What signal is being sent by further increasing the proportion of state-owned capital returns remitted to fiscal accounts?

How does increasing the proportion of state-owned capital profits allocated to the government help alleviate fiscal pressure?

Against the backdrop of growing fiscal revenue and expenditure conflicts, the efforts of state-owned enterprises (SOEs) to “give back” to the government are intensifying to ensure and improve people’s livelihoods.

The recently released “Report on the Implementation of the Central and Local Budget for 2025 and the Draft Budget for 2026” (referred to as the “Budget Report”) mandates increasing the proportion of state-owned capital profits collected this year during the deployment of fiscal and tax system reforms. The 14th Five-Year Plan also mentions “reasonably increasing the collection ratio of state-owned capital profits.” In 2025, the Ministry of Finance took the lead in raising the collection ratio of profits from central SOEs, adding over 100 billion yuan in revenue.

What is the current situation regarding the proportion of state-owned capital profits allocated to the government? Why is China again increasing this proportion? What is an appropriate level? What impacts might this have?

Increased Profits Contributed by SOEs

Since 2008, China has officially piloted the budget for state-owned capital operations, which involves the government legally earning profits from state-owned capital as an owner and allocating these earnings. This has become an important financial ledger for the government. Most of these profits come from SOEs wholly owned by the state, including dividends, dividends, transfer income from state-owned assets (including shares), and liquidation income from SOEs.

Over time, as more SOEs are included in the state-owned capital operation budget and the collection ratio increases gradually, the overall income from this budget has risen.

According to the Ministry of Finance, in 2025, the national budget revenue from state-owned capital operations is approximately 854.7 billion yuan, a 25.8% increase year-on-year.

Regarding the collection ratio of state-owned capital profits, China applies differentiated collection rates for wholly owned SOEs in different industries.

According to the Ministry of Finance, at the inception of the central enterprise profit collection policy in 2007, four tiers were established: 10%, 5%, a three-year deferral, and exemption. Since then, policies have been adjusted multiple times, with the 2014 adjustment setting rates at 25%, 20%, 15%, 10%, and exemption. For example, China National Tobacco Corporation applies the highest rate of 25%, while China National Petroleum, Sinopec, State Grid, and 11 other central SOEs apply 20%, and 70 other central SOEs like China Aluminum and China Gold apply 15%.

Government budget expert and professor at Shanghai University of Finance and Economics, Deng Shulian, told First Financial that, based on previous public documents, the collection ratios vary: tobacco companies (25%), resource-based companies like oil, petrochemicals, power, telecommunications, and coal (20%), generally competitive enterprises such as metallurgy, transportation, electronics, trade, and construction (around 15%), military industry, reforming research institutes, postal services, and central cultural enterprises (around 10%), while policy-oriented enterprises (like China Grain Reserves) and small micro SOEs with profits below 100,000 yuan are exempt.

“Additionally, local SOEs have no unified collection ratio; each province or city sets its own, often higher than or close to the central standard. Financial SOEs’ profits are managed under the financial capital framework, with different collection methods,” Deng explained.

Last year, the collection ratio for central SOEs was again increased.

According to an official article on the Ministry of Finance website published in January this year, the Ministry issued a notice titled “Notice on Increasing the Collection Ratio of State-Owned Capital Profits from Central Enterprises” (Cai Yu [2025] No. 97). This notice has not yet been publicly released.

The Budget Report for this year states that the significant increase (about 73%) in the 2025 central SOE budget revenue is mainly due to the approval by the State Council to raise the collection ratio of profits, thereby increasing revenue accordingly.

Although the latest collection ratio for central SOEs has not been officially announced, the 18th Party Congress in 2013 publicly called for raising the proportion of profits allocated to public finance to 30% by 2020, more for safeguarding and improving people’s livelihoods.

Government budget expert and professor at the Central University of Finance and Economics, Li Yan, told First Financial that the current collection ratio for SOE profits varies depending on the region and industry, generally between 10% and 35%. Financial and resource-based companies tend to have higher ratios, while public welfare enterprises have lower ones. Some compliant enterprises may temporarily reduce or exempt their contributions, such as those acting as long-term or patient capital or investing in future industries.

More SOE Profits to Support Livelihoods

Deng Shulian analyzed that in the first year of the 14th Five-Year Plan, China’s move to reasonably increase the collection ratio of SOE profits is a comprehensive decision based on tight fiscal balances, social security sustainability, deepening SOE reforms, and strategic national investments.

“In recent years, fiscal revenue growth has been sluggish, while rigid expenditures continue to rise, intensifying the fiscal imbalance. Increasing the proportion of profits allocated from SOEs directly boosts available financial resources to fill the gap,” Deng said. “Currently, profits are dispersed within enterprises, making policy coordination difficult. Raising the collection ratio allows the government to centrally allocate funds for major national strategies, technological innovation, social security, and risk mitigation.”

Data from the Ministry of Finance show that in 2025, the national general public budget revenue is expected to decline by 1.7%, and government fund budget revenue by 7%. Meanwhile, public expenditure is projected to grow by 1%, and government fund expenditure by 11.3%.

To cover the shortfall, the 2025 budget report states that the national SOE budget expenditure will be about 264.7 billion yuan, with 574.1 billion yuan transferred from the SOE budget to the general public budget.

Deng noted that last year, nearly 70% of the SOE budget was transferred to the general public budget, a record high. Continuing to raise the collection ratio means more profits from SOEs will be used for education, healthcare, pensions, and social assistance, benefiting the public. Additionally, reforms to replenish social security funds through some SOE profits have expanded dividend income, and increasing the collection ratio can directly boost social security funding, easing pension payment pressures. Profits from SOEs more actively support public services, reflecting their public attribute and enhancing fiscal sustainability.

“With higher profit remittance ratios, internal retained funds in SOEs will decrease, pushing enterprises to improve quality and efficiency and increase profitability. Raising the collection ratio also standardizes income distribution within SOEs, curbing unreasonable benefits and blind expansion, preventing internal cycles, and ensuring more profits benefit the public,” Deng said.

The State Council’s 2024 “Opinions on Further Improving the System of State-Owned Capital Budgeting” requires balancing enterprise development and profit distribution, categorizing and tiering the collection ratios, and allocating part of the funds to the general public budget to support and improve livelihoods.

Li Yan believes that the emphasis on “reasonable increase” in the collection ratio indicates that SOEs should have a broad perspective, ensuring that profits are partly allocated to the public budget to meet public expenditure needs and resolve previous internal circulation issues, allowing all citizens to share in SOE profits.

Since SOEs are vital to national development and bear responsibilities for reform, development, and security, the proportion of profits allocated and retained is a balancing act. The collection ratio should consider social responsibility, fund allocation needs, current economic conditions, and the need to support reform and development, while also encouraging investment in future industries.

Deng suggested that a dynamic adjustment mechanism for the collection ratio could be established, evaluating industry prosperity, enterprise profitability, and fiscal needs periodically to adjust the ratio flexibly. Further efforts should be made to reduce costs, improve efficiency, and link profit retention performance with the collection ratio. Increasing the proportion of SOE profits transferred to the public budget for livelihood projects and making fund use transparent for social oversight are also recommended.