The Chinese economy has commenced the year with robust momentum and a favorable start, according to an evaluation of its performance in January and February. This positive outcome is attributed to the effective coordination and implementation of fiscal and monetary policies.
Monetary policy and fiscal policy serve as the two primary instruments for macroeconomic regulation in China. Monetary policy involves the central bank influencing the macroeconomy by adjusting the quantity and price of money, with its effectiveness dependent on transmission through the real economy and financial system. Fiscal policy, managed by the government, acts directly on economic activity through budget arrangements, taxation, government debt, and transfer payments, operating at both central and local levels. As China enters a crucial phase in building a modern socialist country, achieving a successful beginning requires the coordinated and precise application of both policies to serve core objectives like expanding aggregate demand and optimizing economic structure.
The coordination between fiscal and monetary policy is an essential choice for macroeconomic regulation. Compared to mature overseas economies, China's macroeconomic management faces a complex scenario with multiple objectives and constraints. It must simultaneously promote economic growth, stabilize employment, control prices, maintain a balance of international payments, optimize economic structure, ensure financial stability, and safeguard people's livelihoods. This is fundamentally a systematic project of finding optimal solutions under multiple constraints. Relying on a single policy tool alone is insufficient to cover all targets and may even weaken the overall effectiveness of macroeconomic control. The necessity for coordination stems from both China's institutional characteristics and the inherent functional differences between the two policies.
Important meetings and documents, including the Central Economic Work Conference, have repeatedly emphasized the need to "enhance the consistency of macroeconomic policy orientations." Improving the macroeconomic regulation system and strengthening policy consistency have been highlighted as key tasks, underscoring the importance of policy coordination for regulation in the new era.
From the perspective of policy transmission mechanisms, fiscal policy can directly intervene in the economic cycle through government spending and tax adjustments, producing relatively swift and targeted effects. Monetary policy, in contrast, operates more indirectly. Its effectiveness relies on the responses of enterprises, households, commercial banks, and the broader financial system, resulting in a longer transmission path with inherent time lags. For instance, China's current transmission chain from policy interest rates to loan prime rates and finally to actual lending rates is influenced by market conditions at each stage, making absolute precision difficult for the central bank. Consequently, monetary policy often exhibits characteristics of being effective yet limited in practice. Neither monetary nor fiscal policy can achieve multiple regulatory objectives effectively without coordination from the other. Promoting synergistic efforts between fiscal and monetary policy is an inevitable choice for China's macroeconomic management.
At the aggregate level, policy coordination focuses on using government bond issuance to expand total demand. In recent years, to address changes in the domestic and international environment, ensure the implementation of major national strategies, improve people's livelihoods, and resolve local government debt risks, China's fiscal deficit and total government debt have increased steadily. Government bonds have become a crucial pillar of social financing. Data shows that the outstanding balance of government bonds nearly doubled between 2021 and 2025, and their share of total social financing stock rose significantly. Net financing from government bonds in 2025 accounted for a substantial portion of total social financing增量, second only to RMB loans. The Central Economic Work Conference emphasized the need to "maintain necessary fiscal deficits, overall debt规模, and expenditure levels." Therefore, during the current period, the expansionary tone of fiscal policy is expected to continue, with government bond issuance remaining within a reasonable range. In this context, coordinated support from monetary policy is urgently needed to ensure the smooth issuance of bonds and stabilize financing costs, thereby more effectively expanding aggregate demand.
Monetary policy's support for fiscal policy at the aggregate level is mainly reflected in two dimensions: providing liquidity support and influencing the cost structure through policy rate adjustments. Currently, medium to long-term liquidity tools, such as reserve requirement ratio cuts, are considered more suitable for this coordination.
At the structural level, policy synergy involves using innovative tools to optimize the development landscape. The current focus of targeted structural adjustments is on three key areas: building a modern industrial system led by scientific and technological innovation, boosting consumption and expanding domestic demand, and supporting vulnerable sectors like small and micro-enterprises and agriculture. Fiscal and monetary policies demonstrate strong consistency and alignment in their targets, timing, and pace of implementation through tool innovation and mechanism coordination.
Policy direction alignment concentrates on these three priority areas. In technological innovation, the central bank has introduced relending facilities for sci-tech innovation and technological transformation, providing funds to financial institutions at preferential rates to guide increased credit support. The Ministry of Finance has simultaneously launched fiscal subsidy policies for equipment renewal loans, further reducing corporate financing costs. Support in this area was intensified at the beginning of 2026. Additionally, new policy-oriented financial instruments established in late 2025, acting as quasi-fiscal tools, directly supplement capital for key projects by combining fiscal injections with market-based operations by policy banks.
In stimulating consumption, the central bank set up relending facilities for service consumption and elderly care in 2025 to guide financial institutions towards key consumption sectors. Fiscal policy employs "dual subsidies" for business and personal consumption loans, reduces financing costs, and directly improves cash flow for households and businesses through measures like child-rearing subsidies, consumption vouchers, and programs for replacing durable goods. The scope of related support was expanded in January 2026.
Regarding support for vulnerable economic sectors, the central bank has long used tools like relending and rediscounting for agriculture and small firms to channel financial resources. Local fiscal authorities complement these efforts with measures such as credit incentives and policy-oriented financing guarantees. In January 2026, the central bank increased the utilization of these tools, while the Ministry of Finance introduced a loan interest subsidy policy for small and micro-enterprises, jointly working to lower financing costs and enhance market vitality.
The effectiveness of targeted structural adjustments stems not only from consistent policy direction but also from the complementary functional attributes of the two policy toolkits. Generally, monetary policy's structural tools exhibit "debt-like" characteristics, while fiscal policy tools are more "equity-like," creating a clear division of labor and mutual reinforcement.
Monetary policy's structural tools, such as various relending facilities, are essentially preferential loans from the central bank to commercial banks—a form of "concession" to the financial system in a creditor relationship. They guide banks to allocate funds to specific sectors, primarily affecting the liability side of the real economy's balance sheet. These tools typically have defined maturities and回收 requirements, emphasize principal safety and risk control, and focus on reducing financing costs and improving short-term cash flow. However, they are less suited for long-term capital investment and risk absorption.
In contrast, fiscal policy tools are more "equity-like." Fiscal capital injections supplement the capital of real economy entities or financial institutions, forming long-term capital沉淀. Examples include injecting capital into commercial banks via special bonds to ease capital adequacy constraints and enhance lending capacity, or using fiscal funds to support new policy financial instruments or provide capital for major projects through special bond issuance. Such funds aim not for short-term returns but are transformed into owner's equity for enterprises or institutions, directly capable of bearing risks and losses, making them better suited for long-term structural adjustment needs.
Viewing the real economy as a balance sheet, monetary policy's structural tools mainly influence the liability side, while fiscal policy tools act directly on the equity side. This complementary relationship enhances overall policy efficacy.
In summary, fiscal and monetary policy, as the two core tools of macroeconomic regulation, each possess distinct advantages and focuses. Their coordinated配合 is a crucial prerequisite for achieving a successful start to the current Five-Year Plan period. At the aggregate level, monetary policy coordinates with fiscal policy through medium to long-term liquidity provision and interest rate adjustments to ensure smooth government bond issuance and stable financing costs, thereby expanding total demand. At the structural level, both policies utilize new instruments focused on key areas like technological innovation, consumption stimulation, and vulnerable sectors. Leveraging the complementary "debt + equity" tool mechanism, they precisely advance structural adjustments and promote development.
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