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low carbon economy mainly comes from local governments, and is 2.2
restricted by factors such as systems; it is unlikely and infeasible to
change that structure within the short term.
2.2.2 Analysis of the Expenditure Challenge Facing Local
Governments in China to Develop a Low Carbon Economy
Limited by data availability, this section mainly studies the
administrative units at the level of province and municipality directly
under the central government and autonomous region, to analyse
the expenditure challenge facing local governments in China to
develop low carbon economy. There are two main challenges here.
The first is that the revenue-expenditure ratio of the central and local
governments is not balanced and second, local governments bear most
of the expenditure in low carbon economic sectors.
First, as to the overall structure of fiscal revenue and expenditure,
local governments in China face a bigger expenditure pressure than
the central government. To better support the construction of a
socialistic market economy, China has launched a tax reform in 1994,
including the reform of the tax distribution system for the central and
local governments. Since the tax reform in 1994, more and more fiscal
revenue has gone to the central government (Zuo 2007). As shown in
Figure 2.3, the percentage of fiscal revenue of the Central government
has risen from 22 per cent in 1993 to 55.7 per cent after the reform
in 1994, and has been maintained within the range of 49 per cent to
55 per cent. Though the percentage of fiscal revenue of the central
government in the total fiscal revenue has somewhat shrunk; e.g., the
figure in 2011 fell below 50 per cent (49.4 per cent) for the first time
since 1998. Compared with the percentage of fiscal revenue of local
governments in the total fiscal revenue, the ratio of fiscal expenditure
of local governments to the total expenditure3 is still much bigger than
3 China divides the rights and responsibilities between the central and local
governments according to the different roles of government in economic and
social activities and then determines the expenditure based on the rights and
responsibilities of the government. The central fiscal expenditure includes
expenditure on national defence; expenditure on armed forces and police;
expenditure on administrative management at the central level and all sorts of
operational expenditure; expenditure on major construction; and expenditure
on national economic restructuring, regional development coordination, and
macroregulationand control. Local fiscal expenditure includes the expenditure
on local administrative management and all sorts of operation expenditure,
expenditure on infrastructure construction and technological reform coordinated
by local governments, expenditure to aid agricultural production, expenditure
on urban maintenance and construction, expenditure on price subsidies, etc.
Chapter 2 Innovative Financing for Low Carbon Development 81
restricted by factors such as systems; it is unlikely and infeasible to
change that structure within the short term.
2.2.2 Analysis of the Expenditure Challenge Facing Local
Governments in China to Develop a Low Carbon Economy
Limited by data availability, this section mainly studies the
administrative units at the level of province and municipality directly
under the central government and autonomous region, to analyse
the expenditure challenge facing local governments in China to
develop low carbon economy. There are two main challenges here.
The first is that the revenue-expenditure ratio of the central and local
governments is not balanced and second, local governments bear most
of the expenditure in low carbon economic sectors.
First, as to the overall structure of fiscal revenue and expenditure,
local governments in China face a bigger expenditure pressure than
the central government. To better support the construction of a
socialistic market economy, China has launched a tax reform in 1994,
including the reform of the tax distribution system for the central and
local governments. Since the tax reform in 1994, more and more fiscal
revenue has gone to the central government (Zuo 2007). As shown in
Figure 2.3, the percentage of fiscal revenue of the Central government
has risen from 22 per cent in 1993 to 55.7 per cent after the reform
in 1994, and has been maintained within the range of 49 per cent to
55 per cent. Though the percentage of fiscal revenue of the central
government in the total fiscal revenue has somewhat shrunk; e.g., the
figure in 2011 fell below 50 per cent (49.4 per cent) for the first time
since 1998. Compared with the percentage of fiscal revenue of local
governments in the total fiscal revenue, the ratio of fiscal expenditure
of local governments to the total expenditure3 is still much bigger than
3 China divides the rights and responsibilities between the central and local
governments according to the different roles of government in economic and
social activities and then determines the expenditure based on the rights and
responsibilities of the government. The central fiscal expenditure includes
expenditure on national defence; expenditure on armed forces and police;
expenditure on administrative management at the central level and all sorts of
operational expenditure; expenditure on major construction; and expenditure
on national economic restructuring, regional development coordination, and
macroregulationand control. Local fiscal expenditure includes the expenditure
on local administrative management and all sorts of operation expenditure,
expenditure on infrastructure construction and technological reform coordinated
by local governments, expenditure to aid agricultural production, expenditure
on urban maintenance and construction, expenditure on price subsidies, etc.
Chapter 2 Innovative Financing for Low Carbon Development 81
