China Unveils Incentive-Based Fiscal Transfers to Spur Local Economic Growth
China has launched a groundbreaking fiscal transfer mechanism designed to reward local governments for their tax contributions and revenue growth. This initiative aims to drive high-quality economic development while strengthening fiscal sustainability across the country.
As part of this new approach, a portion of transfer payments will be distributed as rewards to regions demonstrating robust tax performance and significant revenue expansion, according to a recent announcement by the State Council. This incentive system integrates rewards with accountability measures, encouraging local governments to adopt innovative and proactive strategies for sustainable growth.
Fiscal transfer payments — funds allocated from higher-level governments to local authorities — are a vital policy tool in China's economic framework. These payments channel resources from wealthier areas to less-developed regions, ensuring they have the capacity to deliver essential public goods and services.
Statistics from the Ministry of Finance show that central-to-local transfer payments surged from 4.5 trillion yuan ($613.81 billion) in 2012 to 10.2 trillion yuan in 2024. The new incentive mechanism seeks to harness this system to further energize local governments, enabling them to strengthen fiscal revenue generation while improving public service delivery.
Yang Zhiyong, president of the Chinese Academy of Fiscal Sciences, emphasized that the initiative is not just about financial rewards. It seeks to instill a culture of resourcefulness, entrepreneurship, and a commitment to high-quality growth among local authorities.
To support regions facing fiscal difficulties, the Finance Ministry plans to enhance financial assistance and improve the allocation of resources at the county level. Dedicated funds have also been earmarked to promote equal access to basic public services, particularly for migrant workers, as part of the broader transfer payment system.
He Daixin, a researcher at the Chinese Academy of Social Sciences, highlighted the strategic importance of these incentives. By motivating local governments to expand their fiscal revenue base and elevate the quality of financial management, the initiative is poised to foster sustainable and balanced growth.
Additionally, the government will strengthen budget performance evaluations to ensure the efficient use of fiscal resources. These assessments will help identify areas for improvement, enabling evidence-based decisions to optimize future resource allocation.
China’s new fiscal strategy represents a significant evolution, blending incentives and accountability to empower localities while promoting equitable and sustainable economic growth across the nation.
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