This analysis is part of the Q1/2026 MERICS Economic Indicators, our quarterly analysis of China’s economic data. You can find the most recent data here.
China’s public finances are hard to decipher. The Ministry of Finance’s recent 2025/2026 budget report gives insights into 2025 actual revenue and spending for the general public budget and announces the 2026 draft budget. However, priorities are obscured by multiple budgets operating at different administrative levels. Moreover, digging into the budget data reveals China’s fiscal situation is more strained than it appears on the surface, questioning the feasibility of hefty spending hikes in the future.
Understanding the structure of China’s budgets (see text box below) helps put into context the figures in the 2025/26 budget report. For example, spending targets shed light on priorities in the central government budget, but do not account for local budgets. If taken at face value, these targets show that, in 2026, China’s leadership will 1) prioritize spending on science and technology (S&T) and national defense 2) neglect spending on social security 3) allow debt interest payments to rise more quickly (see exhibit 1). The picture becomes more nuanced if local government spending is included and we look at the national general public budget. Although the finance ministry does not publish spending targets by budget category for the national general budget, we can get perspective by looking at past trends (see exhibit 2) and more recent actual spending data for January and February 2026.
China’s general public budget 101
- The “general public budget” (一般公共预算) is China’s primary budget. It is mainly financed by tax revenue, whose sources include value-added tax, consumption tax, enterprise income tax, and individual income tax. Spending covers over 20 major budget categories, such as public administration, national defense, education, social security, science and technology (S&T) and industry.
- The general public budget consists of the central government budget (中央一般公共预算) and various local government budgets (地方一般公共预算). The consolidated budget integrating the central and local budgets is called the “national general public budget” (全国一般公共预算).
- The division of labor between central and local budgets varies by budget category. For some, like foreign affairs or national defense, the spending comes largely from the central budget. Local governments contribute a much larger share in other areas like S&T, social security, healthcare, education or industry.
- The remaining budgets are the “government funds budget”, the “state capital operations budget”, and the “social insurance fund budget”.
S&T, national defense and industry are priorities
National general public spending on S&T rose by a modest 27 percent over a six-year period between 2019 and 2025, broadly in line with the increase in S&T central government spending over that period. However, a planned ten percent increase in central government S&T spending during 2026 alone could signal S&T has risen up in the list of policy priorities. Reinforcing that impression, national general spending on S&T rose by eight percent in January and February 2026 year-on-year. This is consistent with technology’s prominent position in China’s recently-approved 15th Five-Year Plan (2026-2030).
National defense is a clear priority. Spending is mostly from the central government and rose by almost half from 2019 to 2025 and is projected to increase by seven percent in 2026. In comparison, total national general spending rose more slowly, by 20 percent from 2019 to 2025, with a planned increase of 4.4 percent in 2026. National general public spending on resource extraction and industry rose by a whopping 78 percent from 2019 to 2024. Unfortunately, data for 2025 and January and February 2026 is not yet available for this budget category.
Social security balloons though services remain limited
Social security receives substantial public funds, even though the headline figure in the 2026 central government budget suggests otherwise. In the national general public budget, it got a respectable 51 percent spending increase between 2019 and 2025. In January and February 2026, spending rose 8.6 percent year-on-year, higher than for S&T. It is the largest budget category in the national general public budget, with a roughly 15 percent share in 2025.
However, more than one third of national general budget social security spending goes on pensions for public officials (行政事业单位养老支出) and close to a third goes into subsidizing the basic pension insurance fund for regular people. Only a trickle is spent on wider social welfare (社会福利), such as child welfare, elderly welfare, rehabilitation aid and elderly care.
Additionally, China’s recent hefty increases in social security spending come from a very low base. Based on spending in the national general budget and social insurance fund budget, China’s social expenditures still only amounted to an estimated 11 percent of GDP in 2025. For comparison, in Germany and Bulgaria, two countries at different income levels, social expenditures respectively made up around 31 percent and 20 percent of GDP in 2024.
Public finances are strained
China increasingly relies on borrowing to meet its spending needs. Its headline deficit target rose as a share of GDP from three to four percent in 2025 and remains unchanged for 2026. It has set the highest-ever projected national general public budget deficit of CNY 5.89 trillion for 2026, which is a six percent increase over 2025’s actual deficit. Yet, this omits additional debt from the announced issuance of CNY 4.4 trillion special purpose bonds or of CNY 1.3 trillion ultra-long special treasury bonds, which fall under the government funds budget. If these were included, China’s budget deficit would be far higher. For reference, France, which is sometimes seen as a fiscal laggard in Europe, had a 2025 budget deficit to GDP ratio of 5.1 percent.
On average, the deficit has risen by 14 percent annually since 2019, outpacing economic growth. Annual national debt interest payments have therefore surged, up by more than half since 2019. Although a moderate five percent of national general public spending went on debt interest payments in 2025, the burden was far higher for the central government budget, at almost one fifth of spending. But things could also worsen for the national general public budget, as its debt interest payments spending surged by 22 percent year-on-year in January and February 2026.
Future implications
China’s 2026 further increase in social security spending is in line with past trends and does not constitute a significant shift, based on the data available so far. Meanwhile, with large budget and spending increases that diverge from the previous trajectory, S&T seems to have been elevated in the government’s list of priorities. This matches the 15th Five-Year Plan’s prominent focus on innovation as well as technological leadership and autonomy. In these geopolitically volatile times, China would surely benefit from achieving breakthroughs in the technologies it desires. Yet, its strained fiscal situation with skyrocketing debt interest payments casts doubt on the sustainability of further spending increases.
