China's highly centralized tax sharing and transfer system dates back to the major tax reforms of 1994.

Changes in tax assignments increased central government revenues, laying the foundation for larger and more rule-based transfers to sub-national governments to help tackle regional disparities.

But they also constrained the fiscal flexibility of local governments, especially at municipal and county levels.

"Local government revenues are not commensurate with local government expenditure responsibilities," said Zeng Kanghua, a public finance professor with the Central University of Finance and Economics.

Zeng cited a report by the World Bank, which said China's most serious fiscal disparities are at the sub-provincial level, which shoulder 60 percent of total public spending — including basic health and education, pensions, unemployment insurance, housing, infrastructure maintenance, and minimum income support — but only received 34 percent of the tax revenue.

The vast western regions, considered to be poor, got the majority of the tax transferred from the central government, and the eastern regions, considered to be rich, got a much smaller share of the tax transfer, said the report

According to the 2013 tax budget released by the Ministry of Finance, of the 3.47 trillion yuan tax revenue that the central government transferred or returned to 28 provincial governments, 861.89 billion, or only 24.8 percent, went to the eastern regions.

The pivot toward the western regions is understandable, but the problem is economic conditions vary from county to county in each province.

Under the current arrangements, poorer counties in east provinces are at a disadvantage, as outlined in the example of Quzhou.

During the panel discussion, even mayors from the wealthiest cities complained.

Liu Qi, the mayor of Ningbo, one of the richest cities in Zhejiang, said his fiscal conditions were under constant pressure.

He said the biggest problem is the massive inflow of migrant workers. The city, with a population of 5.76 million, is home to 4.8 million migrants, putting its public services under considerable strain.

"On the one hand, our tax revenues are under pressure as the housing market control policies threaten our land sale revenues; on the other hand, the demand for public housing, education and healthcare is rising."

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