Federalism

Abstract

The chapter discusses the Federalist nature of China’s fiscal system under which provinces and localities are responsible for a substantial portion of fiscal expenditure. It describes Zhu Rongji’s fiscal tax reform of 1992 and the repercussions on local governments. The chapter also discusses the IMF estimate of an 18 trillion renminbi gap between local revenue and expenditures between 1998 and 2012 that was filled through land sales and Shadow Loans. It explains the importance of land in China’s local government financing. The methods utilized by local governments to generate revenue outside of the official tax channels are described.