Yang Zhiyong on fiscal responsibility allocation between central & local govt.
Explaining the 15th Five-Year Plan Recommendation, the President of the Chinese Academy of Fiscal Sciences underscores budget and oversight
The recent Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development states that:
适当加强中央事权、提高中央财政支出比重
The central government should hold more fiscal powers as appropriate and accordingly raise the proportion of its expenditure.
To read between the lines, the Beijing News (新京报), the flagship newspaper of the Chinese capital, interviewed Yang Zhiyong杨志勇, President of the Chinese Academy of Fiscal Sciences.
President Yang acknowledged a long-standing mismatch between fiscal powers and spending responsibilities across central and local governments. He noted that central-to-local transfers are already substantial: this year, all central-level fiscal revenues were allocated to local governments, with the center also taking on additional borrowing.
Moreover, he emphasized the budget process as the key to making transfers fair and efficient: all fiscal allocations should be brought under a transparent, rules-based budget framework to avoid “secondary distribution” and curb rent-seeking.
Below is my translation of the full interview.
中国财政科学研究院院长杨志勇：财政事权分配不是简单“中央给钱、地方花钱”
Conversation with Yang Zhiyong, President of the Chinese Academy of Fiscal Sciences: Allocating fiscal powers is not simply "the center pays, localities spend"
On October 28, Xinhua News Agency published the Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development (hereinafter, the Recommendations) , charting a blueprint for 2025-30.
The Recommendations states that "The central government should hold more fiscal powers as appropriate and accordingly raise the proportion of its expenditure." How should this be understood, and what signals does it send? To explore these questions, Beijing News interviewed Yang Zhiyong杨志勇, President of the Chinese Academy of Fiscal Sciences.
A continuation of the reform agenda set at the Third Plenum
Beijing News: The Recommendations states that "The central government should hold more fiscal powers as appropriate and accordingly raise the proportion of its expenditure." How do you understand this formulation? What is its deeper meaning?
Yang Zhiyong: First, let me clarify that this formulation is not new today. It was clearly stated at the Third Plenum of the 20th Central Committee of Communist Party of China (CPC) in 2024, and it is consistent with what the 18th CPC Central Committee's Third Plenum proposed in 2013 — "We will appropriately increase the authority of office and responsibility of expenditure of the central government."
Public finance is the bedrock and an important pillar of national governance, and it is necessary to gradually rationalize the fiscal powers and spending responsibilities between the central and local governments.
The Recommendations is a redeployment of the reform tasks set out by the 20th CPC Central Committee's Third Plenum in 2024. The deadline for completing those reform tasks is 2029, and that implementation timeline largely overlaps with the 15th Five-Year Plan period.
Beijing News: Is it fair to read this as an effort to resolve the long-standing tension between central and local fiscal powers and functional responsibility?
Yang Zhiyong: Dividing fiscal powers, fiscal resources, functional powers, and spending responsibilities between the central and local governments is highly complex, which has been under continuous exploration since the 1994 tax-sharing reform. Since the 18th National Congress of the Communist Party of China (CPC), there has been some progress in clarifying fiscal powers and spending responsibilities, but the relevant plans still need further refinement. In the past, some localities complained of "the central government orders the dishes while local governments foot the bill," leading to tight local fiscal resources.
How the central–local fiscal relationship is arranged bears directly on how to better mobilize the initiative of both sides. Today, central finances provide very strong support to local finances. Central-to-local fiscal transfer payments are already substantial, topping 10 trillion yuan for three consecutive years.
In 2025, central-level fiscal revenue was only 9.7 trillion yuan, while total transfer expenditures to local governments reached 10.34 trillion yuan. This means that the central government's own revenue is entirely allocated to local governments, and it still needs to borrow hundreds of billions of yuan for transfers. This reflects the central government's fiscal commitment, and also shows just how complex the central–local fiscal relationship is to manage.
The division of fiscal powers is not merely a fiscal issue but one closely related to further comprehensive deepening of reforms. It is no longer just about who collects and who spends. It implicates national governance. The issues are complex, and the reforms are difficult.
No budget, no spending
Beijing News: If the central share of fiscal spending rises and funds are passed down mainly via transfer payments, how can fairness be ensured while also accounting for efficiency in the transfer process?
Yang Zhiyong: This issue is crucial. The scale of transfer payments is already large. To make them more effective, better methods are needed.
Central-to-local transfers form part of local fiscal resources. If transfer allocations are unreasonable, they can create new imbalances. The fairness of transfer payments is important to promote equalization of basic public services across regions and achieve equity in areas such as education, healthcare, and social security. At the same time, central transfers should not foster dependence. If localities simply rely on central appropriations without seeking ways to broaden revenue and economize on spending, their initiative will be blunted, and such a fiscal relationship will be unsustainable.
Beijing News: What, in your view, needs to be done?
Yang Zhiyong: This is a complex, system-wide undertaking. Through further comprehensive reform, macro-policy can be leveraged more effectively to promote high-quality growth and put public finance on a more solid economic foundation.
Fiscal reform should help produce a more reasonable macro tax burden, turning the potential revenue base that arises from economic development into actual fiscal resources, while strengthening scientific fiscal management to raise the efficiency of public funds. Reform of the central–local fiscal relationship is a key part of fiscal reform. The goal is to better mobilize the initiative of both the center and localities and to make the relationship more rational and more rules-based.
Beijing News: Transfer payments already play a role under the current system. What improvements are needed going forward?
Yang Zhiyong: Transfers include general transfer payments and special transfer payments. Different types suit different situations. General transfer payments provide local governments with greater autonomy over the financial resources formed. Special transfer payments are more conducive to achieving central policy objectives.
Going forward, transfers should be further optimized in light of actual conditions. In practice, there are also transfer payments for shared fiscal powers, which are currently classified as general transfers. The overall scale of transfers requires further optimization. The structure among different types of transfers also needs improvement, so that it better matches the needs of different levels of government in providing public services effectively.
Beijing News: Does this also impose higher requirements on budget management?
Yang Zhiyong: Yes. To unify fairness and efficiency, the budget must become the sole basis for allocating public funds. In other words, no budget, no spending. There is already consensus on this. All allocations of public funds must be brought into the budget system to ensure scientific and transparent processes, to avoid off-budget "second allocations," and to curb potential rent-seeking. The budget must become a genuine hard constraint, which is intrinsic to a modern fiscal system.
"Where spending responsibilities lie, oversight should follow"
Beijing News: If the central share of spending increases, how can idling or diversion of funds be prevented and efficiency ensured? How should oversight keep pace?
Yang Zhiyong: The use of public funds is subject to corresponding oversight mechanisms. After the budget is approved, to avoid idle balances, budgets must be compiled scientifically and must be executable. In addition, the Budget Law needs further revision, so that all users of budget funds shoulder the corresponding responsibilities. Once public funds are spent, it is essential to assess whether the money was well spent and whether the intended results were achieved — this is performance oversight. Wherever the spending goes, oversight must follow.
Beijing News: Does this mean that in the future, the central government will manage fiscal spending in a more detailed and stringent way going forward?
Yang Zhiyong: It will only become stricter. Strengthening budget management requires efforts in budget compilation, execution, and oversight. Fiscal spending must not only be compliant but also perform effectively.
Beijing News: How will the division of labor between central and local governments evolve in the future?
Yang Zhiyong: Fundamentally, how the central and local governments divide labor depends on what makes public services more effective. In practice, the division of authority in different countries is also influenced by traditions and exhibits certain path dependence.
Take compulsory education: in large countries, it is generally borne primarily by local governments, but the center must provide a backstop; in small countries it is often provided by the central government. Ideally, whichever level of government can provide a given public service more effectively should be the one to provide it.
Local provision of regional public services helps mobilize local initiative, while the central government should make more holistic arrangements for nationwide affairs. Central fiscal involvement can better promote the equalization of public services, which reflects improvements in governance capacity.
In practice, some local governments and departments still adhere to traditional practices, managing their own areas separately, which can easily affect the efficiency of fiscal funds.
The emphasis now is on breaking down departmental barriers and operating under the norms of a modern fiscal system, so that public finance can better play its foundational and pillar role in national governance.