Amidst the financial challenges faced by local authorities in China, the recent policy decisions made by the leadership aim to grant more fiscal autonomy to local governments. This move will allow them to increase their tax sources and expand their management authority in taxation. With the risk of defaults on trillions of dollars of debt looming over the economy, these measures come as a crucial step towards sustainable economic development.
The gap between central and local finances has been a persistent issue, affecting consumer demand and overall economic growth. The recent decisions from the third plenum focus on reform objectives to be achieved by 2029, emphasizing the need for a more balanced fiscal system.
Experts like Zhiwei Zhang foresee a significant fiscal reform on the horizon, aiming to make local government finances more sustainable by diversifying revenue sources and reallocating expenditures. These reforms are essential for addressing longstanding issues in China’s economic system and ensuring a path towards stability amidst global uncertainties.