On Wednesday, the State Council, China's cabinet, released a guideline on promoting reform to separate the fiscal powers and expenditure responsibilities of central and local governments so as to improve their efficiency in providing public services.

It is the government's responsibility to provide funds for public services. And a clear division of responsibilities between central and local governments will ensure that they properly exercise their fiscal powers.

According to the document, the administrative obligation of the central government has been moderately increased, while the overlapping fiscal responsibilities between the central and local governments have been further straightened out.

Spending will be more logically distributed depending on the nature of the public service, in order to improve the balance of accountability between central and local governments.

Distinguishing the fiscal responsibility of the central and local government is a necessity for propelling modernization of governance.

Since reform and opening-up began, the government has moved away from a highly centralized fiscal management system, and it introduced a tax sharing system in 1994.

While those efforts have contributed to growth, decentralization is now marked by vague areas of responsibility between all the various levels of government, leading to increased regional disparities, spawning problems such as increasing local government debt and inefficient delivery of public services.

The new guideline will go a long way to straightening out fiscal relations between the central and local governments.