JPMorgan: China's fiscal policy in 2026 will expand moderately, but policy trade-offs will be stricter

Overview

This report focuses on China's fiscal policy in 2026. Its core judgment is that fiscal policy will remain the most important cyclical and structural support tool that year, but the expansion will not be a flood-like stimulus; rather, it will be a moderate expansion under stricter fiscal discipline, spending efficiency, and growth-quality objectives. The report primarily assesses the official deficit, government bond quotas, special treasury bonds, local special-purpose bonds, consumption subsidies, infrastructure investment, bank capital replenishment, energy price shocks, and whether additional fiscal support may be introduced in the second half of the year.

Core views

The report's core views include: First, fiscal policy in 2026 will remain expansionary, but bond quotas are slightly below JPMorgan's previous expectations, and fiscal support will rely more on unused carryover funds and quasi-fiscal instruments. Second, consumption-side policies are below market expectations, with a smaller trade-in subsidy scale and narrower scope, while support for service consumption has yet to become a substantive nationwide subsidy. Third, the investment side remains the main focus of fiscal policy, and the rebound in fixed-asset investment at the start of the year was mainly driven by 15th Five-Year Plan projects, infrastructure construction, and front-loaded policy funding. Fourth, the energy price shock may improve assumptions for nominal GDP and fiscal revenue, but if oil prices remain elevated, policy is more likely to respond through indirect subsidies and in-budget reallocation rather than new large-scale fiscal expansion. Fifth, a lower growth target gives policymakers greater flexibility; under the baseline scenario, the probability of an additional budget is not high, but if growth momentum weakens significantly in the second half, temporary fiscal support remains possible.

Analysis framework

The report adopts a macro analytical framework combining fiscal revenue and expenditure, government bond issuance, the broad fiscal deficit, budget-target completion, details of consumption subsidies, the structure of fixed-asset investment, energy price transmission, and the policy reaction function. The authors begin with the budget arrangements at the National People's Congress, breaking down central special treasury bonds, local special-purpose bonds, debt swaps, policy bank instruments, and central transfer payments; they then compare structural changes between consumption support and investment support; finally, they combine energy shocks, export risks, and growth targets to judge the trigger conditions for additional fiscal support in the second half of the year.

Methodology notes

• Fiscal Stance AssessmentBroad Fiscal Deficit and Fiscal Impulse

  Use the official deficit, government-managed funds, carryover funds, and quasi-fiscal instruments together to measure the true intensity of fiscal support.

  The report argues that the official deficit does not fully reflect policy intensity, and therefore includes unused 2025 carryover funds and RMB 800 billion of policy bank instruments, estimating the 2026 broad fiscal deficit at about 11% of GDP and the fiscal impulse at about 0.3 percentage points.

• Policy Structure AnalysisComparison of the Fiscal Spending Structure Between Consumption Support and Investment Support

  Compare the relative intensity of fiscal resources flowing to household consumption, service consumption, trade-ins, infrastructure, and equipment upgrades.

  The report believes that consumption is more important in policy rhetoric, but actual budget support remains relatively moderate; the investment side receives more direct support through infrastructure projects, major national projects, policy bank instruments, and local special-purpose bonds.

• Macro Reaction FunctionTrigger Mechanism for Additional Fiscal Support in the Second Half of the Year

  Determine whether a temporary fiscal package is needed based on growth momentum, external shocks, and policy objectives.

  Under the baseline forecast of 4.7% full-year growth and the 4.5%-5% target, an additional budget is not the baseline scenario; however, if energy, tariffs, exports, and supply-chain shocks lead to a significant decline in growth momentum around the third quarter, temporary fiscal support may reappear.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China government bonds

  Directly related to fiscal expansion and debt supply

  Strengths

  The official deficit, special treasury bonds, and local special-purpose bonds continue to support bond issuance, and fiscal policy remains the core tool for macro stability.

  Weaknesses

  Bond quotas are slightly below expectations, fiscal discipline and spending-efficiency requirements are rising, and room for additional expansion is limited.

  Comparison

  Compared with 2025, total bond support remains high in 2026, but is reflected more in moderate expansion and structural optimization rather than obvious intensification.

  Risks

  If a growth slowdown triggers an additional fiscal package, government bond supply and maturity structure may be adjusted again.

• China equity market

  Fiscal support affects earnings expectations, risk appetite, and sector rotation

  Strengths

  Infrastructure, public services, equipment upgrades, high-end manufacturing, and policy-supported sectors may benefit from front-loaded projects and funding.

  Weaknesses

  Consumption stimulus is weaker than expected, progress in household income and social-security reform is relatively slow, and valuation recovery for consumer stocks lacks a strong catalyst.

  Comparison

  Policy certainty is stronger for the investment chain than for the broad consumption chain, while support for service consumption is more tilted toward pilots and supply-side upgrading.

  Risks

  A slowdown in exports, rising energy costs, tariff risks, and weaker-than-expected policy implementation may weigh on earnings.

• Automobile and home-appliance consumption chain

  Directly affected by trade-in subsidies

  Strengths

  Subsidies still cover automobiles, home appliances, and digital smart products, with structural opportunities in green standards and smart-home directions.

  Weaknesses

  The subsidy amount is below expectations and coverage has narrowed; for automobiles, the shift from a fixed subsidy amount to a price-linked ratio has reduced actual support.

  Comparison

  Support for home appliances and digital smart products is relatively stable, while automobiles are more clearly affected by 2025 demand front-loading, weaker purchase-tax incentives, and inventory pressure.

  Risks

  The marginal multiplier of subsidies is declining, and price wars and inventory mismatches may continue to drag on sales volumes and profit margins.

• Infrastructure and project investment chain

  Directly supported by front-loaded fiscal funds and expanded policy instruments

  Strengths

  The start of the 15th Five-Year Plan, 109 major projects, RMB 800 billion of policy bank instruments, and front-loaded special bond issuance jointly support investment.

  Weaknesses

  Without new bond quotas or incremental funding, subsequent quarters may see a sequential slowdown after the initial front-loading.

  Comparison

  Compared with consumption subsidies, the investment side receives clearer and larger-scale fiscal and quasi-fiscal support.

  Risks

  Project pipeline quality, local execution capacity, hidden-debt constraints, and funding-use efficiency will affect the actual multiplier.

• Crude oil and energy-related assets

  Energy shocks affect China's inflation, fiscal revenue, and policy response

  Strengths

  Persistently high oil prices may support assumptions for nominal GDP and fiscal revenue, easing budget revenue pressure.

  Weaknesses

  Rising energy costs will suppress real economic activity and may increase the burden on businesses and households.

  Comparison

  China is more inclined to respond through quasi-fiscal price smoothing, state-owned enterprise inventories, and budget reallocation, rather than launching explicit large-scale energy subsidies like some Asian economies.

  Risks

  If oil prices continue above US$130/bbl, the probability of fiscal and tax-tool intervention will rise, but the form and scale of policy remain uncertain.

Key data

• Official fiscal deficit in 2026RMB 5.89 trillion, about 4% of GDPOn the National People's Congress budget basis, broadly in line with JPMorgan and market expectations.
• JPMorgan estimate of the broad fiscal deficitAbout 11% of GDPIncluding unused 2025 carryover funds and RMB 800 billion of policy bank instruments.
• Fiscal impulseAbout 0.3 percentage pointsCorresponding to moderate expansion rather than strong stimulus.
• Central special treasury bond quotaRMB 1.8 trillionIncluding RMB 1.3 trillion of ultra-long special treasury bonds and RMB 300 billion of shorter-term bond issuance for bank capital replenishment.
• Local special-purpose bond quotaRMB 4.4 trillionIn addition, there is RMB 2 trillion of local government debt refinancing quota to continue the debt-swap framework.
• Central transfer paymentsRMB 10.4 trillionUsed to ease local fiscal pressure, reaching a historical high.
• Estimated 2026 consumption support budgetRMB 567 billion, about 0.4% of GDPSlightly below 2025, and also about 0.1 percentage point of GDP below JPMorgan's previous forecast.
• Trade-in subsidy amountRMB 250 billionBelow JPMorgan's previous forecast of RMB 400 billion, with coverage more focused on automobiles, six categories of home appliances, and four categories of digital smart products.
• Policy bank capital instrumentsRMB 800 billionExpanded from RMB 500 billion in 2025, used to provide quasi-equity funding for projects.
• First-quarter local special bond issuanceRMB 1.2 trillionRMB 200 billion more than the same period last year, with over 60% directed to infrastructure such as transportation, industrial parks, and affordable housing.
• First-quarter fixed-asset investment growth+1.7%A marked rebound from the 12.8% contraction in the fourth quarter of 2025, with public investment and infrastructure as the main drivers.
• JPMorgan's 2026 baseline real GDP forecast4.7%Under this baseline forecast, since the official target has been lowered to 4.5%-5%, the probability of an additional budget is not high.

Impact & implications

In terms of asset implications, the report conveys that fiscal policy still provides a floor for China's growth, but with a more moderate intensity and a structure more tilted toward projects and the supply side, while direct stimulus to household consumption is insufficient. Infrastructure, policy finance, parts of high-end manufacturing, and public-service investment may benefit; automobiles and home appliances still receive support from trade-in programs, but the marginal effect is diminishing, and auto sales also face a post-frontloading vacuum, inventory, and pricing pressure. Energy shocks may raise assumptions for nominal prices and fiscal revenue, but they may also suppress real activity and increase corporate costs. Overall, the market should not simply trade on a strong fiscal-stimulus narrative, but should instead focus on the pace of fund deployment, project execution, and whether additional policies are triggered in the second half of the year.

Risks

• Conflict in the Middle East could keep energy prices elevated, pushing up inflation and suppressing real activity.
• Potential tariff hikes, Section 301 reviews, export tax rebate adjustments, and supply-chain disruptions could weaken export momentum.
• Land-sale revenue may continue to decline, and government-managed fund income still depends on the property cycle.
• The intensity and scope of consumption subsidies are below expectations, and the recovery in household consumption may be weaker than the market expects.
• After infrastructure and fixed-asset investment were front-loaded at the start of the year, momentum may weaken in subsequent quarters.
• Local fiscal pressure, hidden-debt swaps, and insufficient project reserves may limit the efficiency of fund deployment.
• If reforms in social security, healthcare, household registration, and income support progress slowly, households' precautionary savings may remain elevated.

What to watch

• Whether growth momentum in the second half of the year is clearly below the path implied by the 4.5%-5% target range.
• Whether a temporary fiscal package, additional bond quota, or budget adjustment emerges around the third quarter.
• The actual issuance of central special treasury bonds, local special-purpose bonds, and policy bank instruments, as well as their project allocation.
• Whether the marginal boost from trade-in subsidies to sales of automobiles, home appliances, and digital smart products continues to fade.
• Whether service consumption shifts from supply-side upgrading to more direct demand-side subsidy pilots.
• Whether oil prices remain above US$130/bbl and whether China adopts clearer fiscal or tax support.
• Land-sale revenue, local government fund spending, and the use of fiscal deposits.
• Whether household income, minimum wages, social security and healthcare spending, and personal deposit trends improve the propensity to consume.