Xi Vows to Use Taxes to Fund Debt-Ridden Regions

President Xi Jinping unveiled sweeping plans to bolster the finances of China’s indebted local governments as the ruling Communist Party announced its long-term blueprint for the world’s second-largest economy, Bloomberg News reported.

Xi's move is seen as a crucial step in ensuring the stability and growth of the broader Chinese economy amidst a challenging global economic environment. I Photo: COP PARIS Flickr

China’s top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200-character resolution published by the official Xinhua News Agency.

Those plans centered around shifting more revenue from the central to local coffers, such as by allowing regional governments to receive a larger share of consumption tax.

Xi’s proposals mark the “third major taxation and fiscal reform” in recent history, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc.

He cited the 1994 move to increase central government’s share of revenue over regional authorities, and a string of decisions starting in 2013 that allowed localities to issue bonds on their own, as the other major shifts.

“The central government’s income was set too high and now it’s being adjusted,” Ding said of the framework set under then-President Jiang Zemin.

The changes “will alleviate the imbalance between the central and local government’s spending responsibilities and income,” he added. Xi presided over a twice-a-decade conclave in Beijing this month, where some 400 senior officials endorsed his vision for advanced manufacturing to propel China’s $17 trillion economy.

The shift in fiscal policy is expected to provide much-needed relief to local governments that have been struggling under the weight of debt accumulated from ambitious infrastructure projects and social programs.

By allowing regional authorities to retain a larger portion of consumption taxes, the central government aims to enhance the financial autonomy and sustainability of local administrations.

This move is seen as a crucial step in ensuring the stability and growth of the broader Chinese economy amidst a challenging global economic environment.