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(Bloomberg) -- China said it will expand government spending and improve how it deploys capital in 2026, aiming to balance supporting growth and containing debt risks.

Beijing plans to boost expenditure and strengthen the spending power of local authorities through more effective transfer payments, the Ministry of Finance said in a Sunday statement. The announcement, following a year-end policy meeting, suggests a focus on better coordination between fiscal and financial tools rather than more forceful stimulus measures.

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“More proactive fiscal policy will be reflected not only in the scale of funding, but more importantly in improving the efficiency and effectiveness of how funds are used,” Finance Minister Lan Fo’an was quoted by the official Xinhua News Agency as saying in a report.

The move highlights the fine line Beijing is walking between buffering the economy against external headwinds and preventing a domestic debt crisis from destabilizing the financial system.

Lan vowed to accelerate efforts to resolve risks associated with local “hidden debt“ — off-balance-sheet borrowing by investment vehicles on behalf of cities and provinces that they have struggled to repay.

China has to step up fiscal support for the economy as a years-long property downturn and trade tensions weigh on demand while the room for monetary easing is shrinking. Facing mounting debt risks, Beijing is seeking to raise the return on government investment and steer resources toward nationally prioritized areas.

Part of the strategy is spending more on “new productive forces,” according to the official statement, a policy shorthand for advanced manufacturing and tech innovation. The government also plans to streamline tax breaks and fiscal subsidies to curb wasteful competition between provinces and create a more unified domestic market.

“The meeting emphasized better-targeted fiscal policy and effectiveness rather than sheer scale, focusing not on making spending much larger but on improving how effectively it is used,” said Ding Shuang, chief economist for Greater China and North Asia for Standard Chartered Plc.

The focus on precision comes as China’s total government debt has soared in recent years to bolster growth amid subdued business and consumer sentiment.

The government raised its planned broad fiscal deficit to nearly 10% of gross domestic product this year, although actual spending has consistently lagged behind targets. In the first 11 months of 2025, the government spent just 34 trillion yuan ($4.8 trillion), less than 81% of its annual budget.

Looking ahead to 2026, Ding expects the government to expand its actual spending, even if the formal budget increases only slightly.

As trade tensions threaten to slow exports, a key pillar of China’s plan to bolster growth involves shifting support toward the Chinese consumer. The Ministry of Finance repeated calls to make domestic demand the “driving force“ of growth, pledging to boost household incomes and maintain a national trade-in program for consumer goods.

That initiative, which provides subsidies for energy-efficient appliances and EVs, was a rare bright spot for retail sales this year. By extending such programs, Beijing hopes to stabilize consumption, which has remained stubbornly weak as households grapple with falling property values and a cooling labor market.

(Updates with details, economist’s comment.)