(Yicai) Oct. 30 -- China will maintain its proactive fiscal policy during the upcoming 15th Five-Year Plan period, which runs from 2026 to 2030, with a stronger focus on maintaining long-term sustainability, Yuan Haixia, fiscal policy expert and director of China Chengxin International Credit Rating's research institute, told Yicai in an exclusive interview.

Due to changes in the macroeconomic environment, China will use fiscal policy more actively to stabilize growth, improve people’s livelihoods and fine-tune the economic structure, while also guarding against rising risks and uncertainties, said Yuan, who is also a government debt advisor to the Ministry of Finance.

“Ensuring fiscal sustainability has been given greater priority to balance development and security and ensure long-term economic and social stability,” Yuan said.

China’s 15th Five-Year Plan aims to strengthen the role of proactive fiscal policy, enhancing fiscal sustainability and building a more sustainable financial system. The Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development, which were released to the public on Oct. 28, also calls for strengthening counter-cyclical and cross-cyclical adjustments.

Excerpts from the interview are given below:

Yicai: In previous proposals for five-year plans, the focus on fiscal issues generally centered around the fiscal and tax systems. But this time, the first line about fiscal work stresses “implementing proactive fiscal policies and enhancing fiscal sustainability.” Why is it different this time?

Yuan: The difference reflects changes in the macroeconomic situation. Clearly, the government is placing greater emphasis on risks and uncertainties in its assessment of the future environment.

So on one hand, government departments should do more to leverage the role of proactive fiscal policies to stabilize growth and support structural adjustments, so as to effectively promote the sustained and healthy development of the national economy. This will enhance internal stability to effectively respond to external shocks. On the other hand, it is crucial to place significant emphasis on ensuring the sustainability of public finances, both by actively preventing and mitigating fiscal risks and by reserving sufficient space to respond to future challenges.

Yicai: Will the fiscal and tax reforms slow down as a result?

Yuan: This shift does not imply a halt in the reforms of the fiscal and tax systems.

The 15th Five-Year Plan period is a key time for implementing the reform measures laid out in the Third Plenary Session of 20th CPC Central Committee. It is necessary to place greater emphasis on leveraging policy functions and enhancing policy effectiveness to create favorable conditions for medium- and long-term reforms. The new plan still highlights the core principles of fiscal and tax system reforms, such as the budget system, the tax regime and the division of responsibilities between central and local governments.

Yicai: China has maintained a proactive fiscal policy for more than 17 years. Why does it still plan to uphold this policy for another five years?

Yuan: Fiscal policy remains one of China’s main macroeconomic tools. In the next five years, it will continue to play an irreplaceable role in driving the achievement of strategic goals, stabilizing overall demand, guiding long-term investment and optimizing the economic structure.

The new plan also reiterates the goal of raising per capita gross domestic product to the level of moderately developed countries by 2035. To reach that target, the economy must maintain a reasonable growth rate, and proactive fiscal policies can help play a stabilizing role.

Yicai: In recent years, government finances, especially at the grassroots level, have come under increasing strain. Why does the new plan place such strong emphasis on fiscal sustainability?

Yuan: It’s a response to both current challenges facing economic and social development as well as the need to achieve long-term goals.

China’s economy faces a mix of cyclical, structural and trend-related issues. It is essential to leverage the role of fiscal policy, which is a key part of macroeconomic regulation and national governance. This also places higher demands on fiscal sustainability.

On the revenue side, fiscal space has tightened as the economy transitions, raising the bar for sustainability. On the expenditure side, population aging and other structural social issues continue to reshape fiscal priorities, requiring a balance between short-term security and long-term sustainability.

Moreover, the implementation of proactive fiscal policies is essential for achieving the targets of the 15th Five-Year Plan. While striving for overall economic growth, ensuring fiscal sustainability helps to expand the medium- to long-term fiscal space and supports the long-term stable development of the economy and society. Emphasizing sustainability also supports better debt management, which is essential for containing local government debt risks and balancing development with security.

Yicai: What steps should be taken to strengthen fiscal sustainability during the 15th Five-Year Plan?

Yuan: First, China needs to expand the economic ‘cake.’ High-quality development should remain the top priority with a focus on expanding domestic demand and improving supply. This will strengthen the foundations of fiscal revenue, energize market players, broaden the tax base and stabilize tax sources, which will be key to achieving long-term fiscal health.

Second, China should optimize the expenditure structure and pay attention to the overall efficiency of fiscal spending.

Third, China should speed up the establishment of a government balance sheet to better manage the conversion between debt and assets and make more effective use of existing assets.

Fourth, China should promote debt resolution in an orderly manner and build a long-term mechanism for debt management.

Finally, maintaining a low-interest-rate environment is crucial for maintaining fiscal and debt sustainability.

Since fiscal policy still needs to be mainly driven by government departments to expand debt, it is essential to strengthen co-ordination with monetary policy. During periods of low growth and low inflation, keeping rates low, through tools such as reserve requirement ratio cuts and interest rate reductions, will help boost confidence. In addition, the timely use of tools such as outright reverse repos and government bond transactions can ensure adequate liquidity.

Editor: Kim Taylor