How the Fiscal Zero-Based Budgeting Reform Is Progressing Under Pressure (AI Translation)
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文｜财新周刊 于海荣
By Yu Hairong, Caixin Weekly
鉴于国内外环境变化带来的影响将持续向财政传导，财政部在预算报告中作出“2025年财政收支矛盾仍然突出”的判断。如何在重点支出刚性增长的情况下，为经济社会高质量发展提供财政保障，成为各级政府的重点任务。零基预算改革（Zero Base Budget）成为打破支出固化格局的重要途径。
In light of the continuing impact of changes in domestic and international environments on the treasury, the Ministry of Finance has assessed in its budget report that the fiscal revenue-expenditure conflict will remain prominent in 2025. Providing financial support for high-quality economic and social development, amid the rigid growth in key expenditures, has become a crucial task for all levels of government. Zero-based budgeting reform has emerged as a significant method to break the entrenched patterns of expenditure.
2025年《政府工作报告》提出“开展中央部门零基预算改革试点，支持地方深化零基预算改革”。此前，2024年财政部等16个中央部门率先开展了零基预算改革试点；安徽、浙江等省份做出相应探索，大多数省份提出按照零基预算原则编制2025年预算。
The 2025 Government Work Report proposed the initiation of zero-based budgeting reform pilots in central departments and supporting local governments in deepening zero-based budgeting reforms. Previously, in 2024, the Ministry of Finance and 16 other central departments took the lead in launching zero-based budgeting reform pilots. Provinces such as Anhui and Zhejiang have made corresponding explorations, and most provinces have proposed to prepare their 2025 budgets based on zero-based budgeting principles.
从国内外实践看，零基预算并非全部从零开始编制预算，更多体现为运用相关理念完善预算管理。根据财政部在2025年预算报告中给出的定义，零基预算是指在预算编制时不考虑以往预算安排基数，而是结合实际需求和财力状况，对各项支出逐项审核后，按照轻重缓急安排支出的预算编制方法。
From both domestic and international practice, zero-based budgeting doesn’t necessarily entail starting from scratch. Instead, it often involves adopting relevant concepts to enhance budget management. According to the definition provided in the 2025 budget report by the Ministry of Finance, zero-based budgeting refers to a budgeting approach where previous budgetary allocations are not considered. Instead, expenditures are reviewed one by one in accordance with actual needs and financial conditions, and then prioritized and allocated accordingly.
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- China is intensifying efforts to adopt zero-based budgeting (ZBB) to address fiscal revenue-expenditure conflicts by prioritizing expenditures based on actual needs, eliminating unnecessary policies, and integrating scattered ones.
- Provinces like Anhui, Jiangsu, and Zhejiang have initiated ZBB reform pilots, reshaping fiscal management while facing challenges like interdepartmental coordination and reform resistance.
- Experts suggest gradual ZBB implementation, leveraging medium-term budgets, and using performance evaluations to enhance budget flexibility and ensure critical resource allocation.
The Ministry of Finance's budget report indicates that the fiscal revenue-expenditure conflict will persist in 2025. Financial support for high-quality economic and social development is essential given the rigid growth in key expenditures. Zero-based budgeting (ZBB) reform is seen as a method to disrupt entrenched expenditure patterns. The 2025 Government Work Report advocates for ZBB reform pilots in central departments and supports local governments in advancing reforms [para. 1].
ZBB doesn't mean starting from scratch. Instead, it involves scrutinizing expenditures based on actual needs, disregarding previous allocations. Traditionally, China uses incremental budgeting, adjusting figures from a base period. ZBB aims to eliminate rigid fiscal expenditure and improve resource coordination [para. 2][para. 3].
Local governments are taking varying approaches to ZBB reform due to differing regional conditions. Anhui and Zhejiang provinces have been proactive, with noticeable progress. Hunan, Jiangsu, and Gansu have also released related documents, with plans for widespread ZBB use by 2025 [para. 4].
In applying ZBB, local governments review current spending policies, make priority lists, eliminate unnecessary projects, and integrate scattered policies. The aim is to allocate funds precisely to critical areas, with priorities set on major initiatives, livelihood, salaries, operations, and debt servicing. Aligning performance evaluation with budget management and consolidating funds is emphasized [para. 4].
The reform faces challenges, such as cross-departmental coordination. For ZBB to be effective, a thorough review and prioritization of projects are required. This involves reconsidering embedded fiscal structures and addressing interest adjustments [para. 5].
Internationally, ZBB first emerged in the 1970s in the U.S., later influencing global budget management. Countries like the UK and Netherlands have adopted it post-2008 financial crisis to tackle fiscal inefficiencies. Li Yan from Central University of Finance and Economics suggests that China's ZBB reform should learn from international practices and combine them with performance budgeting [para. 6].
Provinces like Anhui have revised and restructured expenditure policies to enhance economic stability, demonstrating the potential benefits of coordinated fiscal resource use. Challenges remain in setting standards for expenditure categories and evaluating fiscal flexibility, especially in resource-scarce regions [para. 9][para. 10].
A strategic phased approach is recommended for implementing ZBB reforms, incorporating medium-term budgets to solidify reforms. International experiences show that medium-term rolling budgets complement ZBB, promoting budget flexibility and sustainability [para. 10][para. 11].
Overall, ZBB reform signifies an evolution in budgetary ideology, not just a tool to compress expenditures. It's a systematic project aimed at restructuring fiscal allocations and enhancing public finance's role in national governance. This reform involves a broad scope and requires coordination with government functions and other budget reforms [para. 8][para. 12].
- Texas Instruments
得克萨斯仪器公司 - Texas Instruments, a company referenced in the article, was a source of inspiration for the zero-base budgeting concept. The approach was first utilized by then-Georgia Governor Jimmy Carter, who adapted techniques from Texas Instruments to reevaluate government expenditures annually. This method later influenced budget management practices when Carter became the U.S. President, embedding the zero-base budgeting concept into federal government operations.
- Guosheng Securities
国盛证券 - Guosheng Securities is mentioned in the article in relation to analyst Yang Yewei, who commented on local government fiscal conditions. Specifically, he noted that some local governments are experiencing "tight balance" fiscal conditions, limiting their ability to fund projects beyond essential expenditures, and highlighted the challenges of prioritizing budgetary allocations.
- April 2021：
- The "Opinions of the State Council on Further Deepening the Reform of Budget Management Systems" proposed the "active application of zero-based budgeting concepts to break the rigid expenditure pattern."
- July 2024：
- At the Third Plenary Session of the 20th Central Committee of the Chinese Communist Party, further deepening of zero-based budgeting reform was called for.
- Second half of 2024：
- Regions including Jiangsu, Hunan, and Gansu released documents related to the deepening of zero-based budgeting reform.
- End of 2024：
- An article published by the Anhui Provincial Department of Finance summarized their zero-based budgeting reform process and results.
- Starting with the 2025 budget：
- Zero-based budgeting will be rolled out extensively nationwide in China.
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