Broad fiscal policy still needs to be strengthened

In November, the growth rate of tax revenue declined, while the decrease in expenditure narrowed, but the growth rate remained low. Government fund revenues are operating at a low level, mainly related to the weak real estate market. With the issuance of special bond limits, the growth rate of government fund expenditures has rebounded. Looking ahead to 2026, proactive fiscal measures may "take the initiative to exert force."

Narrow revenue: growth rate declines. From January to November 2025, national general public budget revenue increased by 0.8% year-on-year. Among them, the revenue for November remained flat compared to the same period in 2024, with a marginal decline in growth rate. This month, the growth rate of narrow budget revenue hit a six-month low. From the perspective of major sub-items, personal income tax and value-added tax revenues still performed well despite the elevated base. However, corporate income tax revenue was significantly disturbed, turning negative year-on-year. Additionally, under a low base, the growth rate of consumption tax revenue declined, and the decrease in export tax rebate revenue was significant. Considering the adjustment of real estate demand in the second half of the year, the endogenous momentum for economic growth still needs to be strengthened, and macro-positive policies need to be intensified.

Narrow expenditure: decrease narrows, with both support and pressure. From January to November 2025, national general public budget expenditure increased by 1.4% year-on-year. Among them, the year-on-year growth rate for November was -3.7%, a narrowing of the decrease compared to -9.8% in October. However, under last year's low base, the overall fiscal expenditure growth rate this month remained low. This may be related to the "pre-positioning" of fiscal efforts within the year and budget adjustments based on actual conditions at the end of the year. From the sub-item perspective, in November 2025, expenditure growth rates in areas such as health, technology, and energy conservation and environmental protection led, but this was related to last year's low base. At the same time, social security employment, urban and rural communities, and agriculture, forestry, and water expenditures showed negative growth.

Government fund growth rate: low revenue, rising expenditure. From January to November 2025, national government fund budget revenue decreased by 4.9% year-on-year. Among them, the year-on-year growth rate for November was -15.8%, showing a significant decline. The reason for this is the accelerated adjustment of the real estate market in recent months. With the issuance of special bond limits, the growth rate of government fund expenditures has rebounded. From January to November 2025, national government fund budget expenditure increased by 13.7% year-on-year. Among them, the year-on-year growth rate for November was 2.8%, a significant rebound compared to -38.2% in October. The reason for this is that in October 2025, the central government allocated 500 billion yuan from local government debt limits, including an additional 200 billion yuan in special bond quotas specifically for supporting investment construction in certain provinces.

Overall, first, the fiscal tight balance continues. Against the backdrop of economic growth and the transformation of the real estate market, China's fiscal revenue growth is generally moderate, imposing certain constraints on expenditure. Second, expenditure is becoming more precise and effective. Fiscal funds are clearly tilted towards key areas such as livelihood protection and technological innovation, with policy quality and effectiveness improving. Third, the decision-making level has proposed that in 2026, more proactive fiscal policies will continue to be implemented, and will "take the initiative to exert force," "reasonably accelerate the allocation and disbursement of funds." In our view, macro policies will continue to maintain a positive tone, ensuring a good start and pace for the "14th Five-Year Plan." We expect the narrow fiscal deficit rate in 2026 to be around 4%, focusing on optimizing structure and improving fund efficiency while maintaining necessary expenditure intensity, and striving to enhance the sustainability of local finances

Narrow Definition of Revenue: Growth Rate Declines

The growth rate of narrow budget revenue has marginally declined. From January to November 2025, the national general public budget revenue increased by 0.8% year-on-year. Among them, the revenue for November remained flat compared to the same period in 2024, with a marginal decline from October's 3.2% growth rate. It is noteworthy that the year-on-year growth rates of central and local fiscal revenues in November were -4.2% and 4.1%, respectively. The decline in the former is related to a high base, while the latter performed well despite the elevated base. However, the growth rate of narrow budget revenue this month hit a six-month low. Moving forward, the recovery of domestic demand is key to improving fiscal revenue.

The growth rate of tax revenue has declined. From January to November 2025, national tax revenue increased by 1.8% year-on-year. In November, the year-on-year growth rate was 2.8%, a marginal decline from October's 8.6%, mainly due to the elevated base. Nevertheless, individual income tax and value-added tax revenues still performed well. However, corporate income tax revenue was significantly disturbed, turning negative year-on-year. Additionally, under a low base, the growth rate of consumption tax revenue has declined, and the decrease in export tax rebate revenue was significant. Considering the adjustment in real estate demand in the second half of the year, the endogenous momentum for economic growth still needs to be strengthened, and macro-positive policies need to be intensified.

The decline in non-tax revenue has narrowed. From January to November 2025, non-tax revenue decreased by 3.7% year-on-year. In November, the year-on-year growth rate of non-tax revenue was -10.8%, a narrowing from October's -33%.

Narrow Definition of Expenditure: Decline Narrows, Some Protection and Some Pressure

The year-on-year decline in narrow expenditure has narrowed. From January to November 2025, national general public budget expenditure increased by 1.4% year-on-year. In November, the year-on-year growth rate was -3.7%, a marginal narrowing from October's -9.8%. It is noteworthy that the year-on-year growth rates of central and local fiscal expenditures in November were 4.9% and -5.1%, respectively. The former rebounded despite the elevated base, while the latter's decline also narrowed. However, under last year's low base, the overall fiscal expenditure growth rate this month remains low. This may be related to the "front-loading" of fiscal efforts within the year and budget adjustments based on actual conditions at the end of the year.

From a sub-item perspective, from January to November 2025, fiscal support for key areas such as people's livelihoods and technology has significantly strengthened. In November 2025, expenditures in areas such as health, technology, and energy conservation and environmental protection led the growth rate, but this is mainly related to last year's low base At the same time, social security employment, urban and rural community, and agricultural, forestry, and water expenditures showed negative growth.

Growth Rate of Government Funds: Low Income, Rising Expenditure

Government fund income is operating at a low level, primarily due to adjustments in the real estate market. From January to November 2025, the national government fund budget revenue decreased by 4.9% year-on-year. In November alone, the year-on-year growth rate was -15.8%, showing a significant decline for two consecutive months. The reason for this is that the adjustment of the real estate market has accelerated in recent months. In November, the year-on-year growth rate of revenue from the transfer of state-owned land use rights was -26.8%.

With the issuance limit of special bonds being allocated, the growth rate of government fund expenditure has rebounded. From January to November 2025, the national government fund budget expenditure increased by 13.7% year-on-year. In November alone, the year-on-year growth rate was 2.8%, a significant rebound compared to the -38.2% growth rate in October. The reason for this is that in October 2025, the central government arranged 500 billion yuan from the local government debt limit, which included an additional 200 billion yuan of special bond quota specifically for supporting investment construction in certain provinces.

Overall, first, the fiscal tight balance continues. Against the backdrop of economic growth and the transformation of the real estate market, China's fiscal revenue growth is generally moderate, imposing certain constraints on expenditure. Second, expenditure is becoming more precise and effective. Fiscal funds are clearly tilted towards key areas such as livelihood security and technological innovation, improving policy quality and effectiveness. Third, the decision-making level has proposed that in 2026, a more proactive fiscal policy will continue to be implemented, with an emphasis on "actively advancing" and "reasonably accelerating the allocation and disbursement of funds." In our view, macro policies will maintain a positive overall tone to ensure a good start and pace for the "14th Five-Year Plan." We expect that the narrow fiscal deficit rate in 2026 will be around 4%, focusing on optimizing structure and improving fund efficiency while maintaining necessary expenditure intensity, and striving to enhance the sustainability of local finances.

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