The State Council clarified the fiscal powers of central and local governments in a guideline issued on Wednesday.
It was the latest move in an effort to reform money management and ensure efficient delivery of public services.
The guideline moderately increases the administrative obligation of the central government and reduces overlap with local governments.
Spending responsibilities will also be more accurately distributed depending on the nature of the public services, the State Council pledged in the guideline.
It is also considering brining more public services related to regional economic development into the hands of upper levels, while passing responsibility for certain public services to the local level.
Since reform and opening-up began, the government has moved away from a highly centralized fiscal management system, introducing a tax-sharing scheme in 1994.
The new guideline also says pilot reforms will be carried out in national defense and foreign affairs in 2016, with the aim of achieving breakthroughs in education, healthcare, environmental protection and public transportation between 2017 and 2018.
China plans to complete the reforms In 2019 and 2020.
The move came as a lack of clarity in assigning responsibility to different levels of government has caused problems, such as widened regional disparities, increased local government debt and inefficient delivery of public services.
