Institutional root of the Chinese budget crisis: fiscal decline and unbalanced central–local relationship

Although the Chinese economy has experienced a strong and rapid growth due to the success of its economic reform, the Chinese central government faces a stern fiscal decline. The fiscal problem has undermined the ability of the central government in completing many crucial governing tasks. By examining the institutional root of the fiscal problem, this paper argues that the fiscal decline is part of the ironic corollary of the decentralization strategy of China's economic reform which produces a ‘weak center, strong local’ outcome. To fully address the problem, China should undertake major institutional reforms to redefine as well as institutionalize the fiscal roles of different levels of government.