Chinese central-provincial fiscal relationships, budgetary decline and the impact of the 1994 fiscal reform: An evaluation

China Quarterly

Volumn , Issue 157, 1999, Pages 115-141

  Zhang, Le Yin ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

CAPITAL FLOW; CENTRAL-LOCAL RELATIONS; FISCAL REFORM; PUBLIC SPENDING;

CHINA;

EID: 0033019653     PISSN: 00094439     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (70)

1. The more important publications include Michel Oksenberg and James Tong, "The evolution of central-provincial fiscal relations in China, 1971-1984: the formal system," The China Quarterly, No. 125 (1991), pp. 1-32; World Bank, China: Revenue Mobilization and Tax Policy (Washington, DC: World Bank, 1990); Christine P. W. Wong, "Central-local relations in an era of fiscal decline - the paradox of fiscal decentralization in post-Mao China," The China Quarterly, No. 128 (1991), pp. 691-714. The single most useful reference is Christine P. W. Wong, Christopher Heady and Wing T. Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995), app. 1 and ch. 3. The book edited by Song Xinzhong, Zhongguo caizheng tizhi gaige yanjiu (A Study of China's Fiscal Reform) (Beijing: Zhongguo caizheng chubanshe, 1992) is also very informative about the viewpoint of the Ministry of Finance.
2. The more important publications include Michel Oksenberg and James Tong, "The evolution of central-provincial fiscal relations in China, 1971-1984: the formal system," The China Quarterly, No. 125 (1991), pp. 1-32; World Bank, China: Revenue Mobilization and Tax Policy (Washington, DC: World Bank, 1990); Christine P. W. Wong, "Central-local relations in an era of fiscal decline - the paradox of fiscal decentralization in post-Mao China," The China Quarterly, No. 128 (1991), pp. 691-714. The single most useful reference is Christine P. W. Wong, Christopher Heady and Wing T. Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995), app. 1 and ch. 3. The book edited by Song Xinzhong, Zhongguo caizheng tizhi gaige yanjiu (A Study of China's Fiscal Reform) (Beijing: Zhongguo caizheng chubanshe, 1992) is also very informative about the viewpoint of the Ministry of Finance.
3. The more important publications include Michel Oksenberg and James Tong, "The evolution of central-provincial fiscal relations in China, 1971-1984: the formal system," The China Quarterly, No. 125 (1991), pp. 1-32; World Bank, China: Revenue Mobilization and Tax Policy (Washington, DC: World Bank, 1990); Christine P. W. Wong, "Central-local relations in an era of fiscal decline - the paradox of fiscal decentralization in post-Mao China," The China Quarterly, No. 128 (1991), pp. 691-714. The single most useful reference is Christine P. W. Wong, Christopher Heady and Wing T. Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995), app. 1 and ch. 3. The book edited by Song Xinzhong, Zhongguo caizheng tizhi gaige yanjiu (A Study of China's Fiscal Reform) (Beijing: Zhongguo caizheng chubanshe, 1992) is also very informative about the viewpoint of the Ministry of Finance.
4. The more important publications include Michel Oksenberg and James Tong, "The evolution of central-provincial fiscal relations in China, 1971-1984: the formal system," The China Quarterly, No. 125 (1991), pp. 1-32; World Bank, China: Revenue Mobilization and Tax Policy (Washington, DC: World Bank, 1990); Christine P. W. Wong, "Central-local relations in an era of fiscal decline - the paradox of fiscal decentralization in post-Mao China," The China Quarterly, No. 128 (1991), pp. 691-714. The single most useful reference is Christine P. W. Wong, Christopher Heady and Wing T. Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995), app. 1 and ch. 3. The book edited by Song Xinzhong, Zhongguo caizheng tizhi gaige yanjiu (A Study of China's Fiscal Reform) (Beijing: Zhongguo caizheng chubanshe, 1992) is also very informative about the viewpoint of the Ministry of Finance.
5. The more important publications include Michel Oksenberg and James Tong, "The evolution of central-provincial fiscal relations in China, 1971-1984: the formal system," The China Quarterly, No. 125 (1991), pp. 1-32; World Bank, China: Revenue Mobilization and Tax Policy (Washington, DC: World Bank, 1990); Christine P. W. Wong, "Central-local relations in an era of fiscal decline - the paradox of fiscal decentralization in post-Mao China," The China Quarterly, No. 128 (1991), pp. 691-714. The single most useful reference is Christine P. W. Wong, Christopher Heady and Wing T. Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995), app. 1 and ch. 3. The book edited by Song Xinzhong, Zhongguo caizheng tizhi gaige yanjiu (A Study of China's Fiscal Reform) (Beijing: Zhongguo caizheng chubanshe, 1992) is also very informative about the viewpoint of the Ministry of Finance.
6. Jae Ho Chung, "Studies of central-provincial relations in the People's Republic of China: a mid-term appraisal," The China Quarterly, No. 142 (1995), p. 491.
7. Gabriella Montinola, Yingyi Qian and Barry R. Weingast, "Federalism, Chinese style - the political basis for economic success in China," World Politics, No. 48 ( 1995), pp. 50-81.
8. Wang Shaoguang and Hu Angang, Zhongguo guojia nengli baogao (A Report on the Capacity of the Chinese State) (Hong Kong: Oxford University Press, 1994).
9. For example, see: Jae Ho Chung, "Beijing confronting the provinces: the 1994 tax-sharing reform and its implications for central-provincial relations in China," China Information, Vol. IX, No 2/3 (1994-1995), pp. 1-23.
10. As indicated by Premier Li Peng in his speech to the participants of the National Finance Works Conference in December 1997. See Renmin ribao, overseas edition, 19 December 1997, p. 1.
11. This draws on International Bank for Reconstruction and Development World Development Report 1988 (New York: Oxford University Press), p. 45.
12. World Bank, China: Revenue Mobilization and Tax Policy, pp. 115-16.
13. Another reason for the pre-reform system was the relative case of maintaining central control over revenue collection. As a matter of fact, prior to reform, the tax structure was very simple with only one tax for SOEs and two taxes for non-SOEs. Indeed, tax revenue comprised only a lesser part of total budgetary revenue, with the rest made up of profit remittance from the state-owned enterprises. Then the dominance of central planning made the enterprises' operation including their tax obligation and profit remittance level, transparent to the authorities. On the spending side, priority was given to economic construction and defence, areas in which there is a considerable economy of centralization. For the two periods 1971-75 and 1976-80, for instance, these two items together claimed 76.8% and 76.3% of total budgetary spending.
14. Then the so-called total centralization system (tongshou tongzhi) was implemented. Provinces turned over all locally-collected revenue to the centre and received all their revenue from central government transfers. The level of a province's collected revenue bore no relationship to the level of permitted expenditures. Song Xinzhong, A Study of China's Fiscal Reform, p. 51.
15. Kenneth Lieberthal and David M. Lampton (eds.), Bureaucracy, Politics, and Decision Making in Post-Mao China (Berkeley: University of California Press, 1992).
16. Wong's study showed the rise in the centre's share continuing up to late the 1980s. This may be because the data used included borrowing.
17. World Bank, World Development Report 1997 (Washington, DC: World Bank, 1997), p. 121.
18. See Wang Shaoguang and Hu Angang, A Report on the Capacity of the Chinese State, p. 138.
19. Yasheng Huang, "Central-local relations in China during the reform era," World Development, Vol. 24, No. 4 (1996), p. 660, fig. 3.
20. Wong, "Central-local relations in an era of fiscal decline."
21. World Bank, Urban Policy and Economic Development: An Agenda for the 1990s: A World Bank Policy Paper (Washington DC: World Bank, 1990), p. 26.
22. Wong, Heady and Woo, Fiscal Management and Economic Reform, p. 233.
23. Ibid. pp. 234-240.
24. The budgetary revenue we use here is already adjusted for its definition to include the subsidies to SOEs as revenue items, rather than revenue-negating items. This has the effect of increasing the size of budgetary revenue, thus reducing the ratio.
25. See Xinhua yuebao, No. 7 (1992), pp. 56-62. Originally published in Renmin ribao, 25 July 1992.
26. Xinhua yuebao, No.7 (1997), p. 75. The decision by the State Council to strengthen the management of the EBF was announced in Renmin ribao, 8 June 1996.
27. Jae Ho Chung, "Beijing confronting the provinces," p. 8.
28. State Statistical Bureau, China Statistical Yearbook 1996 (Beijing: China Statistical Publishing House, 1996), p. 143.
29. Ibid. pp. 69 and 143.
30. Courts in Jiangsu province accepted 174 such cases during January-June 1995. Elsewhere, in Hunan, between 1993 and 1996, 2,643 such cases were heard. The number of these cases in Sichuan in 1995 was 186. See Renmin ribao, overseas edition, 23 November 1996, p. 4.
31. Ibid.
32. Xu Wang, "Mutual empowerment of state and peasantry," World Development, Vol. 25, No. 9, p. 1434.
33. An article in Renmin ribao in 1996 declared that the centre was still very concerned with the tanpai problem: between 1992 and 1996, the Central Committee and the State Council issued seven instructions, organized four inspections and instigated the supervision of many cases. In 1996 alone, the central leaders called for corrective actions on 22 occasions. See Renmin ribao, overseas edition, 23 November 1996, p. 4.
34. For taxes in each of these categories, see World Bank, China: Revenue Mobilization and Tax Policy, p. 86, box 3.2.
35. See ibid. p. 85.
36. "Say no to Peking," Far Eastern Economic Review, 4 April 1991, p. 21.
37. Jae Ho Chung, "Beijing confronts the provinces," p. 7.
38. Finance and Economy Small Leading Group of the Central Committee of the Chinese Communist Party (ed.), Dangqian ji xiang chong dai jingji tizhi gaige (Some Important Reform Measures for Economic Restructuring at the Present) (Beijing: Renmin chubanshe, 1994), section 4.
39. Ibid. p. 105.
40. See Wong, "Central-local relations in an era of fiscal decline," pp. 703-706.
41. Christine P. W. Wong (ed.), Financing Local Government in the People's Republic of China (Hong Kong: Oxford University Press, 1997), p. 33
42. Ibid. p. 34.
43. Ibid.
44. Finance and Economy Small Leading Group of the Central Committee of the Chinese Communist Party (ed.), Some Important Reform Measures, p. 95.
45. Ibid. p. 93.
46. Yu Zhong-yi, "Mainland China's taxation reform, its effect and some thoughts on perfecting it" (Beijing: Institute of Fiscal Science, the Ministry of Finance, memo, 1997), p. 5.
47. Finance and Economy Small Leading Group of the Central Committee of the Chinese Communist Party (ed.), Some Important Reform Measures, p. 92.
48. Renmin ribao, overseas edition, 25 November 1994, p. 1.
49. An MOF official indicated that the overall target was 16% (interview, May 1997).
50. Some details of this episode are provided in Chelan Li, Shifting Central-Provincial Relations in China: The Politics of Fixed Asset Investment in Shanghai and Guangdong, 1978-1993 (University of London: doctoral dissertation, 1995), chs. 5 and 6.
51. Renmin ribao, overseas edition, 6 December 1995, p. 1.
52. State Statistical Bureau, China Statistical Yearbook 1996, p. 235.
53. Beijing Review, 7-13 April 1997, p. 30.
54. It contains such disheartening passages as: "at present, difficulties and potential risks still exist in state finances. The deficit in the central budget remains high, and the objective of reducing the deficit set in the Ninth Five-Year Plan will be difficult to achieve. Huge debts are incurred in the central budget. Losses in taxation are still serious, cases such as arbitrary tax reduction or exemption, tax evasion, tax fraud, refusal to pay taxes and taxes in arrears frequently occur ... The unauthorized establishment of funds and the collection of arbitrary charges are still common. The tax base is being seriously eroded by extra-budgetary charges. The diversion of state financial resources has not been checked, and the relations in income distribution have not been straightened out ..."
55. Matt Forney, "Between the lines," Far Eastern Economic Review, 20 March 1997, p. 53.
56. Renmin ribao, overseas edition, 23 July 1997, p. 1.
57. The rates are 17.7% and 17.3% respectively. See British Broadcasting Corporation, Summary of World Broadcasts: Weekly Economic Report, FEW/0490 WG/1, 11 June 1997.
58. Renmin ribao, overseas edition, 23 July 1997, p. 1.
59. Renmin ribao, overseas edition, 7 March 1998, p. 4.
60. This followed a similar reduction in July 1995 when the export rebate rates for agriculture and coal were reduced from 13% to 3%. For commodities on which the full VAT rate (17%) applies, the rate was cut to 14%. Alterations in 1996 cut the rate for the second category further to 9%.
61. Renda fuyin baokan ziliao: Caizheng yu shuiwu (People's University Reprint Series: Finance and Taxation), No. 3 (1997), p. 4. Originally published in Zhongguo caijing bao (China Economic Daily), 25 February 1997, p. 3.
62. Renda fuyin baokan ziliao: Caizheng yu shuiwu (People's University Reprint Series: Finance and Taxation), No. 3 (1997), p. 4. Originally published in Zhongguo caijing bao (China Economic Daily), 25 February 1997, p. 3.
63. Personal interview with officials in Shanghai.
64. See Renmin ribao, overseas edition, 17 January 1998, p. 1, and State Statistical Bureau, China Statistical Yearbook 1996, p. 228.
65. See Renmin ribao, overseas edition, 17 January 1998, p. 1, and State Statistical Bureau, China Statistical Yearbook 1996, p. 228.
66. See Renmin ribao, overseas edition, 16 February 1998, p. 2.
67. Personal correspondence with researchers in the Shanghai Municipal Government.
68. Jiang Yun Hua, "Gradually perfecting the tax-sharing fiscal system," Renda fuyin baokan ziliao: Caizheng yu shuiwu (People's University Reprint Series: Finance and Taxation), No. 7 (1997), p. 62. Originally published in Guanli shijie (World of Management), No. 2 (1997). The author is an official from the Ministry.
69. Jiang Yun Hua, "Gradually perfecting the tax-sharing fiscal system," Renda fuyin baokan ziliao: Caizheng yu shuiwu (People's University Reprint Series: Finance and Taxation), No. 7 (1997), p. 62. Originally published in Guanli shijie (World of Management), No. 2 (1997). The author is an official from the Ministry.
70. Ma Jun, "Budgetary transfer payment from the centre to localities," Jingji yanjiu (Economic Research), No. 3 (1997), p. 11.