At first glance, the budget system of the PRC looks like a paradoxical combination of elements that are likely to be in conflict with each other. However, the fact that for many years Chinese authorities have been able to effectively use fiscal policy to stimulate economic growth, maintain macroeconomic stability and smooth interregional differences, requires a close and unbiased look at the current state and directions of development of budgetary relations in the country. The ratio of revenues and expenditures of central and local budgets in the consolidated budget of the PRC, as well as their dynamics relative to GDP, suggest a high degree of decentralization of the budget system, which, however, reflects the decentralization of budgetary- administrative functions rather than the decentralization of budgetary powers and/or of fiscal policy formulation. Despite this fundamental difference from, in particular, the Russian situation, Chinese budget system currently faces a number of problems familiar to the domestic budget system. Among them is the problem of optimization of methods for calculating intergovernmental transfers, the problem of budget imbalances, the increase in public and quasi-public debt, especially at the lower levels of the budget system. These and other challenges dictate the directions of current and future changes in China's fiscal system and fiscal policy.