Central-local relations at heart of fiscal reform

Heavy reliance on land sales has given local governments a big stake in the country's property market, which has in turn made them reluctant to rein in skyrocketing home prices.

Meanwhile, local government debt, usually issued without close scrutiny, has risen to a worrying level, although no one knows for certain exactly how much debt is involved.

Ma said that one approach to the reform is to transfer more spending responsibility from local governments to the central government. These responsibilities could include social security, some aspects of healthcare and education.

The central government should also shoulder expenses that involve cross-regional management.

Under the 1994 tax arrangement, the gap between local governments' revenue and spending was partly addressed by a system of intergovernment transfer payments.

But too many of the transfers are earmarked, which has given central ministries great latitude in allocating resources.

Moreover, provincial governments have considerable freedom when it comes to transferring resources to sub-provincial governments.

Besides moving more spending responsibility to the central government, another goal is to boost local governments' fiscal base. Jia Kang, director of the Institute of Research at the Finance Ministry, said at a recent forum that local governments will be given more revenue after the November meeting.