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Han Zhai
cent from 1980 to 1993.
44
In other words, the first decade of economic reform
resulted in conflicts between a weakened central government and energetic
economic development at the local level, especially in the eastern regions.
This imbalance placed pressure on the central government to adopt a ‘tax
separation system’ in 1994 in order to strengthen China’s state capacity for its
transition.
45
During the 1980s, the unitary system seemed to be evolving into a form of
de facto federalism, but normative evidence regarding the power of legislating
tax law assists in maintaining the vertical unitary nature of intergovernmen-
tal fiscal relations. Institutional centralisation of tax power started with the
decision of the Finance Ministry on the Tax Management System in 1977
(the 1977 Decision), which seeded the basic structure of the central-provincial
fiscal relationship for the reform. This decision was released one year ahead
of the official beginning of the reform and two years earlier than the establish-
ment of the first four Special Economic Zones that are the only exceptions to
the centralised legislative tax power for special authorisation from the NPC.
According to the decision, the central government was exclusively in charge
of any changes to the revenue policy, the adoption and implementation of
the tax law, the imposition and cessation of specific taxes, and the addition
or reduction of tax items and rates. The decision also authorised very limited
financial powers exercisable by the provincial governments in different situa-
tions; these powers required the approval of the finance ministry. Moreover,
these authorised powers (with particular emphasis) in general shall not be
reauthorised to any government lower than the provincial level. For provincial
governments, re-delegating authorised fiscal power was not totally forbidden;
reach from the central government into local fiscal affairs existed only in the
central-provincial relationship, which is still an institutional feature within
China’s unitary system, with further development in administration.
46
What was really decentralised by the 1977 decision was administrative
power over taxes. This was part of the preparation for the coming fiscal decen-
tralisation during the 1980s. When the 1977 decision was implemented, the
44
Anping Chen and Nicolaas Groenewold, ‘The National and Regional Effects of Fiscal Decen-
tralisation in China’ (2013) 51 The Annals of Regional Science 731, 732.
45
See Wang Shaoguang and Hu An’gang, The Chinese Economy in Crisis: State Capacity and
Tax Reform (New York: M. E. Sharpe, 2001). For a highly influential research urging separa-
tion of the tax system in the 1990s, see Wang Shaoguang and Hu Angang, Report on the State
of the Nation: Strengthening the Leading Role of the Central Government during the Transition
to the Market Economy (New Haven: Yale University Press, 1993).
46
The latest evolution is the direct provincial governance over the counties, bypassing the mu-
nicipalities in between since 2005.
The ‘Invisible Constitution’ seen Realistically
413
tax collection and management system was relatively decentralised. Local
tax departments were subordinate to both the local governments and the tax
offices from the central government, indicating that local governments could
influence local tax collection and management according to their own inter-
ests. Before adopting the fiscal contract system, there were nationwide restruc-
turings of the tax management system in 1978 and 1982, but the administrative
decentralisation of tax collection and taxation was preserved until the tax-
separating reform started in 1994.
47
However, lacking the complete legal system
of the Chinese state and the legal consciousness of its officials, the violation of
the exclusive authority of the Finance Ministry not only occurred in local gov-
ernments, but also occurred in other departments of the central government.
48
The power of tax legislation has not been returned to lower governments
since the central authorities took it back – until now. Following this trend,
the 1994 tax-separation reform echoed and enhanced the centralisation spirit
of the tax power, which had been expected early in 1977 when national taxes
were separated from local ones; in particular, there have been national tax
offices established locally for independent collection of national taxes. After
1994, under the framework of the tax-separating system, bargains between the
central government and the local authorities have centred on the interpreta-
tion of tax laws rather than the former implementation of direct alternatives
without authorisation in 1980.
49
Even more important, but usually neglected by both legal scholars and
political scientists, is that the lawmaking law was drafted in 1993 when the
tax-separating reform was underway. During its long drafting process, the
formality and centralisation of legislative power had been emphasised by
the relevant officials repeatedly.
50
When implemented in 2000, this law pro-
vided a more orderly and formal legal system, with particular arrangements
47
Xu Jian, ‘Centralising the Allocation of Financial Power: Process and Influences’ (2012) Peking
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