Into the Trap of Strengthening State Capacity: China's Tax-Assignment Reform

The Third Plenum of the 14th Central Committee of the Chinese Communist Party (CCP) in November 1993 decided in principle for a comprehensive reform of central-provincial fiscal relations. Soon after the Plenum, the central government announced that the new fiscal system, known as the tax-assignment system ( fenshuizhi ), would be implemented nation-wide in 1994. With the aim of providing adequate revenues for government, particularly the central government, by revamping central-provincial revenue-sharing arrangements, the reform is to “[change] the current fiscal contractual responsibility system of local authorities to a tax assignment system …” and to “gradually increase the percentage of fiscal income in the gross national product (GNP) and rationally determine the proportion between central and local fiscal income.”