Event: on April 19, 2022, the 25th meeting of the central comprehensive Deepening Reform Commission deliberated and adopted the guiding opinions on further promoting the reform of the financial system below the provincial level (hereinafter referred to as the opinions).
Core conclusion: five understandings of the time point, background, direction, rhythm and impact of this reform.
1. At the time point, from "research and improvement" to "promotion", the "reform of financial system below the provincial level" is expected to accelerate. From the point of time, the Fifth Plenary Session of the 19th CPC Central Committee in October 2020 and the 2021 financial budget report all mentioned "improving the financial system below the provincial level"; In February this year, the Minister of Finance signed an article, the financial budget report for 2022 in March and the government work report in March, pointing out that "it has been studied and improved in 2021" and "it should be promoted in 2022"; With the deliberation and adoption of specific opinions at this meeting, it indicates that the "reform of financial system below the provincial level" will be gradually promoted and implemented.
2. In the background, the financial relationship between the central and local governments in China has been gradually straightened out, but there are still many problems between provinces, cities and counties. This round of epidemic has further highlighted the financial contradictions between governments below the province. Since the 18th CPC National Congress in 2012, the reform of financial system has mainly focused on the central and local governments. This meeting also pointed out that "the central and local financial relationship with clear powers and responsibilities, coordinated financial resources and regional balance has been gradually formed". However, in recent years, the financial relationship between provinces, cities and counties has not been straightened out, including the uneven distribution of administrative powers and expenditure responsibilities between provinces, cities and counties, the lack of financial autonomy of cities and counties, the prevalence of local protectionism, the unstable source of transfer payment, weak debt management ability and high implicit debt. In addition, since 2020, cities and counties have faced difficulties in epidemic prevention and control, people's livelihood security and grass-roots operation, The urgency of financial system reform below the provincial level has increased.
3. In terms of direction, the "fiscal system reform below the provincial level" has four major focuses: defining powers and expenditure responsibilities, straightening out income relations, improving transfer payments, and standardizing financial management (eliminating local protectionism and dissolving hidden debts).
> define the fiscal authority and expenditure responsibility below the provincial level. It is mainly to continue the division principle of matching the central and local powers with expenditure responsibilities, and standardize the sharing mode between provinces, cities and counties. The possible directions include: provinces and cities shall not transfer their expenditure responsibilities to counties and townships; The entrusted county and township affairs shall be fully allocated without leaving any gap; The division of common services should consider the benefits of all parties and the affordability of counties and townships, and reduce the expenditure pressure in areas with financial difficulties.
> straighten out the income relationship between governments below the provincial level. For example, the fiscal power of the grass-roots level is less than 31.5% and the fiscal responsibility of Hainan Province is less than 31.3%, accounting for 31.5% of the fiscal power of the same level, and the fiscal power of the grass-roots level is less than 20.2% of the fiscal power of the same level in 2023. The fiscal power of the grass-roots level is less than 31.5%, and the fiscal responsibility of the grass-roots level is less than 31.5%, accounting for 27.2% of the fiscal power of the same level in 2022. For example, the fiscal power of Hainan Province and the fiscal responsibility of the same level, accounting for more than 31. Therefore, on the one hand, financial power and administrative power should be matched to promote the sinking of financial resources and ensure the financial resources of the grass-roots level. On the other hand, in view of the great differences in development in the province, the provincial level needs to concentrate certain financial resources (attached with the concentration of revenue and expenditure at the provincial level) to support areas with weak financial resources. In addition, we also need to strengthen incentives to increase the proportion of incremental tax revenue of cities and counties (or all of them), so as to encourage cities and counties to speed up the cultivation of financial resources.
> improve the transfer payment system below the provincial level. As the provincial government controls the distribution right of provincial down transfer payment, the quota distribution is arbitrary, and the difficulty of various places may not be considered enough. In the actual distribution process, there are still problems such as interception, misappropriation and untimely allocation at the provincial level. The newly established "direct financial fund mechanism" since the epidemic in 2020 is an effective institutional breakthrough. Since 2021, this mechanism has been put into normal implementation.
> establish and improve the financial system adjustment mechanism below the provincial level, standardize the financial management below the provincial level, especially eliminate local protectionism and resolve local debts. The meeting pointed out that "breaking down local protectionism, eliminating market barriers, and improving the security system and standard system for continuously promoting the equalization of basic public services" should be the requirements of the unified big market; "Compacting the risk prevention and control responsibilities of local governments at all levels, improving the long-term mechanism for preventing and resolving the risk of implicit debt, Resolutely Curbing the increase of implicit debt, and strictly investigating and punishing illegal borrowing and financing behavior", pointing to the chaos of high implicit debt everywhere.
4. In terms of rhythm, the opinions should be a programmatic document. In view of the great financial differences among provinces, provinces should also formulate detailed plans, and phased progress is expected to be made during the 14th Five Year Plan period. From past experience, the documents considered and adopted by the Central Commission for deep reform will be issued and issued as soon as 1-3 months. Considering the differences among provinces, the financial reform below the provincial level is not a simple copy of the "central local" financial system. The opinions are likely to be mostly principled provisions, and the autonomy is likely to remain in the provinces. In fact, in recent years, Shandong (2019), Guangdong (2019) and Yunnan (2021) have issued relevant reform implementation opinions, which are also regarded as the key financial work of this year in many provinces (see the attached table for details). With the approval of the opinions, it is expected that the relevant reforms during the 14th Five Year Plan period will make phased progress.
5. In terms of impact, in the short term, it will help to protect the grass-roots level, protect the people's livelihood, raise confidence and mobilize the enthusiasm of the grass-roots level. In the medium and long term, it will help to promote the establishment of a long-term financial guarantee mechanism at the county level, which is also the general direction of China's establishment of a modern financial system. In view of the repeated outbreaks this year, the increased pressure on local epidemic control and the obvious impact on the economy, the serious decline of the real estate boom and the sharp shrinkage of land transactions, it is more difficult for the grass-roots to "ensure the basic livelihood, wages and transportation" at the grass-roots level. It can also be seen that the central level has increased the transfer payment in the past two years, and the scale of special debt has also reached counties and cities directly. The deliberation and adoption of the "opinions" should help to improve grass-roots confidence and mobilize the enthusiasm of grass-roots work.
Risk tip: changes in epidemic evolution, policy strength and external environment exceed expectations
