China’s decentralization is unusual in that economic reform rather than specific policies to devolve power has shaped its evolution. During the last two decades China has transitioned from a largely deconcentrated system to one that incorporates elements of delegation and devolution.

Subnational governments have become more responsible for financing their expanding functions from their own revenue, both formal and informal, giving them more autonomy except in sectors with mandated service standards.

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China has a long tradition of limited decentralization because its size has made central government control difficult. The provinces, in particular, have long enjoyed a degree of administrative and fiscal autonomy. The market transition that began in the late 1970s enhanced the subnational role. As economic reform progressed, changes in the composition of spending and relative prices moved the burden of public spending to subnational governments.

These adjustments led to further modifications of government operations, but the country never adopted a formal decentralization policy. Still, by 1993, the central government was collecting only 20 percent of public revenues. This prompted the substantially recentralizing Tax Sharing System reforms in 1994. Public demand for more responsive government and greater entrepreneurial freedom has also shaped the relations between the central and subnational governments, but formal reforms in this area have been limited.

In 2002, subnational governments accounted for about 70 percent of government spending, and 40 percent of total spending is at the county level.