There is sharp decrease in the revenue of the local governments from 84% in 1978
to 44% in 1994. Conversely, there is a step rise in the revenue of the local
government during this period. Subsequently, the proportion stagnates with
little fluctuations till 2007. This is largely due to the classification of the
structure of the government finance in 1994 where the revenue of the central
government and the revenue of the local governments have different coverage. For
example, there is an introduction of Value-added tax; the central government are
being allocated to 75% of the share while the local governments are being
allocated the remaining 25%.
Below is the chart of trends of China central government revenue and local government revenue from year 1978 - 2008:
China government expenditure of the central government VS local governments
The expenditure incurred by central government has been on a decline
from 47% in 1978 to 23% in 2007. On the other hand, the expenditure
incurred by the local governments is on a rising trend during this
period. This is mainly because there are major transfers of state-owned
enterprise’s responsibilities for service delivery such as education,
medical and healthcare, and social security to the local governments.
Secondly, there is an increase in demands of infrastructures due to
rapid urbanization and central government policies to promote expansion.
Below is the chart of trends of China central government expenditure and local government
expenditure from year 1978 - 2008:
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