The Reform Of The Intergovernmental Transfer System To Achieve A Harmonious Society And A Level Playing Field For Regional Development In China

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.

The Government of China has placed strong emphasis on addressing problems related to agriculture, farmers, and rural society, with the development of a quot;new socialist countrysidequot; designated as a top priority for the Eleventh Five-Year Plan (2006-2010). The financing of public services in rural areas will be a key determinant of the Plan's success. This report analyzes the performance of the intergovernmental fiscal system - the financing of rural development through counties, townships, and villages - and the impact of recent reforms. The authors show that achieving the government's objectives will require channeling substantial new resources to rural areas. In addition, ensuring the effective transfer of resources and their efficient utilization will require fundamental reforms to a wide range of public institutions, including budget and planning processes, personnel management systems, and the organization of government agencies. The authors argue that a comprehensive reform strategy is needed to address fundamental vertical and horizontal imbalances in the intergovernmental fiscal system The reforms must reach beyond the fiscal system to build improved accountability mechanisms to improve public service delivery at the grassroots level. And, given China's size and diversity, reform efforts must focus on improving incentive structures at the county, township, and village levels.

The official banking institutions for rural China are Rural Credit Cooperatives (RCCs). Although these co-ops are mandated to support agricultural development among farm households, since 1980 half of RCC loans have gone to small and medium-sized industrial enterprises located in, and managed by, townships and villages. These township and village enterprises have experienced highly uneven levels of success, and by the end of the 1990s, half of all RCC loans were in or close to default, forcing China’s central bank to bail out RCCs. In Prosper or Perish, Lynette H. Ong examines the bias in RCC lending patterns, focusing on why the mobilization of rural savings has contributed to successful industrial development in some locales but not in others. Interweaving insightful and theoretically informed discussions of rural credit, development, governance, and bank bailouts, Ong identifies various sources for China’s uneven development. In the highly decentralized fiscal environment of the People’s Republic, successful industrialization has significant implications for rural governance. Local governments depend on revenue from industrial output to provide public goods and services; unsuccessful enterprises starve local governments of revenue and result in radical cutbacks in services. High peasant burdens, land takings without adequate compensation by local governments, and other poor governance practices tend to be associated with unsuccessful industrialization. In light of the recent liberalization of the rural credit sector in China, Prosper or Perish makes a significant contribution to debates within political science, economic development, and international banking.

The design of intergovernmental fiscal transfers has a strong bearing on efficiency and equity of public service provision and accountable local governance. This book provides a comprehensive one-stop window/source of materials to guide practitioners and scholars on design and worldwide practices in intergovernmental fiscal transfers and their implications for efficiency, and equity in public services provision as well as accountable governance.

Since 1980, China's economy has been the envy of the world. Is annual growth rate of more than 9 percent during this period makes China today the world's fourth-largest economy. And this sustained growth has reduced the poverty rate from 60 percent of the population to less than 10 percent. However, such rapid growth has also increased inequalities in income and access to basic services and stressed natural resources. The government seeks to resolve these and other issues by creating a 'harmonious society' -- shifting priorities from the overriding pursuit of growth to more balanced economic and social development. This volume compiles analyses and insights from high-level Chinese policy makers and prominent international scholars that address the changes needed in public finance for success in the government's new endeavor. It examines such key policy issues as public finance and the changing role of the state; fiscal reform and revenue and expenditure assignments; intergovernmental relations and fiscal transfers; and financing and delivery of basic public goods such as compulsory education, innovation, public health, and social protection. And it offers concrete recommendations for immediate policy changes and for China's future reform agenda. Public Finance in China' is a must-read for specialists in public finance and for those seeking an understanding of the complex and daunting challenges China is facing.

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.

Currently, much is said about the directions of development of modern China. However, we still do not know what will determine the expected superpower position of the Middle Kingdom. The book is an attempt to answer questions about China's main development challenges from a regional perspective. China aspires to become the country with the largest economy and development potential. This intention may turn out to be in vain if such significant disparities and development imbalances in the regional system are still present in China. The key to understanding the transformation of contemporary China is to recognize the internal determinants of the functioning of both the state and the economy from a regional perspective. A better understanding of the ways of managing regional development disparities may contribute to a more accurate assessment of the dynamics and directions of China's socio-economic development.

China is the most decentralized country in the world in terms of expenditures shares, with subnational governments responsible for 85 percent of government spending. Limited revenue autonomy and insufficient intergovernmental transfers have led to large unfunded mandates and a build-up of debt outside the budget. The government has recently announced an ambitious intergovernmental fiscal reform, which will increase the role of the central government. Comprehensive reform is needed to improve public service delivery, increase overall social spending levels and reduce regional disparities. Revenue reforms are also necessary to improve efficiency and reduce vulnerabilities from excessive subnational borrowing. These reforms are challenging, but are crucial so that the government can support China’s continued development and prosperity.

Abstract: The central governments of many developing countries have chosen to decentralize their anti-poverty programs, in the expectation that local agents are better informed about local needs. The paper shows that this potential advantage of decentralized eligibility criteria can come at a large cost, to the extent that the induced geographic inequities undermine performance in reaching the income- poor nationally. These issues are studied empirically for (probably) the largest transfer-based poverty program in the world, namely China's Di Bao program, which aims to assure a minimum income through means-tested transfers. Poor municipalities are found to adopt systematically lower eligibility thresholds, reducing the program's ability to reach poor areas, and generating considerable horizontal inequity.