Night view of the Bund, Shanghai. Photo by Wang Gang

China recently rolled out an action plan to push forward reforms on the fiscal powers of central and local governments. It further demonstrates China’s resolution to reduce taxes and fees on a larger scale, and builds market confidence and expectation.

The action plan was released to further optimize the relationship between central and local governments, as well the relationship between responsibilities and financial powers.

Regarding the overall planning of institutional reform and operation, to properly adjust the relationship between central and local governments, enhance the capability of independent development, and deepen the reforms to delegate power, streamline administration and optimize government services will turn the country’s institutional advantages into effective governance. It is valuable and inspiring for China to release development potential, stimulate market vitality and resolve risks and challenges.

As a Chinese saying goes, a wise man changes as time and event change. This round of tax and fee reduction, being structural and inclusive, has resulted in an obvious decrease in the tax paid by most enterprises and a stable market expectation.

Meanwhile, some local governments have been seeing a slowing growth of the revenue in general public budgets, and some of them have even lowered their annual revenue budgets. Therefore, it is necessary to relieve the burden for local governments regarding tax refund by timely reducing the ratio they have to pay for the refund.

Besides, from the perspective of macro control, this round of tax and fee reduction is doing more to implement policies through reforms. For instance, it is guiding local governments to improve consumption environment by adjusting the items subjected to consumption tax, and keeping the transitional ratio of VAT revenue distribution between the central and local governments. Such method helps guide each region to develop advantageous industries in accordance with their respective conditions.

Therefore, the implementation of this action plan will help local governments enhance their ability to nurture local industries, thus making possible the sustainable reduction of taxes and fees. It is a key move to cope with the current pressure and maintain stability in employment, financial operations, foreign trade, foreign investment, domestic investment, and expectations, and will create an environment that values proactive, competitive and practical actions.

The worth of any plan lies in its implementation. The implementation of the reforms also calls for collaboration and follow-up examinations, as well as strict financial disciplines. It is particularly important to prevent those who violate policies for short-term interests and regional protectionism.

The implementation of regulations and reforms is indispensible from strict financial disciplines. Only by making solid pre-arrangements and severely punishing the violations, can enterprises and the people be benefited.

Regulations and reforms will not only effectively motivate both central and local governments, but also make full use of the advantages of the institution and the market.

For example, the tax-sharing reform has enhanced both the revenue sharing capability of the central government and the motivation of local governments to attract investment. From another perspective, it has reflected the institutional advantages of socialism, as well as the superiority of a super-large market economy in nurturing and expanding tax sources.

History proves that better integration and operation of institutional and market advantages lead to faster development, higher quality and more efficiency of the economy, as well as proper regional layouts and industrial upgrading. Any imbalance between the institution and market would cause chaos and unfavorable results.

Of course, it cannot be achieved at one stroke to turn institutional advantages into efficient governance, or achieve sound regulation results through reforms, as dialectics tell us that we should always be ready for problems and difficulties in solving economic issues.

It is believed that China will definitely overcome difficulties and continuously improve its management over the socialist market economy as long as it optimizes its economic structure, meets the basic living needs of its people, creates balanced development, promotes innovation and replaces old momentums with new ones. By doing so, the country will also expand its space for maneuver as a huge market, and continuously improve the quality of its development.