China toughens fiscal law to reduce wasteful spending

BEIJING (Reuters) - China is making it harder for its regional governments to get ad hoc cash transfers from central authorities in another step to reform its fiscal system and reduce wasteful public spending.

China's central government regularly transfers cash to regional authorities via fiscal transfers to ease their financial burden, as they are responsible for nearly 80 percent of all public spending but get only half of the fiscal income.

Yet these transfers are sometimes abused by local governments, which submit unnecessary investment projects to the central government for approval to get the money that is disbursed under special transfers.

The central government dispenses cash to regional authorities through either special or general transfers.

To reduce such malfeasance, general transfers will now account for more than 60 percent of all fiscal transfers, the Chinese cabinet said in a statement released on the government's website on Monday.

It did not say how much transfers were made under general transfers in the past.

The document was dated Dec 27 but only made public on Monday. No date was given for when the new rule would be effective, but China's parliament is set to hold its annual meeting from March 5 and a host of new regulations will be passed then.

Controlling government spending and cutting waste is a cornerstone in China's fiscal reforms as its local governments are heavily indebted, having borrowed to pay for the construction of public works.

A government audit at the end of 2013 showed Chinese local governments owed a total US$3 trillion (S$3.75 trillion) as of the end of June 2013.