Reform of the Chinese Political Structure
A summary translation of part of 2005 book by Chinese Communist Party Central Party School vice director Zhou Tianyong 周天勇 and his collaborators
Introductory comments and characterization of the book
Reform of the Chinese Political Structure by Zhou Tianyong and
collaborators outlines how many of China’s problems are intertwined with
political system. Zhou is the vice director of research at the Chinese Communist
Party’s Central Party School. The book has a foreword by Li Junru, vice president
of the Central Party School. Reform was published in September 2004 by the
Zhonguo Shuli Shuidian Chubanshe. This book is twelve years old but still interesting or its analysis of the Chinese political and economic system by an insider.
The book covers the waterfront. The book goes into great detail on the
problems of Chinese reform and presents views on the way forward. Problems of
the Chinese system are discussed so bluntly that I wonder if this book were a
popular book it would have been banned. But it is an academic book from a
professor at the Party School so it is OK.
Now the title could be considered to mean reform of the Chinese political system but it does in fact say reform of the Chinese political structure. That might be a cautious distinction to make to stay on the right side (not really — one should be neither the right side or the left side of the Party leadership — the ideas is to be closely aligned) with the Party leadership. As for example in the recent exhortation to Party members to stay closely aligned with Xi Jinping in their political consciousness, understanding of the overall situation, etc. 必须牢固树立政治意识、大局意识、核心意识、看齐意识，坚决维护党中央权威，在思想上政治上行动上始终同以习近平同志为核心的党中央保持高度一致。You can’t be too careful.
The book is also an illustration of how deep political and economic thinking is very important in the Chinese system, despite all the media repression and repression of dissidents we read about and does go on everyday. Policy experts make their proposals based on their analyses of China’s most serious problems and and naturally like policy experts everywhere are frustrated when government leaders only take part of them or none of them based on the leaders view of what is desirable and politically possible. Despite having a one party system, China has a great deal of internal politics as well.
Overview of the book: To give you an idea of the tone of this book [really intriguing tone, especially what is missing, — no ideology, we need to hold onto the Party for a
few more decades for practical needs of economic development though. It is
really hard to find quotes from wise, farseeing Party leaders in this book…] , here
is my very breezy/informal summary of the first chapter.
Why not democracy now? China needs a gradual 30 – 60 year transition to full
democracy so that economic reform will be smooth. Planned economy totalitarian states
like the USSR and pre-reform China have all failed, only a very few left, like the DPRK.
China is a form of the East Asia semi democratic, market economy with considerable
market intervention. Comparable to Hong Kong, Taiwan, Singapore and Korea. Korea
needed to be quite authoritarian to get its reforms through — why there were student
demonstrators that wanted the ROK to copy the DPRK form of government and
economy! So of course the ROK needed authoritarian government. [Note: don’t know if I
would put the PRC in the same bag as Taiwan and Singapore, and even wouldn’t put
Taiwan and Singapore in the same political bag. But interesting that Prof. Zhou and the
Party School would…. also reading backwards all the repetitious arguments in the first
chapter that democratic government is best but we are not ready for it yet, not ready for it yet, gives a feel that this kind of argument is coming up a lot at the Party School. End
For a developing country, having a one party system is much less costly than a
multi-party system. Sure, China’s performance during the first 30 years of the PRC was
inferior to some capitalist countries, but the Chinese system did keep the various
nationalities united. Since 1978, China has achieved much economic progress. As for
now, two competing parties would create too much uncertainty for China’s economic
development and run the risk of splitting the country up. So China should remain a one
Party state for the time being.
The first period of twenty years was devoted to economic reform, the second twenty years following the Sixteenth Party Congress in 2002 is devoted to reforms to improve the market economy system and reform those aspects of the political system that impeded economic reform. Once the Chinese people are wealthier, have a better education/moral character (suzhi) and likewise government officials have a better education/moral character, the country more prosperous and stronger, then from about 2020 China can embark on thorough political reform to make China a much more democratic country. Also the capital needed to carry out various reforms and the interference between various reforms — the order in which they need to be be done etc. [This discussion reminds me of Tsinghua University historian Qin Hui’s 秦晖 comment in his 1998 book Issues and Ideology 问题与主义 [Wenti yu Zhuyi]. To the effect that Hayek’s book “The Road to Serfdom” 《通往奴役之路》 is well known and much appreciated in China. Qin added that what China is looking for is the road out of serfdom! ]
Begin summary translation of notes on Chapter One:
p. 12 The Party needs to change is way of leading the country. The Party should exercise
its rule through legal mechanisms and not just use the old method of the top leaders
deciding everything and sending down the orders “baoban yi qie”. These principles
should be accepted: operate according to law; respect the independence of the judiciary;
party actions should be constrained by the Party charter, and disciplinary regulations,
laws and regulations of the Party; the Party should manage the cadres; the Party should
not make explicit interference with the legislative process; the Party should be aligned
closely with the interests of the people “dangxing yu renminxing de gaodu jiehe yuance”.
On. P. 13 Zhou explains that China during the difficult process of transition allowed full
press freedom before reform was complete, public opinion might become outraged and
threaten social stability. However academic criticism of the government and the party is
useful, so different standards should be applied to academic journals than are applied to
P. 14 The 1994 tax reforms greatly weakened the ability of local government to collect
revenues. Nonetheless, the burden of unfunded mandates kept growing. In 1992 local
government had about 70% of total government tax revenues and expenditures. Now it
has 40% of tax revenues but still 70% of expenditures. A very large increase in income
from various fees and fines made up part of the difference but local government in China is typically heavily in debt. Since they get much of their revenue (1/3 – 1/2) from often arbitrary fees and fines, all off budget, local government has only soft “budget”
constraints. This in turn favors the unending swelling of payrolls, to be paid for with
more fees and fines.
P. 21 The chief mission of the Party organization in state enterprises should be to
improve the company’s competitiveness and bring down the company’s operating costs.
The first chapter ends as it began (p. 25) Let’s wait another twenty years, when China will have built a foundation of strength and greater prosperity for its people, and let our
descendants, according to the needs of their material culture and political culture, decide
according to their political wisdom, what sort of socialist political system will give them
greater satisfaction. [From my understanding of the book thus far, it seems like that
means the Party has perhaps 20 years left on its lease, and we’ll just have to leave it to the future to decide whether it will be renewed or not. Could it really means what it seems to mean? I have rarely seen a book treating such sensitive matters with almost no
ideological references (except briefly to Deng). Zhou is an economist. His argument is
that we need to look at the cost of various reforms and for now concentrate on the areas
of the political system that interfere with the growth of the economy. ]
On p. 29 Zhou calls for greater democracy and adherence to law in the legislative
process. Many laws are drafted by ministries and keep confidential so other interested
parties cannot influence the draft and then given to the NPC with little prior information
for passage. This lack of process results in laws that further the narrow interests of
ministries while very often hurting the interests of Chinese private companies and private citizens. Zhou mentions the drafting and passage of the Land Law as a classic example of this — but doesn’t go into further detail.
At the start of chapter 2 (pp. 52 – 54)
Zhou states that Chinese government is
extraordinarily inefficient since bureaucracies do not make proper budgets, do not face
hard constraints since they make up shortfalls off budget with many fees and fines (1/3 –
1/2 of all government revenue) and literally eat up budgets with lots of free meals etc. for
The administrative cost of running government is 25% of budget in China vs. a
typical international administrative overhead level of 10%. Zhou points out that the
various government ministries are very poorly controlled by the central “power
ministries” and so set their own priorities often times. He notes that areas which involve
use of state property and resources such as road building and construction get
overemphasis but other areas such as education and public health (China’s spending
levels as a proportion of GDP is considerably lower than international averages, even in
comparison to other developing countries.)
Part of the answer, says Zhou, is to abolish the xiangzhen (rural township and urban township) lowest level of government and turn some government functions to the private sector — some government functions (giving permissions in many areas) really should be abolished since they are really a fee collecting mechanism for government and in fact hurt the economy.
p. 34 The Chinese government system is characterized by ministries and other
government departments looking first of all after their own narrow interests and giving a very low priority to public goods. “Chinese officials spend as much public money on
eating, drinking and publicly funded cars to build two Three Gorges dams each year.”
p. 44 Selection of personnel in government departments is often arbitrary leading to
attachment of workers to particular leaders and so pervasive factionalism.
Other chapters address government finance, relations between central and local governments, reform of local government (ever swelling local government payrolls is a giant fiscal problem), how to judge the achievements of local city and county official leaders, developing NGOs, democratization of the legislative process and legal supervision that it is done according to law, land reform and China’s economic transition, improving the leadership of the Party of the State and of publicly-held (stock shares) enterprises controlled by the state.
[A Chinese friend told me that there is a Deng Xiaoping speech or article in his Collected Works somewhere from around 1992 that says China would have open democratic elections after about 30 years. Another Chinese friend confirmed the quotation with a citation but I can’t find it now. This book reminds me of that. I have always wondered about that quote!]
Notes on Chapter Two
Reform of the Chinese Political System by Zhou Tianyong and collaborators. He is the
vice director of research at the Central Party School. The book has a foreword by Li
Junru, vice president of the Central Party School. The book was published in September
2004 by the Zhonguo Shuli Shuidian Chubanshe. Zhou Tianyong, an economist, puts
political reform in its economic context to explain the goals of reform, the current
situation, and suggestions on how to get there from here. Zhou’s book also raises
questions about what kinds of new thinking are appearing at the most important school of the Chinese Communist Party. Reform is a topic of intense interest to all Chinese.
Comments about creating a fair system seem to echo of Hu Jintao’s saying “Take People
as Fundamental”. Is Zhou explicating Hu’s ideas or is Zhou dressing up his own ideas in
Hu’s clothes? The criticism of the Chinese system in Reform is so strong that if a
journalist wrote it, the book might have been banned. Academics aren’t censored as
much as journalists, and perhaps Central Party School academics have more leeway that
Zhou’s book reminds me of the comment that Tsinghua University Professor Qin Hui
made in his 1999 book Issues and Ideology [Wenti yu Zhuyi]. Qin wrote (p. 118 – 119)
that Hayek’s book the Road to Serfdom is much appreciated in China. Unfortunately,
adds Qin, Hayek didn’t write the book the Chinese need — The Road Out of Serfdom.
Reform of the Chinese Political System [Zhongguo Zhengzhi Tizhi Gaige] ISBN 7-5084-
2346-1 is available from the Chinese online bookstore Dangdang at
Recommence summary translation
Notes on Chapter II Some Serious Problems in Public Finance
Chinese public finance formerly suffered from government expanding into many
functions it that should have been handled by private enterprises. Later, with reform,
public finance in China was characterized by a very large proportion of its funds being
spent on administrative costs, large expenditures on eating and drinking, and essentially a public finance system that serves the government rather the public.
Public finance has several roles:
1) Public finance should serve the taxpayers and not be the slush fund for government
departments or for the private purposes of officials.
2) From the standpoint of economic efficiency, public finance should aim at
compensating for market failures by providing public goods – just those things that
individuals and the market are not able or willing to provide.
3) Public finance should be a democratic, rule by law, and open public finance. This is
the key difference between public finance and finance in a dictatorship or a system where there is rule by man instead of rule by law.
Public finance is built on the foundation of a modern budgeting system. In order to
establish government that serves society and manages it properly, the first step is to
transform government finance to public finance at each level of government in China.
In a very large developing country with large regional inequalities in development,
government intervention needs to be much deeper and broader than in other comparable developing countries. Developing energy resources, railroads, telecommunications and other infrastructure depends upon government investment since private persons or companies are unwilling to make these investments. However, once development has reached a certain level, state enterprises should be sold off and government intervention should gradually decrease.
Since the mid 19th century, the government spending as a proportion of GDP increased
sharply in the 23 countries now members of the OECD. Before 1860, government
expenditures share of GDP was 2.5% – 6.5%. In 1920 it was 15%, 1937 20% and in 1980
40%. Public expenditures in areas such as defense, education and housing during 1960 –
1995 were stable at 15% of GDP. Investments in education and S&T rose early. Japan in
1901 had 98% of the elementary school age children in school. Per capita official
spending on education increased by about 50% in the US, UK and Germany between
1960 and 1971.
Over the past several decades, the major factor (60%) in the growth of government
spending in OECD countries has been the increase in transfer payments from government to households. The experience of the western developed countries shows that public expenditure priorities need to be prioritized according to the stage of development. Especially important is that development needs to give the highest priority to the livelihood of the people, taking people as fundamental (Note: in text yi ren wei ben — a Hu Jintao key principle). Since resources are limited, this priority needs to be kept in
Chinese public expenditures as a proportion of GDP are small compared with the
developed countries and with other developing countries. China has a very irrational
structure of public expenditure – there are problems with both things the government
does and shouldn’t be doing and with things the government isn’t doing and should be
doing. The prioritization of expenditures is chaotic. This makes it harder, especially
given the low level of public expenditures overall, for public expenditures to have the
desired effect. No matter whether one examines the budget, the structure of personnel
positions, or the execution of policy, the government still operates in the pattern of the
old planned economy. The division of labor is poor, operations are not rational
[“scientific”], and transparency is low. It is very hard to get complete information on
government revenues and expenditures. To get an idea of the problem, however, we need to look at government revenues and expenditures.
Chinese social security expenditures are very low. The 70% of the population in the rural
areas are excluded from the pension system. The 100 million covered are in a system that is severely under funded by at least 13 trillion RMB (approximately US 1.5 trillion). In 2002, China spends 1.3 percent of GDP on relief of severe poverty – half of the usual
level of a low to medium income country.
China spends a lower proportion of its GDP on education than almost any country 2.2%
vs. [from table on p. 52 on years 1998 – 2000] 4.8% in the USA, 3.5% in Japan and
4.1% in India. Compulsory education, especially in the rural areas, is declining. Many
children are not going to school. In some places it is worse than when reform began in
Only 15% of the Chinese population has medical insurance. In recent years, health care
in rural China has stagnated. In many areas it isn’t as good as when reform began in
1978. Many people cannot afford medical care and so when they get sick they become
Administrative expenses consume 24.7% of Chinese government expenditures. This is
the highest in the world. Compare with 10% in the USA, 6.5% in France, and 8.2% in
Russia. The amount of money Chinese official spend on personal eating and drinking has
been estimated conservatively at 300 billion RMB (USD 35 billion). The amount spend
on official cars is at least another 300 billion RMB. In recent years has spent 800 billion
RMB on building a 20,000 km highway network while local governments have spend
another 200 billion RMB on local infrastructure such as subways.
P. 53 – 54
These infrastructure projects are important but they are far less important than attacking China’s severe problems of social security, poverty alleviation, compulsory education and public health. Despite the severely inadequate level of social services spending, the government persists in spending very large sums on economic construction. Since the beginning of the 1980s (during 1981 – 1985 the figure was 56.08%), the proportion of government expenditures devoted to economic construction has declined (by 2002 it was 30.26%), but it is still far higher than any other country, be it developed or developing.
The large quantity of state assets is a carryover from the old central planning system.
Actively managed state assets are found throughout the economy, not just in areas such
as defense or in key economic sectors where the state needs to assert control. The
proportion of state owned enterprises is still too high. State properties are mostly in
competitive fields while state investment in basic and strategic industries is inadequate.
Thus the state participates too much in competitive fields, and especially in
manufacturing but not enough in infrastructure.
Examining the pattern of increased investment, the proportion devoted to the benefit of
all society has been declining sharply. It is very difficult to get a good idea of the pattern
of government investment from published statistics. What is certain, however, is that a
significant portion of government investment is allocated very arbitrarily, without being
attached to any policy goal. This phenomenon is even worse than the decrease in
government investment since it shows that the government’s ability to apply
macroeconomic controls is decreasing.
Before reform began, China was a centrally planned economy. The government
concerned itself with close control of economy, society and politics. Special focus was
put on the economy on forcing consumption to as low a level as possible so as to
accumulate as much capital as possible in order to serve the absolute priority of economic development. For a long time after reform and opening began, the Chinese government characterized itself as an “economic development type” government with a laser-like focus on rapid economic development and a high GDP growth figure, expecting that with high GDP growth, other aspects of development would basically take care of themselves.
The exclusive focus on GDP growth resulted in a neglect of the livelihood of the people
and social welfare.
Market reforms require that government steadily relinquish many of its planned economy roles. However due to inertia in the system and people’s way of thinking, this retreat of government could not be done quickly. Government was pushing reform and
government internal reforms consumed much of its attention and resources. Many of the
problems of the reform could not depend simply on whether the government was aware
of a certain problem, as we learn from public choice theory. One result was the
continuous swelling of government expenditures after reform began.
The problem of fiscal expenditures has far reaching consequences. The objective of
public expenditures is to ensure that most members of society share in the benefits of
development. Public expenditures promote social tranquility and improve the quality of
the development of the entire society. In a poor developing country, a high level of public
expenditures focused on development projects is a great waste since it consumes a great
deal of public resources and so has a negative impact on the livelihood of the people.
Building a social security network depends upon the extent of public expenditures and
how rationally those expenditures are allocated.
China’s priorities in public expenditures are both part of the problem and part of the
solution for the weakening of some groups in society and the for the great difficulty in
finding solutions to problems such as poverty, social security and compulsory education.
The problem is not so much the size of public expenditures but in the relative priority
given different kinds of expenditures. The irrational public expenditure priorities
threaten the trust people have in government. Government should be a public service
government. The basic task of modern government is maintaining social fairness.
In China government needs to retreat from areas in which it is still too much engaged and focus its resources in providing more public goods. China’s spending priorities should be allocated according to four levels of priority. On the first, highest level, are strengthening public administration, public order, basic education and national security. Next, on the second level, is quickly building a social security network so as to increase transfer payments to impoverished people. Third, improve the methods for control of the
economy at the macroeconomic level so as to reduce the impact of business cycles. Also,
public expenditures need to be focused on narrowing the gap between the city and the
countryside, resolving the problems of China’s dual urban/rural economy by for example, increasing support to agriculture, environmental protection and social infrastructure such as transportation and electric power networks. Support for transition from the planned economy to the market economy should focus on supporting the livelihood of laid off state enterprise workers.
Openness, transparency, democracy and rule by law are the basic requirements for a
successful public administration. Government should be an agent of the people that
accumulates financial resources and then allocated according to how the people want that income allocated. The budget process must be open, rigorous and include all revenue and expenditures. The budget should reflect the priorities of the people and control the behavior of the government. This is ensured through a thorough legislative process and a strict system of audits, revisions, and approvals. If transparency is absent, there is a lack of public input and influence and so there is really no real “public” administration.
China’s fiscal processes fall far short of the requirements of openness, democracy and
rule by law. Very often the Chinese government is involved where it shouldn’t be
involved and not involved where it should. In the creation of administrative structures
and in expenditures there are no real legal constraints, much is arbitrary and so
government institutions expand and expenditures are out of control. The root problem is
the personalization of public policy. Lacking openness and transparency, very much
depends on the whim of one leader or another. Therefore the root cause of government
being involved where it shouldn’t be and not being involved where it should is lack of
openness and transparency. Fiscal reform doesn’t really depend upon various
administrative reforms but rather on whether openness and transparency become a
fundamental operating principle for the entire government revenue collection and
Chinese government fiscal operations are deeply rooted in the opaque allocation
structures of a centralized system. Government operations are not open and transparent
and the public is not asking for openness and transparency. Even after these many years
of reform, the public, and especially government officials are still mired in a traditional
mentality. Once money goes into the state treasury, it is the “state’s money” and “has
nothing to do with me”. The idea that “this is the taxpayer’s money” has not taken root.
There is no consciousness of democratic rights. Oversight doesn’t even come up so there
is no demand on the government that is be open and transparent. The government is far
behind the market in opening up and becoming transparent in its operations.
The key problem is lagging reform of the budget process. The whole process very much
resembles the pre-reform process so there is very little openness and transparency.
Reform of the budget process didn’t start until 1999 beginning with ministerial budgets
and procurement budgets. Budget problems are very serious.
(1) The budget is incomplete. Many government revenues and expenditures are not
included in the budget. There is no reliable figure for overall government revenues and
expenditures. The public has no idea why the many fees collected now are being
collected and what the money is used for. Fee collections have spread “public finance”
over very many departments, really making it the private finance of the various
departments – no outsider knows what is collected, how it is allocated and where it goes.
(2) The process of drawing up the budget is very crude. China has not established a
system for giving a budget two readings. Budget items do not meet the needs of the
market economy and are not detailed enough to be useful. The result of this crude budget process is that some departments have gotten too large a budget while other departments don’t get enough. The budget is largely a black box.
(3) The execution of the budget is very arbitrary. The budget is not reviewed in time.
When the National People’s Congress reviews the national budget, that budget has
already has been in execution for three to four months. As a result money is spent
arbitrarily and so the budget does not create hard constraints to government operations.
Without acceptance of the principle of openness and transparency, no order can be
brought to government revenue collections and expenditures through laws and
A government budget is a law. If the law is not passed, the government shuts down. How
does this work in China?
The first issue is how the Chinese Communist Party leads the fiscal budget process. In the
Chinese political and administrative system, the Communist Party represents the people
in its exercise of all government and administration. At the provincial level, the
Provincial Party Secretary and the head of the provincial people’s congress is often the
same person. In Party and government administration, the Party Secretary is number one and the head of the government administration is number two. In fact, the Communist Party has the final say in the allocation of fiscal resources, and in fact monies spent on Party activities and government finance are mixed together.
The fundamental question is the Party responsible to the people for the budget or is the
People’s Congress responsible to the people for the budget? Considering the direction of
reform, the answer should be that the will of the Party is expressed through the actions of the People’s Congress. The Party should by and according to law lead fiscal and
economic work. Therefore in fiscal matters, the People’s Congress is responsible to the
people. If problems arise, the head of government bears legal responsibility.
Secondly, the budgets of the various levels of government are composed of budgets
drawn up by the different departments at those levels. The quality of the overall budget
depends upon how well budgets are drawn up at the department level. Proper department budgets make department operation adhere more closely to plan, improve openness, and improve accountability.
Thirdly, governments are composed of people. The fatal flaw in the Chinese budget
system today is that nobody is responsible. The head of each department or agency is
responsible for the execution of the budget. Although this is required by the “Budget Law
of the PRC” in practice this requirement of the law is generally not observed. Going
back to the first question, does responsibility for the budget being carried out properly
fall on the head of government administration (who is really the number two overall) or on the party secretary? Not holding people responsible for their fiscal responsibilities is an important cause of corruption. Strengthening accountability will be an important part of making fiscal administration operate according to the rule of law.
Addressing these problems will requires designing a new framework for a balanced
budget system that will enable the people’s congresses, the auditors, society and the
people to have truly effective oversight of the work of the Party and the government. All
fiscal activities should be open so that the people will understand just how the
government spends the money the people give to them and whether those expenditures
serve the welfare of the nation and the people. If this does not occur, the people will
certainly have a crisis of confidence towards their government.
China’s township governments have an average debt of over 6 million RMB. At the
county level the average government debt is over 200 million RMB and at the regional
level over 300 million RMB. With various tax reforms that converted fees to taxes,
reduction in the arbitrary assessment of fees on the population, and ever greater demand on government at all level to provide more public goods including social security, local government public finance has become less and less solvent. After reform, subsidies from the central government declined and the needs to support failing public enterprises increased. There is no real system of budgeting and public finance at the local level and revenue resources have dried up. Many local governments are borrowing more to cover basic administrative costs and new construction.
Local government take on projects far beyond their capacity without thinking of the
consequences. An example is impoverished Gu County in Shaanxi Province which had
an annual budget of 900 million RMB, barely enough to pay employee salaries.
Nonetheless the county undertook a big road and building project. As a result thousands
of workers have been waiting for 4 million RMB in back wages for four years. Many
counties when they were prevented from collecting fees arbitrarily fell back on borrowing money to meet the basic costs of government.
Consequences of overspending by local government include debt piling up that is a drag
on development; more fiscal pressure results in local government assessing more illegal
fees on the populace; more unpaid workers leading to instability; more bad debts held by
banks; and excessive government investment using methods such as forcing down land
prices and embarking on big construction projects for which the workers can’t be paid,
results in a government generated overheating of the economy.
Can this problem of local governments borrowing money for operating expenses and
construction be brought under control without outside intervention? Not likely because
of the deep institutional reasons this is going on. Every group of local Party and
government leaders wants to look good so they are unwilling for it to be said that they
could not meet a payroll. By the time the loans come due, this set of Party and
government leaders will have moved on to another assignment. If officials can invest
great sums in infrastructure and get the local economy moving, those achievements will
help them get a promotion and they won’t be there when the debt comes due. The status
of the local people’s congress and the poor qualifications of the people in it mean that the
local people’s congress is unable to impose constraints on Party and government leaders.
New measures are needed to bring local government borrowing under control so that the accumulation of these debts does not cause a national fiscal crisis. Local Party leaders should not decide themselves on large projects. Approvals should go through local assemblies such as the local party committee and the local people’s congress. A national law should establish procedures for government borrowing and repayment of money including oversight procedures.
Many of the problems of local finance such as the uncontrolled expansion of personnel
slots in government agencies, low efficiency and excessive burden imposed on peasants
and local companies arose from during the transition from a planned economy to a
market economy. Many individuals and government departments used their own
authority to enrich themselves at public expense. Government approvals and permissions became a tool for extracting fees. Fees for administrative services and enforcement should be eliminated. Only fees for semi-public goods such as water, higher education and special medical services should be collected.
A study by the State Council found that over 4000 types of fees were being collected in
China. Most of the 2000-odd fees at the provincial or local level had no legal basis. Each
year 700 billion RMB are in fees and fines are collected. Some scholars estimate the real
figure is about one-half of all government revenue, which would put fees and fines as
high as 1 trillion RMB. In their reliance on fees and fines, local government see no hard
limit to their revenues. This results in a steady expansion in the number of employees in
The fees collected to support government lead to corruption as officials buy fancy cars
and go to expensive restaurants and people lose their trust in the government.
Some local governments don’t give enough budget to courts or public security, telling
them to go collect fines and fees to support yourself. Some townships depend upon fees
and fines for construction offices, labor offices and family planning offices to cover the
costs of running local government.
Why is it so hard to set up a business in China? There are so many permissions to obtain
and fees to pay that businesspeople get discouraged. The solution is to convert all fees
into taxes to put government on a sound fiscal basis. The size of fines should be greatly
reduced. A large fine should be set for certain items only after discussion at a public
Party, government, legal and military organizations should live within their budgets.
Organizations should provide services to the extent of their budget and no more. No
organizations should be allowed to assess fines to support themselves. Fines should go to
the state treasury