Seven Decades of China’s Fiscal Modernization

Yang Zhiyong

National Academy of Economic Strategy (NAES), Chinese Academy of Social Sciences (CASS), Beijing, China

Abstract: After its founding in 1949, the People’s Republic of China started to modernize

its fiscal system – an essential part of its broader modernization drive. Its unified and well-

functioning fiscal system supported the stability of the nascent government, and helped stabilize the economy and restore public order after then. In the era of the planned economy, public finance in the country was put at the service of economic plans while striving to reach a fiscal equilibrium, which was of great significance at that time. Economic equilibrium, including fiscal, credit and material equilibrium, was perceived as a manifestation of macroeconomic stability. Problems encountered during the era of the planned economy led to the launch of a reform and opening-up program – a brilliant chapter in modern Chinese history. The Third Plenum of the 11th CPC Central Committee marks a brand-new era of reform and opening-up. In this transformative period, China’s fiscal system was initially decentralized to keep abreast of its “planned commodity economy.” After the goal of socialist market economic reform was announced in 1992, China’s fiscal reforms embarked on a fast track. As China strived to build a public finance system compatible with a socialist market economic system, fiscal reforms took place and fiscal policy played a more important role in macroeconomic regulation. The Third Plenum of the 18th CPC Central Committee held in November 2013 set the goal of the reform to establish a modern fiscal system. Afterwards, China deepened its fiscal reforms, focusing on budget management, taxation and reform of central-local fiscal relations.

Keywords: public finance in China, contemporary Chinese fiscal history, contemporary fiscal system, modernization

JEL classification code: H30, N45

DOI: 10.19602/j.chinaeconomist.2019.1.03

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