Finance ministry signals new fiscal support for local governments

Beijing will increase fiscal support for local governments this year.

At the National Fiscal Work Conference, which concluded December 28, the finance ministry (MoF) vowed that in 2026 it will:

• “Optimize the mix of government bond instruments to improve their effectiveness”
• “Raise the efficiency of transfer payments and strengthen local governments’ flexible, usable fiscal resources”

What this likely means:

• Beijing will increase the share of central government bond issuance
• Beijing will expand the share of general transfers – payments designed to reduce regional disparities and used at local governments’ discretion – relative to special transfers, which are earmarked for specific purposes

Some context: Cash-strapped local governments have been forced to implement austerity measures – such as raising business fees and fines, withholding payments to suppliers, and cutting public spending – which creates additional headwinds for economic growth.

Get smart: The MoF support measures will partially alleviate local fiscal pressures, but are insufficient to fully reverse local government austerity.

• Local governments face trillions of RMB in revenue shortfalls due to the collapse in land sales, while also owing trillions in unpaid salaries and arrears to suppliers.
• Meanwhile, Beijing has signaled that it won’t aggressively expand borrowing in 2026, suggesting any additional local government support will be modest.

The upshot: Local finances will remain tight in 2026 and continue to weigh on economic growth.