China has significantly increased the share of after-tax profits that central State-owned enterprises must hand over to the government, a move analysts say is aimed at easing fiscal pressures and boosting spending on social welfare.

The adjustment pushed profit remittances from central SOEs to 375.08 billion yuan ($54.3 billion) in 2025 — a jump of nearly 79 percent from the previous year, according to the 2026 central State capital operations budget released by the Ministry of Finance in late March.

Under the new system for profit remittance, wholly State-owned nonfinancial enterprises are divided into four categories based on their industry and role.

The highest remittance rate of 35 percent applies to tobacco producers and resource-based firms in petrochemicals, power, telecommunications and coal.

Enterprises covering general competitive sectors such as nonferrous and ferrous metal mining and smelting, transportation, electronics, trading and construction are required to remit 30 percent of their after-tax profits.

A 20 percent remittance rate applies to enterprises in defense industries, research institutes converted from government institutions, China Post Group, China State Railway Group, Beidahuang Group, central cultural enterprises and enterprises affiliated with central government departments.

Policy-based financial institutions are fully exempt from profit remittances, and wholly State-owned enterprises that qualify as small or micro businesses and have payable profits below 100,000 yuan are also exempt.

China began piloting its State capital operations budget in 2008, a fiscal mechanism under which the State, as the owner of State-owned assets, collects returns on State capital and allocates the proceeds, with the budget's revenue mainly coming from profits handed over by wholly State-owned enterprises, according to the Ministry of Finance.

Over the years, the system has been refined, with an increasing number of SOEs brought under the remittance requirement and profit payout ratios raised progressively. The latest ratios are substantially higher than before.

Under the 2014 system, there were five tiers: 25 percent, 20 percent, 15 percent, 10 percent and exemption. Only China National Tobacco Corp fell into the top tier at 25 percent, while resource firms like those in petrochemicals and power were in the second tier at 20 percent.

Now, both tobacco and resource enterprises share a uniform rate of 35 percent. These firms collectively account for more than 70 percent of all profit remittances from central SOEs, according to Deng Shulian, a professor at Shanghai University of Finance and Economics.

The higher remittance rates drove a sharp increase in contributions to fiscal revenues. In 2025, tobacco producers remitted about 99.7 billion yuan, up 73 percent year-on-year; petrochemical enterprises, about 91.9 billion yuan, up 81 percent; telecommunications enterprises, about 37.8 billion yuan, up 78 percent; and power enterprises, about 37.4 billion yuan, up 67 percent.

Luo Zhiheng, chief economist at Yuekai Securities, said the decision was driven by multiple factors — a tight fiscal balance, social welfare needs, social security sustainability, SOE reform and national strategic investment.

General public budget revenue fell 1.7 percent year-on-year last year, while general public budget expenditure rose 1 percent, data from the ministry showed.

Meanwhile, government-managed fund revenue, which largely comes from land sales and special bonds, dropped 7 percent, but spending under this category surged 11.3 percent, reflecting accelerated infrastructure and social spending.

"Fiscal revenue growth has been weak in recent years, while rigid spending has kept rising," Luo said."Raising the remittance ratio directly increases usable financial resources to fill the revenue-expenditure gap. That's the most immediate reason."

He also noted that State capital gains were previously scattered within enterprises, making it hard to form policy synergy. Pooling these funds allows the government to allocate money to key areas like major national strategies, technological innovation, social welfare and risk resolution.

China plans to increase central State capital operations expenditure by 13.8 percent in 2026 to 147.6 billion yuan, with funds prioritized to implement national development strategies, optimize the layout and structure of the State-owned economy, and support the strengthening of State capital and State-owned enterprises, the ministry said.

In addition to direct spending, the central State capital operations budget will transfer 250 billion yuan to the central general public budget — an increase of 10 billion yuan, or 4.2 percent, from the 2025 transfer level. These funds will be used for general public expenditures, including social welfare, education, healthcare and other livelihood programs.

wangkeju@chinadaily.com.cn