This paper provides an overview of recent Chinese reforms to introduce a modern system of fiscal federalism that balances the need for central macroeconomic control with the economic advantages of decentralized government. Following a discussion of the rationale for decentralization, the paper describes the main structural and economic developments in China in this area, including their impact on economic stabilization. The key measures in the 1994 fiscal reforms as well as reform initiatives needed in the future are also discussed.
Transparency (Open Budget Index) 14/100
The Government of China provides the public with scant budget information.
Public Participation 6/100
The Government of China is weak in providing the public with opportunities to engage in the budget process.
By legislature 3/100
Budget oversight by the legislature in China is weak.
By auditor 50/100
Budget oversight by the supreme audit institution in China is limited.
China should prioritize the following actions to improve budget transparency:
- Publish in a timely manner the Executive’s Budget Proposal.
- Produce and publish a pre-budget statement, Citizen’s Budget, and Mid-Year Review.
China should prioritize the following actions to improve budget participation:
- Establish credible and effective mechanisms (i.e., public hearings, surveys, focus groups) for capturing a range of public perspectives on budget matters.
- Hold legislative hearings on the budgets of specific ministries, departments, and agencies at which testimony from the public is heard.
- Establish formal mechanisms for the public to assist the supreme audit institution to formulate its audit program and participate in audit investigations.
China should prioritize the following actions to strengthen budget oversight:
- Establish a specialized budget research office for the legislature.
- Ensure the executive receives prior approval by the legislature before implementing a supplemental budget.
- Ensure the supreme audit institution has adequate funding to perform its duties, as determined by an independent body (e.g., the legislature or judiciary).