China is navigating a critical shift in its strategy to expand domestic demand, moving beyond short-term stimulus measures to focus on structural "core levers", including income, wealth distribution and social security, according to a senior public finance economist.

"Measures to improve the consumption environment or organize promotional campaigns are helpful in the short run. But what determines consumption in the long term are people's income, their wealth accumulation, and a robust social safety net," said Lin Shuanglin, a professor of economics at Peking University and associate director of Peking University HSBC Business School Think Tank.

Lin's insights come as China enters the first year of its 15th Five-Year Plan (2026-30). The nation's economic trajectory is defined less by headline growth figures and more by a move toward greater underlying stability and balance.

The Ministry of Finance has signaled a proactive stance for 2026. Vice-Minister of Finance Liao Min said recently that fiscal spending will continue to expand on the basis of last year's proactive policy, with a greater share of resources directed toward investing in people, including boosting consumption, and strengthening livelihood protection.

In an exclusive interview with China Daily, Lin, author of the newly released book China's Public Finance: Reforms, Challenges, and Options, said that after decades of rapid construction, the marginal returns on traditional infrastructure investment are becoming less attractive.

He proposed that fiscal policy should explore broad-based tax reductions to better support employment and labor-intensive industries.

"I recommend reducing the standard corporate income tax rate from the current 25 percent to 20 percent," Lin said. "This would broadly benefit labor-intensive enterprises that often miss out on high-tech tax incentives, encouraging them to hire more workers."

He explained that while high-tech firms currently enjoy a preferential tax rate, most labor-intensive enterprises do not qualify. A general rate cut would specifically encourage these companies to expand and hire, which directly translates to household income growth.

At the policy level, however, authorities have stressed precision and structure. The Ministry of Finance has said that tax and fee reductions will continue to be implemented in a targeted manner in 2026, with support focused on technological innovation and manufacturing, rather than across-the-board stimulus moves.

To reduce precautionary savings that suppress consumption, Lin advocated for specific expansions in public welfare, particularly in education and eldercare.

"Education is a key area. We should consider extending free education to include senior high school," Lin said, noting that this would reduce household burdens and upgrade the workforce.

On pensions, Lin proposed an incentive-based system where the government subsidizes interest rates to encourage rural residents to save more in their personal pension accounts.

Lin argued that the central government should assume greater fiscal spending responsibility. Official data show that the central government's actual fiscal expenditure reached 4.07 trillion yuan in 2024, accounting for 14.3 percent of the total national general public budget expenditure.

"If the central government takes over the financing of basic pensions and medical insurance, its share of spending will rise to more than 30 percent," Lin estimated. He emphasized that such a move would facilitate a unified national labor market and ensure more equitable income redistribution, a key theme explored in his new book.

Lin also discussed local government finances amid ongoing adjustments in the real estate sector that have affected traditional revenue sources. In the near term, he said, local governments need to improve efficiency by cutting nonessential spending.

For the long term, Lin suggested a gradual shift from production-based taxes toward a retail sales tax. "Such a change would encourage local governments to focus more on cultivating consumer markets, aligning fiscal incentives with the goal of building a unified national market," he explained.

Regarding the external environment, Lin said that the rising popularity of Chinese goods reflects industrial upgrading driven by domestic demand for green energy and environmental solutions. He stressed that these exports help address global climate challenges, refuting claims of "dumping" by some foreign critics.

"High-quality domestic goods attract both local and international consumers," Lin said. "Simultaneously, expanding imports gives Chinese consumers more choices and helps balance trade."

lijing2009@chinadaily.com.cn