring confidence in private investment[4][36] Risks and Monitoring - Key risks include the effectiveness of fiscal measures in combating deflation and the ongoing challenges in the real estate market, which could hinder consumer confidence and economic recovery[5][39] - Important indicators to monitor in 2026 include core CPI, PPI trends, and the effectiveness of consumption policies like the "trade-in" program[5][41]