Chapter 4 deals with the individual income tax, a tax first introduced in China two-thousand years ago. It examines the evolvement of the individual income tax system and compares the changes in the marginal and average tax rates in recent decades based on the constant retail price index, showing that marginal tax rates have declined significantly for low- and middle-income earners. It unravels the mystery of the small proportion of the individual income tax in total tax revenue despite high marginal tax rate for the individual income tax. It discusses the optimal marginal and average income tax rates for China, showing that the optimal marginal tax schedule is quite flat when income is beyond a certain level. The chapter ends with an analysis of the problems of the individual income tax system and offers suggestions for further individual income tax reforms.

Chapter 11 analyzes the fiscal relationship between the central and local governments. It first examines China’s budget system and the central-local tax sharing system, the fiscal imbalance between local fiscal revenues and expenditures, and the massive fiscal transfers from the central to local governments. It then discusses fiscal decentralization through extra-budgetary revenue collection, land sales, and bank borrowing by local governments. Next, it discusses the fiscal imbalance of the central and local governments and regional fiscal disparities. Policy suggestions on how to improve the central and local fiscal relationship are provided in the end, including the increase in local government revenue and the shift of some expenditure responsibilities from local governments to the central government, as well as granting local governments more fiscal freedom.

Chapter 10 tackles the controversial issue of high local government debt. It first examines sources of local government debt and clarifies that most of China’s local government debt is set apart from the government budget. It then estimates the size of China’s local government debt over time, scrutinizes the reasons for the fast debt accumulation, and evaluates the immediate impacts and potential problems of high local government debt. In this latter part, the size of government debt in each region is also estimated and the large disparities in government debt among regions are exposed. It shows that local government debt is rather high in some regions. It also shows that the size of local government assets is substantial. Thus, although high, China's local government debt is still manageable It finally discusses the measures China has taken to curb local government debt and offers suggestions for additional fiscal reforms needed for curtailing local government debt.

Chapter 5 studies the corporate income tax. Revenue from corporate income tax has been increasing in China which is at odds with the worldwide trend. Unlike the individual income tax, the corporate income tax accounted for a large proportion of total tax revenue in China. The reasons for this unusual phenomenon are thoroughly analyzed in this chapter. It also examines corporate income taxes from various industries and from various enterprises such as SOEs, domestic private enterprises and foreign enterprises, and compares the corporate income taxes in various provinces. Policy suggestions are provided at the end of this chapter, such as reducing the corporate income tax to stimulate investment and economic growth and eliminating excessive preferential corporate income tax policies to put all enterprises on equal ground for competition.

Chapter 8 is concerned with social security. It discusses the evolution of social security systems for different groups of citizens such as urban workers, government employees, rural residents, and urban non-working residents. It explores existing problems in the social security system, such as unequal social security benefits between urban and rural senior citizens, the decentralized social security management system, low returns in individual accounts, and the growing debt in the social pooling account. Challenges such as population aging are also explored in this chapter, and reform options are discussed, such as reducing social security debt, postponing the retirement age for urban workers, increasing benefits to retired farmers, increasing the size of the individual account of young farmers, and establishing a nationwide social security system.

Chapter 12 analyzes how China’s pro-growth tax system and expenditure system, the expansionary fiscal policies, and local government fiscal expansion outside formal budgets have stimulated China’s economic growth in recent decades. It discusses China’s growth perspective and shows that China may become the largest economy in the world in less than a decade. It also exposes the challenges that China faces, such as income inequality, environmental degradation, resource depletion, slowing down economic growth, and the population aging. It finally discusses fiscal reforms needed for equitable and sustainable economic growth, including reinforcing environmental and resource tax laws, curtailing government debt, stimulating private investment, raising transfers to low-income families, and increasing government expenditures on education, healthcare, and welfare.

Chapter 3 examines business cultures in East Asia, explores their origins, and identifies characteristics that may assist in designing and implementing competition law and policy. It is argued that authoritarianism, paternalism, and collectivism engender dependence on and subservience to corporate authority. Further, business groups (SOEs in China, zaibatsu and keiretsu in Japan, and chaebol in Korea) have played an important role in industrialization. The chapter underlines the links between culture at the level of society and at the level of business communities and enterprises, the norms and practices of such enterprises, and their competitive effects. Given these links, it would be constructive to take account of elements of culture in developing and implementing a well-designed competition law and policy. The chapter discusses six dimensions that should be taken into account in competition law: competition goals, the enforcement of competition law against government-linked companies, the management of family firms, the enforcement of competition law where business groups are prevalent, the design of compliance programmes and the promotion of ‘competition culture’ in East Asia.