China’s Numbers Game

The deep pockets of Chinese governments are envied by countries around the world. But Chinese citizens, officially presented as the masters of the country, have little knowledge of how and where this public money is spent by their “servants.”

In particular, ordinary people are very resentful about “Three Official Expenses” (TOEs) of the government at all levels — official trips abroad, official car purchases and operations, and official entertainment and accommodations.

In May 2011, the State Council of China — the Chinese cabinet — decided that both central and local governments should reveal their TOEs. Although 54 of the 98 central governmental departments and organs disclosed their TOEs last July, for a total of 9.47 billion yuan ($1.5 billion), no one knows the exact figure for the whole country.

Several years ago, Zhu Lijia, a professor at the National Administration Institute, estimated that total TOEs at all levels of government amounted to 900 billion yuan ($143 billion), or about 20 percent of the budget. The Ministry of Finance claimed the total was only about 120 billion yuan ($19 billion).

While the State Council officially urges administrations at all levels to improve transparency, the finances of different governmental layers are still very foggy. According to a report released by the China Academy of Social Sciences in February 2012, only 10 percent of central governmental departments scored 60 out of 100 or better in their provision of general administrative information, while the rest scored very low.

Another recent report, from researchers of the Shanghai University of Economics and Finance, said that neither the central nor provincial governments scored over 50 out of 100 on budget transparency, suggesting that none satisfied the minimal level of openness.

Since Chinese municipal governments are the main tax collectors and spenders in the country, I and my co-researcher, Z.D. Qiao, studied their fiscal transparency based on rules set by the International Monetary Fund in 1998. In addition to four province-level cities, we took the three most advanced cities from each province, for a total of 81 cities that together account for 61 percent of China’s G.D.P. and 37 percent of its population. (The result was published in China Economic Weekly on June 11.)

Only seven cities scored 4.8 or higher out of 8 in fiscal transparency, suggesting that just 8.6 percent barely met basic requirements of fiscal openness. Our study found that it is common for city governments to release a preliminary budget report, conceal the final statement of revenue and expenditure, and keep off-budget accounts in the closet.

This is a serious issue of legitimacy. Global experience shows that opaqueness is a hotbed of corruption. In China, the much-touted “Chongqing model” turned out to be trickery. Only transparency, accountability and the rule of law can assure the legitimacy of governance. China is now at a critical stage in its history: Fiscal transparency is the first step of political reform toward a civilized democratic society.

How should China proceed? First, a “sunshine law” should be enacted under which all layers of governments must open detailed fiscal reports, including both on-balance and off-balance items. Violations would be prosecuted.

Second, representatives from both the National People’s Congress and People’s Congresses at the local level should assume their fundamental duty of demanding accountability in this matter.

Third, an auditing organ should be established under the National People’s Congress. Together with the existing National Auditing Bureau under the State Council, it should conduct checks on fiscal reports at all levels of government and release the results.

Fourth, fiscal transparency should be taken into account in assessing officials for promotion and demotion.

Fifth, a hospitable environment should be created to encourage the media, non-governmental organizations and citizens to monitor adherence to the law — and to protect them from retaliation.

Even though China has a long heritage of governance, its core philosophy is to treat public affairs as monarchical business. “Under the heaven, everywhere belongs to the king, on the soil, all are the king’s servants,” declares the Book of Songs (1100 to 600 B.C.). And Confucius said, “People may be made to follow, but should not be made to know.”

This feudal ideology, mixed with vested interests, poses barriers to any efforts to change the status quo. But times change, and the ways of governing must change. For the sake of the long-term stability and prosperity of China, it is inevitable and urgent to reform the public governance structure. Fiscal transparency is a breakthrough in this course.

Qiao YU is professor of economics at the School of Public Policy and Management, Tsinghua University, Beijing.

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