The Invisible Constitution in Comparative Perspective

14.3.1.  Fiscal Decentralisation

The 1982 Constitution provides total constitutional silence regarding the  

central-local fiscal arrangements that are entirely textually unwritten. Under 

the unitary system, fiscal decentralisation from the central government to 

the provincial governments and lower is deemed to be the key to China’s 

38 

Daniel Lazare, ‘No Exit: Laurence Tribe and “The Invisible Constitution”’ 

www.thenation 

.com/article/no-exit-laurence-tribe-and-invisible-constitution/

.

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The ‘Invisible Constitution’ seen Realistically 

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achievement in economic reform in terms of remedying defective institu-

tions.

39

 According to an early political-economic study in 1995, fiscal decentrali-

sation resulted in Chinese-style federalism and further enhanced the country’s 

regionalisation.

40

 However, China remains a centralised political economy.

41

 

As a result of this democratic centralism, political control from the centre of 

the ruling party through its nomenklatura ensures both the formality of the 

central-local relationship and central control over provincial practices during 

China’s continuing economic reform.

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 More importantly, legislative power 

over taxes was taken into the hands of the central authorities in 1977, before 

the fiscal contract system started, and it is supposed to stay there through the 

increasingly formalised legal system; this also indicates the irreversible nature 

of centralisation as a result of the evolution of China’s legal system, which was 

initially established by clarifying central-local relations formally.

The fiscal federalism model for China calls for a specific context. From the 

1980s until 1993, the financial system operating in China was the fiscal con-

tract system. By establishing separate contracts with the central government, 

provincial governments could retain local revenues, directing only a small 

portion – consisting of customs, direct taxes and taxes paid by state-owned 

enterprises in different localities – to the central government. Fiscal con-

tracts between the central government and a particular province were negoti-

ated every five years.

43

 In practice, local governments exceeded their limited 

authority and provided tax reductions that substantively altered the national 

fiscal policy established by the central government. Informal practices such 

as this had a negative impact on central revenues in two important indicators. 

First, the central ratio to the total revenue declined significantly, dropping 

from 40.5 per cent in 1984 to 28 per cent in 1993. Second, the central revenue 

share of GDP declined dramatically from 25.5 per cent in 1980 to 12.3 per cent 

in 1993. However, China’s GDP grew at an average annual rate of 9.9 per 

39 

See Wang Shaoguang, ‘Defective Institutions and Their Consequences: Lessons from China, 

1980–1993’ (2002) 35 Communist and Post-Communist Studies 133.

40 

Gabbriella Montinola, Yinyi Qian and Barry R. Weingast, ‘Federalism, Chinese Style: The 

Political Basis for Economic Success in China’ (1995) World Politics 55, 80.

41 

Louis Chih-hung Liu, ‘The Typology of Fiscal Decentralisation System: A Cluster Analysis 

Approach’ (2011) 31 Public Administration and Development 363, 371.

42 

See Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of 

California Press 1993); Yumin Sheng, ‘Central-Provincial Relations at the CCP Central Com-

mittees: Institutions, Measurement and Empirical Trends’ (2005) 182 The China Quarterly 338.

43 

Jun Ma, ‘Modelling Central-Local Fiscal Relations in China’ (1995) 6 China Economic Review  

105, 105.

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