China to bypass provinces with direct payments to cash-strapped local governments, but revenue problems remain
- Beijing is distributing money directly into the hands of struggling local authorities, skipping provincial governments
- More than 40 per cent of spending by regional and local governments this year will rely on central government transfers, highlighting the shaky state of their revenues
China is planning to channel much of its stimulus funding directly to cash-strapped city and county governments to help revive the economy, a move that highlights the long-standing tax and spending problems between Beijing and local governments.
Beijing will create a special central transfer mechanism to direct 2 trillion yuan (US$281.2 billion) – 1 trillion yuan from the central government budget and 1 trillion yuan in special off-budget treasury bonds – to local governments to provide them with working capital.
Central government funds are usually allocated to provincial governments, who then distribute them to local authorities in their jurisdictions.
In the past, some of the funds meant for local governments were used for provincial government projects, leaving a smaller pool for city and county level authorities.
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