China’s refusal to surrender control to local government or take on more responsibility is key to the country’s challenges, says Robin Harding for the Financial Times.
A construction worker walks past a housing project under construction on the outskirts of Beijing, China , on Jul 17, 2024. HONG KONG: In 1975, in what turned out to be the valedictory speech of his long and tumultuous career, Zhou Enlai, the first premier of the People’s Republic of China , declared proudly that his government was free of all debt.
This division between central and local government, and the desire of one to have control but not responsibility with respect to the other, is fundamental to the economic challenges of China today.A basic fact about China’s fiscal system is that local governments do almost all of the spending, but rely on the centre for revenue to an extent that is rare elsewhere in the world.
Meanwhile, local government officials, who must deliver growth to climb the bureaucratic ranks, do whatever they can to find money. What the central government has not been willing to do, as is typical for Xi, is surrender control. It often specifies the services that local governments must provide, yet declines to hand over the revenue sources that fund them. It is reluctant to take big new spending responsibilities onto the central books.
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