China to Increase Central Government Spending in New Five-Year Plan

China aims to increase the proportion of fiscal spending funded by the central government, as reflected in the overall public budget, and to enhance its responsibilities and decision-making authority over the next five years, according to new official recommendations for the country’s 15th Five-Year Plan.

This strategy seeks to foster high-quality economic growth and alleviate financial stress on local governments, which have been grappling with sluggish revenue growth and mounting debt in recent years.

Over the past decade, central government expenditure has made up about 14 percent of total public budget spending, with local governments bearing the remaining share, analysis shows. Despite this, localities receive roughly half of the nation’s total public revenue, with the shortfall primarily covered through transfer payments from the central government and local borrowing.

The significant portion of spending managed by local authorities, coupled with a sharp decline in revenue from the property market, has resulted in financial strains at the local level, said Luo Zhiheng, chief economist at Dongxing Securities. While large transfers from the central government are necessary, they are not enough to fully cover local needs, prompting local governments to rely on both explicit and implicit borrowing to fill the fiscal gap, he explained.

In a recent article, former Finance Minister Lou Jiwei highlighted an evident imbalance in the fiscal relationship between the central and local governments. He noted that, on average, national governments in OECD countries allocate about 61 percent of their total public spending, notably higher than the figure in China.

It is suggested that the central government’s share of fiscal expenditure should ideally increase to between 30 and 40 percent by 2030. Liu Shangxi, a researcher at the Chinese Academy of Fiscal Sciences, stated that this would enhance governance efficiency, cut administrative costs, and help address issues that local governments currently face.

In the first ten months of this year, central government spending reached CNY 3.47 trillion (USD 488.2 billion), accounting for approximately 15.4 percent of total public expenditure, up from 14.8 percent during the same period last year, according to the Ministry of Finance.