According to the CPC Central Committee's proposals on formulating the 13th five-year plan, China will deepen its fiscal system reform and to establish a standard financing mechanism for local governments, strengthening the central government's control over the local governments’ expenditures.

The CPC Central Committee will mobilize the initiative of both the central and local governments and further rationalize the division of revenues between them through tax reform and taking into consideration the tax categories.

Anbound’s research team is of the view that the overhaul of intergovernmental fiscal system which determines the allocation of fiscal revenue and expenditure between central and local governments will align responsibility with expenditure, and hence this is the fundamental solution to alleviate the problems of insufficient funding faced by the local governments.

However, it is worth noting that the redistribution of the fiscal revenues is only a matter of how to share the cake, the fiscal pressure that used to burden the local governments will now shift to the central government.