China Expands Fiscal-Financial Coordination to Boost Domestic Demand

China’s Ministry of Finance, the People’s Bank of China, and the National Financial Regulatory Administration jointly issued a notice on August 17 to optimize and improve fiscal-financial coordination policies aimed at stimulating domestic demand, marking the second round of enhancements to a policy package first launched in January 2026. The notice, designated Cai Jin [2026] No. 71, took effect on August 1 and was published on August 21 via the Ministry of Finance website, according to Xinhua News.

Three Key Optimization Measures

Vice Finance Minister Liao Min announced the policy optimization at a State Council Information Office press conference on August 21, explaining that the changes follow the July 30 CPC Central Committee Political Bureau meeting, which called for optimizing the implementation of fiscal-financial coordination policies. As Xinhua reported, Liao outlined three main new measures: broadening the subsidy scope, adding handling institutions, and raising the limits.

Expanding subsidy scope: New working capital loans for qualified small, medium, and micro private enterprises are now included in the SME loan interest subsidy policy, with central finance providing a 1 percentage point annual subsidy for up to 2 years. Credit card installment, consumer installment, and cash advance installment transactions are now included in the personal consumer loan subsidy policy at a 1 percentage point annual subsidy.

Adding handling institutions: The handling institution scope for SME loan subsidies and service industry loan subsidies has been expanded to 21 national banks, as well as city commercial banks, rural cooperative financial institutions, private banks, and foreign banks with a financial regulatory rating of 3A or above.

Increasing limits: The SME loan subsidy limit per enterprise per institution has been raised from 50 million yuan to 75 million yuan annually. The service industry loan subsidy limit has been raised from 10 million yuan to 20 million yuan annually. The personal consumer loan and credit card installment subsidy cap has been raised from 3,000 yuan to 5,000 yuan per borrower per year.

Policy Background and Evolution

The fiscal-financial coordination policy package represents a significant innovation in China’s macro-control approach, combining fiscal policy tools such as loan subsidies, guarantee compensation, and risk-sharing with monetary and financial policy tools to jointly stimulate domestic demand. The initial package, launched on January 20, 2026, consisted of six policies: four supporting private investment and two supporting consumption, as detailed in People’s Daily Online.

The four investment policies include the SME loan subsidy (1.5 percentage points for up to 2 years, up to 50 million yuan per enterprise), equipment renewal loan subsidy, a private investment special guarantee plan worth 500 billion yuan over two years, and a private enterprise bond risk-sharing mechanism. The two consumption policies provide personal consumer loan subsidies and service industry loan subsidies at 1 percentage point each.

Central finance allocated 100 billion yuan in 2026 for the fiscal-financial coordination policy package. The original personal consumer loan subsidy framework was established in August 2025 under Cai Jin [2025] No. 80, with the first optimization occurring in January 2026 when the three departments issued Cai Jin [2026] No. 1, extending the policy through the end of 2026 and adding credit card installment to the subsidy scope.

Measurable Results in the First Half of 2026

The policy package has already delivered tangible results. According to data cited in a China Securities Journal report published via Xinhua, the two consumption policies benefited approximately 1.31 trillion yuan in resident consumption during the first half of 2026, with about 99 million person-times receiving subsidy benefits. The four investment policies benefited over 1.24 trillion yuan in private investment.

Despite these results, challenges remain. Private fixed asset investment fell 8.5% year-on-year in H1 2026, and even excluding real estate development, it declined 4.9%. Consumer spending recovery has also been uneven, though service retail sales grew 5.3% in H1 2026, faster than goods retail.

Expert Analysis and Forward Outlook

Experts see the optimization as a targeted response to evolving economic conditions. Xi Pengfei, an associate researcher at the CASS Institute of Financial and Economic Strategy, wrote in an analysis published on Guangming Online that the fiscal-financial coordination policy is an important innovative measure in the macro-control field, emphasizing the need to implement the policy package well, use special funds effectively, and amplify the policy multiplier effect.

Wen Bin, chief economist at Minsheng Bank, noted in the China Securities Journal report that considering the trend of rising service consumption share, fiscal-financial coordination is expected to be more directed toward cultural tourism, health and wellness, elderly care, childcare, and health and sports, cultivating new consumption growth points through service consumption subsidies, immersive consumption scenarios, and nighttime economy development.

A Securities Times analysis published in early August anticipated that the SME loan subsidy and service industry loan subsidy policies would be the focus of optimization, with experts calling for expanded coverage and extended durations. Wang Feng, an associate professor at Shanghai University of Finance and Economics, suggested that more labor-intensive and service sector SMEs should be brought into the subsidy scope, while Luo Zhiheng, chief economist at Yuekai Securities, proposed exploring a negative list management model for the service industry subsidy.

Looking ahead, Vice Finance Minister Liao Min stated that the Ministry of Finance is continuing to research and formulate new policies and measures to be launched in the second half of this year. The Huaxi Metropolis Daily reported on the initial rollout in January, highlighting the policy’s focus on both stimulating private investment and promoting resident consumption.

What to Watch For

The second-round optimization signals Beijing’s determination to sustain momentum in boosting domestic demand through coordinated fiscal and financial policy tools. Key indicators to monitor include whether private investment stabilizes in the coming quarters, the pace of consumer spending recovery, and the rollout of additional policy measures in the second half of 2026. The effectiveness of the expanded subsidy scope and higher limits will be tested against the backdrop of persistent challenges in private investment sentiment and uneven consumption recovery.

As the 15th Five-Year Plan period gets underway, the fiscal-financial coordination framework is likely to remain a central pillar of China’s macroeconomic management strategy, with further refinements expected based on implementation results and evolving economic conditions.