China vice-premier signals reform to reshape central-local finances amid funding pressure

Against a backdrop of softened economic growth and slumping land-transfer proceeds that are squeezing local coffers across China, the nation’s top-ranked vice-premier has cast the spotlight on reforms to realign fiscal ties between the central and local governments. During an inspection tour of Anhui province on Tuesday and Wednesday, Ding Xuexiang attended a symposium on “pilot scientific fiscal management” programmes, and Xinhua reported that the vice-premier said Beijing would “increase local governments’ discretionary fiscal resources” – a policy objective written into China’s 15th five-year plan (2026 to 2030). The central government will also increase its share of national fiscal outlays while directing more funding to national strategic priorities and strengthening basic livelihood safeguards, Ding reportedly said. During his stay in Anhui, Ding also visited a county-level finance bureau to inspect a scientific fiscal management pilot scheme and grass-roots fiscal operations, according to Xinhua. Ding’s visit came at a time when none of China’s provinces can fully finance their spending with locally generated fiscal revenue, according to a July research note from Guizhou-based Huachuang Securities. It said the average provincial fiscal self-sufficiency rate stood at 55.9 per cent in the first quarter of this year, and that such revenue-spending gaps were made up through central-to-local fiscal transfer payments. And the note singled out Shanghai as a particular case in point. The city has long ranked among China’s strongest provincial-level fiscal performers, regularly posting a fiscal surplus. Yet, even Shanghai swung into a shortfall in the first three months of 2026, as year-on-year revenue growth stood at 2 per cent while expenditures surged 20 per cent from a year earlier. Since local governments bear direct responsibility for local development, they ought to be granted greater discretionary fiscal powers Ye Yongqing, tax lawyer In a mid-August press release, Tang Zaifu, an official with the Ministry of Finance, pointed out that the situation was normal under the existing fiscal system. “The central government has ramped up fiscal transfer payments, so local governments can still achieve overall fiscal balance,” Tang said. Some analysts noted how the vice-premier’s remarks underscored that realigning central-local fiscal relations remained one of Beijing’s top priorities. “With the 14th five‑year plan having already set out a systemic framework, the 15th five‑year plan lays out concrete operational steps,” said Ye Yongqing, a tax lawyer with Beijing-based Anli Partners. “It indicates that the structural gap between local governments’ revenues and spending has grown substantial.” Ye also noted that the increased priority given to this reform stemmed from a longer-than-anticipated property downturn, which has crushed land-transfer proceeds and related tax receipts. “That has gradually laid bare local governments’ revenue shortfalls,” he said. Figures from the finance ministry show that land‑transfer proceeds totalled 977.8 billion yuan (US$145.5 billion) from January to June, marking a year-on-year decline of 31.5 per cent. “Reliance on central-to-local fiscal transfer payments naturally suffers from efficiency shortfalls and limited transparency. Since local governments bear direct responsibility for local development, they ought to be granted greater discretionary fiscal powers,” Ye added. For years, consumption tax has been levied predominantly at the production stage, with all proceeds accruing to the central government Lu Zhe, economist Some analysts also identify the consumption tax – levied across 15 categories, including alcohol, automobiles and cigarettes – as a key policy lever to address the imbalance. Finance ministry data shows domestic consumption tax reached 867.3 billion yuan (US$129.04 billion) in the first half of this year, making it China’s fourth-largest source of tax revenue, trailing value-added tax, corporate income tax and personal income tax. “For years, consumption tax has been levied predominantly at the production stage, with all proceeds accruing to the central government,” said Lu Zhe, chief economist at Suzhou-based Soochow Securities. He proposed shifting collection downstream to the wholesale or retail stage and steadily devolving the related revenue to local governments, arguing that the move would “both bolster local fiscal receipts and further incentivise local authorities to improve the consumption environment”. China has overhauled central-local fiscal arrangements before. The landmark tax-sharing reform of 1994 came after years in which the bulk of tax revenue accrued to local governments, leaving Beijing chronically short of fiscal resources. This time, some say, the challenges to turning the tide appear more daunting. “Back then, China’s economy was at the start of a fresh upward cycle,” Ye noted. “Pushing through reform is far easier when growth is accelerating.” Meanwhile, the available policy levers appear more limited. Beyond the consumption tax, property tax was once seen as another key tool to broaden local revenue streams. To date, it has been piloted only in Shanghai and Chongqing. “Several years ago, authorities sought to expand the property-tax pilot to more cities,” Ye recalled. “But the pandemic struck, and the real estate market weakened sharply in 2021. The reform now appears to have been put on hold indefinitely.”

China vice-premier signals reform to reshape central-local finances amid funding pressure

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Ding Xuexiang discusses a fiscal reset through expanded local discretion, bigger outlays from the central government and scientific fiscal management pilots

Ding Xuexiang discusses a fiscal reset through expanded local discretion, bigger outlays from the central government and scientific fiscal management pilots