China’s 2026 budget prioritizes technology, reveals stretched public finances

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”.