Increased investment in human capital forward-looking necessity for growth

The just-concluded national fiscal work conference held in Beijing on the weekend made it clear that the Chinese government will expand fiscal expenditure in 2026 with sufficient intensity and precision to secure a solid start to the 15th Five-Year Plan (2026-30) period. This is not only a policy option, but a necessity in response to the economic realities.

The Ministry of Finance's pledge to implement a "more proactive" fiscal policy in 2026 reflects a sober assessment of the challenges facing the world's second-largest economy — domestic demand needs to be boosted to promote the economic circulation.

Recent data show retail sales growth has slowed down, while fixed-asset investment continues to contract. In this context, expanding fiscal spending is essential to help stabilize expectations and restore the momentum of demand.

Fiscal expenditure is not merely about injecting money into the economy; it is about directing resources to where they can generate the greatest multiplier effects. As emphasized at both the fiscal work conference and the tone-setting Central Economic Work Conference, priority should be given to employment promotion, income growth, education, healthcare and social security. When people feel more confident about their jobs, healthcare, pensions and children's education, they are far more willing to spend rather than save. Boosted consumption, in turn, feeds back into stronger production, forming a virtuous cycle of demand and supply.

The continued fiscal support for the consumer goods trade-in programs is a good example of how targeted spending can quickly stimulate demand. But such measures should be complemented by broader and more structural investments in people. Over the past decades, government-led investment understandably focused on infrastructure and physical assets. However, as the framework for the next five-year plan makes clear, China should more closely combine investment in physical assets with investment in human capital. Increased spending on education, public health, childcare, aged care and skills training lays a durable foundation for high-quality growth.

At the same time, expanding fiscal expenditure is critical for nurturing new quality productive forces. The fiscal work conference highlighted increased funding for scientific and technological innovation, high-end manufacturing, talent development and the green transition. These areas are indispensable for upgrading industry chains and improving total factor productivity. Yet innovation ultimately depends on people. Fiscal input that supports researchers, engineers and skilled workers strengthens the human capital base that innovation relies on.

The Central Economic Work Conference explicitly called for maintaining necessary levels of fiscal deficit, debt scale and total expenditure to enhance countercyclical and cross-cyclical adjustments. This signals greater tolerance for reasonable deficits when they are used to stabilize growth and improve long-term potential. Crucially, this is paired with clear requirements to strengthen scientific fiscal management, optimize expenditure structures, improve transfer payment efficiency and strictly curb new hidden local government debts. In other words, spending more does not mean spending extensively.

Improving transfer payments and better leveraging government bonds, including special-purpose bonds and ultra-long special treasury bonds, will also help address local fiscal difficulties and ensure the "three guarantees" of basic salaries, operations and public services. By expanding the discretionary fiscal capacity of local governments, central fiscal expansion can translate into concrete improvements in grassroots public services, further reinforcing confidence among households and market players.

A more proactive fiscal policy centered on people's livelihoods is about anchoring growth in domestic demand and shared development. It should be stressed that consumption is the lasting driver of economic growth.

Expanding fiscal expenditure — especially on livelihoods, human development and innovation — is therefore a forward-looking investment in confidence, productivity and sustainable growth, ensuring that the next five-year plan begins on a firm footing.