This is is because it is the “world’s most decentralised country” in terms of public spending, with provincial and regional authorities of various kinds responsible for 85% of government expenditure, researcher Philippe Wingender concluded.

The unfunded mandates and a build-up of debt outside the budget resulted from limited revenue autonomy and insufficient intergovernmental transfers, said Intergovernmental Fiscal Reform in China, released on Friday last week.

It explained a recently launched intergovernmental fiscal reform would increase the role of the central government, but comprehensive reform was needed to improve public service delivery, increase overall social spending levels and reduce regional disparities.

Wingender said China had “a highly complex intergovernmental fiscal system”, with “large vertical imbalance between revenue allocation and spending responsibilities across levels of government”.

The fiscal reform plan was designed to address the long-standing misalignment of revenue and spending across levels of government, “but further clarity is still needed on a number of spending programmes and revenue items”.

The IMF paper urged China to consider centralising pensions and unemployment insurance policies, enhancing fiscal resources for urban areas to cover the costs of public service delivery for urban migrants and introducing a market value-based property tax to resource local governments.

It suggested that borrowing quotas for local governments should be increased while ensuring that all off-budget fiscal spending is brought onto the budget.