China’s Fiscal Future: Tax Reform Aims to Bolster Local Governments
BEIJING – China’s new five-year plan prioritizes tax reform as local governments grapple with increasing financial pressures, according to a leading tax policy expert. The reforms, while intended to alleviate strain, won’t shift the central government’s firm control over the nation’s finances.
Zhang Lianqi, president of the Enterprise Financial Management Association of China and vice-president of the Chinese Tax Institute, explained that a robust central financial system is key to China’s economic coordination. He contrasted this with fiscally federalist systems like the United States.
“Central finance is like a father – the parent must have money – while local governments are like children, who should also have some money but cannot hold the larger share,” Zhang said, as reported by the South China Morning Post. He is also a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC).
Zhang’s analogy highlights the intended flow of funds: from the central government to local administrations. He warned that a reversal of this dynamic – where the central government relies on borrowing from local entities – would signal a significant problem.
The plan also includes standardizing tax breaks and phasing out outdated measures impacting industries like wind and nuclear power, financial leasing, and new energy vehicles, according to Yicai Global. This move aims to streamline the tax system and ensure more consistent revenue streams.
These reforms come as local governments struggle to fund growing public service obligations. The new five-year plan signals Beijing’s commitment to securing more tax revenue and maintaining fiscal stability across the country. The changes are expected to affect multiple industries as China adjusts its tax preferential policies.
