On the strength of a massive stimulus programme implemented from late 2008 onwards, China became the first major economy to emerge from the global financial crisis, returning to its high growth path by the second half of 2009, and growing by 10.4 per cent in 2010. For a time China was widely admired for what appeared to be a strong, rich and effective public sector able to implement the stimulus programme with great force and in record time. In the years since, the world learned that the stimulus programme was carried out mainly by local governments, and that once started, the central government was unable to control its momentum. This chapter looks at this historical episode to explain how China’s response to the global financial crisis exposed the cracks in the intergovernmental fiscal system. China has now embarked on an ambitious, comprehensive round of fiscal reforms that aims to fundamentally reshape public finances and lay the foundation for a modern system of governance.