[Media Platform] China Economic Times, July 30, 2025 (Think Tank · Theory Weekly)
[Core Opinion] Fiscal policy in the second half of 2025 should prioritize seven key areas: prioritizing changes in economic growth drivers, placing high importance on stabilizing price levels, continuously expanding fiscal policy space, maintaining a strong focus on expenditures that ensure people's livelihood, accelerating government debt disposal, actively utilizing policy-based financial instruments, and emphasizing the social benefits of fiscal policy.
The year 2025 marks a pivotal time for concluding the 14th Five-Year Plan and establishing the foundation for the 15th Five-Year Plan. The domestic economy is confronted with challenges such as a complex and severe external environment and the need to stimulate internal demand. These factors create uncertainties for economic growth and highlight the necessity of further consolidating the foundation for the momentum of economic recovery. The Report on the Work of the Government 2025 emphasizes that fiscal policies "provide sustained and more effective support," marking a more proactive approach compared to the 2024 phrasing: "appropriately enhance the intensity of our proactive fiscal policy and improve its quality and effectiveness." In the first half of 2025, China's fiscal revenue showed marginal improvement, but the challenges it faces should not be underestimated. Fiscal expenditure growth fell short of the budget target, with a notable emphasis on people's livelihood-related expenditures.
Fiscal Revenue and Expenditure in the First Half of 2025
Regarding fiscal revenue, China's fiscal revenue improved marginally in the first half of 2025 but still faced certain pressures. From January to June 2025, the national general public budget revenue experienced a growth rate of -0.3%, while the government fund budget revenue saw a growth rate of -2.4%. Combined, these two revenue streams registered an overall growth rate of -0.6%. The targets for these three indicators in 2025 were set at 0.1%, 0.7%, and 0.2%, respectively, compared to the 2024 targets of 3.3%, 0.1%, and 2.5%.
Tax revenue and non-tax revenue exhibited divergent growth trends. Tax revenue growth turned positive for three consecutive months from April to June, with year-on-year (YoY) growth rates of 1.9%, 0.6%, and 1%, respectively. By sector, the main industries driving tax revenue growth in the first half of 2025 were railway, shipbuilding, and aerospace equipment (up 32.2%), scientific research and technical services (up 13.8%), computer and communication equipment (up 9.2%), culture, sports, and entertainment (up 8.6%), and electrical machinery and equipment manufacturing (up 6.3%). By tax category, individual income tax, value-added tax, and consumption tax all contributed to the growth in tax revenue, while enterprise income tax became a major drag on tax revenue growth. In contrast, non-tax revenue growth showed a rapid decline, with national non-tax revenue in June amounting to RMB 518.4 billion, reflecting a YoY decrease of 3.7%. This decline may be attributed to the high base effect from 2024 carrying over into 2025.
The situation regarding government fund budget revenue requires further observation. In the first half of 2025, the national government fund budget revenue decreased by 2.4% YoY, continuing its downward trend. The significant growth in revenue on the transfer of land use rights in June may be related to the centralized inclusion of the revenue into the treasury.
A significant divergence has emerged between central and local public budget revenues. In the first half of 2025, the total central general public budget revenue and local general public budget revenue amounted to RMB 4858.9 billion and 6697.7 billion, respectively, with YoY growth rates of -2.8% and 1.6%. By region, revenue growth rates in eastern, central, western, and northeastern China were 1.3%, 1.3%, 2%, and 5.7%, respectively. The primary reason for this phenomenon is likely related to the scale of central-to-local transfer payments allocated in the first half of the year, which amounted to RMB 9.29 trillion (accounting for 89.8% of the annual budget initially planned).
The main reasons for the above phenomenon can be summarized as follows: First, low price levels and weak corporate profitability. In June 2025, the YoY growth rates of the CPI and PPI were 0.1% and -3.6%, respectively. In the first half of the year, the growth rate of industrial enterprise profits was -1.8%. Second, the real estate and traditional fuel vehicle markets as a drag. In the first half of 2025, the growth rate of real estate development investment was -11.2%. Sales of traditional fuel vehicles fell below expectations, while sales of new energy vehicles rose by 44% YoY. This led to a 19.1% decline in vehicle purchase tax, a sharper drop compared to the 9.4% decline during the same period in 2024. The phased exemption of purchase tax for new energy vehicles will remain in effect until 2027. The Ministry of Finance estimates that the cumulative tax exemptions from 2024 to 2027 will reach RMB 520 billion, creating greater long-term pressure. Third, the impact of export tax refunds. The rush to export accelerated plans originally scheduled for the second half of the year to the first half, creating increased uncertainty for exports in the second half of the year.
Regarding fiscal expenditures, the growth rate of China's broad fiscal expenditures in the first half of the year fell short of the budget targets set at the beginning of the year. From January to June 2025, the national general public budget expenditure experienced a growth rate of 3.4%, while the government fund budget expenditure saw a growth rate of 30%. Combined, these two expenditure streams registered an overall growth rate of 8.9%. The targets for these three indicators in 2025 were set at 4.4%, 18.1%, and 8%, respectively, all slightly higher than the growth rate targets set for the relevant indicators in 2024. The growth rate of general public budget expenditures was slightly lower than the budgeted growth rate of 4.4% for 2025.
Fiscal expenditures in the first half of the year exhibited the following four characteristics: First, the feature of front-loaded fiscal expenditure was relatively pronounced. Fiscal expenditures in the first half of the year accounted for approximately 47.6% of the annual budgeted total. Among the three major categories—social security and employment, health, and education—the proportions reached 55.6%, 51.5%, and 48.1% of their respective annual budgeted totals. Second, the divergence between central and local fiscal expenditures continued to persist. On a monthly basis, the average YoY growth rate of central fiscal expenditures in the first half of the year remained around 10%, showing an increase compared to 2024. The YoY growth rate of local fiscal expenditure was positive in the first five months but turned negative in June, indicating a gradual increase in pressure on the expenditure side. Third, the structure of fiscal expenditures was oriented toward improving people's livelihood. The emphasis on ensuring people's livelihood through fiscal expenditures strengthened, while spending on infrastructure decreased. Expenditure growth in fields concerning people's livelihood, such as social security and support for low-income groups, was 6.6% in the first half of the year, higher than the -3.2% growth rate of infrastructure-related expenditures, demonstrating a growing focus on ensuring people's livelihood in fiscal spending. Specifically, expenditures in social security and employment, health, and education increased by 9.2%, 4.3%, and 5.9% YoY, respectively, all exceeding the growth of general public budget expenditures during the same period. Fourth, the factors driving fiscal expenditures deserved attention. The cumulative YoY growth rate of broad fiscal expenditures in the first half of the year was 8.93%, largely driven by debt financing. The net financing scale of government debt totaled approximately RMB 8 trillion, accounting for 67% of the annual new government debt limit of RMB 11.86 trillion.
Fiscal Policy Trends in the Second Half of 2025
Although China's economy faced certain pressures in the first half of the year, it also demonstrated strong resilience, effectively countering external risks. Given that the pace of fiscal expenditure in the first half of the year was slower than the budget target, the economic development pressures and fiscal expenditure characteristics in the second half of the year merit close attention. The fiscal policy for the second half of 2025 should prioritize the following seven key areas:
First, prioritizing changes in economic growth drivers. Due to the uncertainty surrounding U.S. tariffs and the rush to export in the first half of the year, enterprises may encounter heightened export pressures in the second half, which could impact both the total volume and the composition of tax revenue. However, it is important not to overstate the impact of the rush to export on the second half and to view this impact rationally. Additionally, policies such as consumer goods trade-ins in the first half of the year have shifted some consumer demand that would have occurred in the second half, potentially leading to a slowdown in consumer demand growth in the second half of the year. The shift in economic growth drivers resulting from these factors requires attention, and fiscal policy should be adjusted appropriately within this context.
Second, placing high importance on stabilizing price levels. China's tax system is primarily based on turnover tax, meaning that changes in price levels have a significant impact on tax revenue. For example, asymmetric changes in the prices of purchased and sold goods under value-added tax (VAT) could lead to a sharp decline in tax revenue, thereby causing substantial fluctuations in the overall growth rate of tax revenue. Stabilizing price levels is crucial for fostering long-term healthy economic development and improving fiscal revenue. The growth of government financing contributes significantly to social financing and monetary growth rate, and fiscal expansion plays an important role in supporting monetary growth and stabilizing prices.
Third, continuously expanding fiscal policy space. In the second half of 2025, it is essential to maintain a moderately easy monetary policy and a more proactive fiscal policy. The slower growth of fiscal expenditure in the first half of the year, compared to the budget target, has created additional room for expanding fiscal expenditure in the second half. At the same time, the rapid improvement in the scale of fiscal deposits has laid the foundation for sustained efforts in the second half of the year. In the first half of the year, fiscal deposits increased by RMB 1.25 trillion, marking the highest level since 2009 and reversing the declining trend observed in 2023 and 2024. In June 2025, fiscal deposits grew by 23.9% YoY, showing an accelerating trend. In the face of external shocks and uncertainties, consideration could be given to further accelerating the issuance and utilization of the remaining quotas for ultra-long-term special government bonds and special bonds in the second half of the year. If further expansion of fiscal policy intervention becomes necessary, options such as utilizing quasi-fiscal tools, issuing additional special government bonds, or increasing the debt ceiling could be considered.
Fourth, maintaining a strong focus on expenditures that ensure people's livelihood. Expenditures that ensure people's livelihood require attention to two aspects: improving income expectations and wealth expectations. On the one hand, fiscal investment in fields concerning people's livelihood needs to be further increased to enhance residents' income expectations. Within reasonable limits, increasing the handover of state-owned capital profits to replenish social security funds and steadily enhancing social security levels based on actuarial calculations are essential. On the other hand, it is necessary to explore the issuance of additional government bonds to stabilize the real estate market and improve residents' wealth expectations. Meanwhile, enhancing residents' income expectations and actively guiding wealth expectations can help reduce the need for precautionary savings, thereby unlocking consumption potential. Starting with addressing the urgent needs and concerns of the people, it is crucial to provide continued support and encouragement for both commodity consumption and service consumption.
Fifth, accelerating government debt disposal. On the one hand, it is necessary to expedite the replacement of existing debt to achieve early issuance and rapid utilization. On the other hand, efforts should be made to enhance the quality and expand the scope of debt instruments, extending both their scale and applications. Special government bonds need to be increased in quantity and scope, while special bonds should continue to improve in quality and support the development of new quality productive forces. Attention must be paid to the issue of delayed payments caused by government debt, which affects corporate cash flow, and active measures should be taken to improve the operational cash flow of enterprises, stabilize their development expectations, and stimulate their vitality.
Sixth, actively utilizing policy-based financial instruments. Policy-based financial instruments were previously utilized in the RMB 2 trillion special construction fund during 2015–2017, and the RMB 740 billion policy-based development financial instruments in 2022 further refined this policy approach. Through such means, funds can be directed to key areas, leveraging effects to address market failures and achieve specific economic development goals.
Seventh, emphasizing the social benefits of fiscal policy. China has shifted from a debt-driven investment model to fuel economic growth to a consumption-driven domestic demand approach to sustain economic growth. Whether through tax incentives aimed at supporting supply-side enterprise development or demand-side measures such as consumption vouchers and subsidies, greater emphasis must be placed on the social benefits of fiscal policy. This ensures the avoidance of low social efficiency or the potential misuse of preferential fiscal policies.
[About the Authors]
Professor Yang Canming, PhD in Economics, holds honorary doctorates from the Sapienza University of Rome in Italy and Dongseo University in South Korea. He is the former President and Deputy Secretary of the CPC Committee of Zhongnan University of Economics and Law (ZUEL). He currently serves as Director of the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance (111 Center) under the Ministry of Education and Ministry of Human Resources and Social Security of the People's Republic of China, and is a doctoral supervisor, a second-level professor, and a senior professor at the School of Public Finance and Taxation, ZUEL. Additionally, he is the Vice President of the Society of Public Finance of China, Vice Chairman of China Teaching Guidance Committee for Public Finance Majors of the Ministry of Education, an expert on Philosophical and Social Science Disciplines in Colleges and Universities of the National Textbook Committee (Marxist Theory Research and Construction Project), one of the "Ten Thousand Talents Plan" leading talents of the Organization Department of the CPC Central Committee, "Famous Cultural Talent" awarded by the Publicity Department of the CPC Central Committee, talent of "the Four Batches" Talent Project, Member of the 8th Applied Economics Discipline Review Group of the State Council, one of the first talents in "New Century National Hundred, Thousand and Ten Thousand Talent Project", an expert of the "Program for New Century Excellent Talents in University" of the Ministry of Education, expert of the training program of the "Cross-century Qualified Disciplinary Leaders" by the Ministry of Finance, and expert with special allowances from the State Council. His research mainly focuses on basic fiscal theories and fiscal policies. He has led more than 20 national, provincial and ministerial level projects, including the Major Program of NSSFC, Major Program of Philosophy and Social Sciences Research of the Ministry of Education, "Four Batches" Talent Project of the Publicity Department of the CPC Central Committee, Entrusted Program of the General Office of the CPC Central Committee, Program of NSSFC, Program of Fok Ying Tung Education Foundation of Ministry of Education, such as "Research for Promoting the Common Prosperity of All People", "Research on Regulating the Order of Income Distribution", "Research of Local Financial Behavior and Its Regularization", and "Research of the Chinese Government Procurement". The Public Finance of China compiled under his leadership was selected as one of the first Chinese economics textbooks. A number of his research reports have received important instructions from leaders at the provincial and ministerial levels or have been adopted by government departments. Professor Yang has published more than 10 monographs and translations, including the Research on Regulating the Order of Income Distribution, Market Structure and Government Economic Behavior, and Fiscal Theory and Institutional Innovation. He has released over 160 academic papers in various important journals, including Social Sciences in China, Economic Research Journal, Journal of Management World, Finance & Trade Economics, Public Finance Research, and Economic Perspectives. More than 30 of his research results have been reproduced in Xinhua Digest and Chinese Social Science Digest, and reposted on the China Social Science Excellence platform. With his achievements, he has won over 20 important awards, including national awards (the first prize of Outstanding Scientific Research Achievements Award of Higher Education Institutions of China and the second prize of the National Teaching Achievement Award for Higher Education), provincial awards (the first prize of Excellent Achievements in Social Sciences of Hubei Province, the first prize of Development Research Award of Hubei Province, and the first prize of Outstanding Research Achievements of the CPC Hubei Provincial Committee), the first prize of the Excellent Teaching Materials of the Ministry of Finance, the Soft Science Professional Research Award of China, and the ACCA Outstanding Achievement Award. He was named the favorite president of university students.
Zhao Ying, professor and doctoral supervisor of the School of Public Finance and Taxation, Zhongnan University of Economics and Law (ZUEL), as well as a researcher of the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance. Research interest includes public sector economics and development economics. He was the Candidate of the Hubei Provincial Key Talent Project, the Xiangjiang Scholar Program, the Hubei Province Postdoctoral Talent Continued-Cultivation Program, and the Young Scholar of the "Wenlan Scholar Program." He has published papers as the sole or first author in journals such as Economic Research Journal (3 articles), Journal of Management World, China Industrial Economics, Journal of Financial Research, and China & World Economy. He has led more than 10 projects, including the General Program (2 programs) and Youth Program (1 program) of National Natural Science Foundation of China, and Humanities and Social Sciences Projects of the Ministry of Education. He has won the first prize of the Hubei Province Outstanding Research Award and the first prize of the 16th Wuhan Social Science Achievement Award. He is an anonymous reviewer for Economic Research Journal, Journal of Management World, China Economic Quarterly, China Industrial Economics, Journal of Financial Research, China Economic Review, and China & World Economy. He also serves as a correspondence review expert for the projects of the National Natural Science Foundation of China, as well as a review expert for the Ministry of Human Resources and Social Security and the State Administration of Foreign Experts Affairs.