Lessons in public sector reform from China
Abstract
China is a good case study for adoption of “best fit” options for progressive transition to State
functioning on “good governance” principles. It‟s spectacular record in sustained economic
growth, social and human development and poverty reduction are the outcomes of (a) Nation
building around a core commitment to inclusive, pro poor development with a progressive
shift towards citizen centric development; (b) providing fiscal and managerial space for
strategic decision making to local governments, while simultaneously enhancing fiscal
leverage for central oversight over policies and goals; (c) graduated change in the behavior,
mind set and skills of its Party and government cadres aligned with the human capital needs
of its policies and (d) a comprehensive merit based performance management system for
government structures and cadres. Without replicating the institutional structures commonly
associated with “good governance” China has embedded aspects of the core principles of
accountability and participation within its institutional envelop of single party domination,
inner Party democratization, state led, but Nation and increasingly citizen centric, market
oriented development and fiscal and administrative decentralization.
Keywords
Accountability, capacity development, decentralization, nation building, participation,
performance management.
Authors
Xiaoyun Li, China Agricultural University; Sanjeev Ahluwalia, World Bank; Dong Qiang,
China Agricultural University
1
Introduction
1.
The emergence of China, as a dominant economic power, with concurrent
improvements in access to and the quality of basic public services and sharp reductions in the
level and scale of poverty, pose the question, whether there are any lessons in public sector
management, which can be drawn, from its experience. Reforms commenced in China in
1978 but 1992 was an inflection point. Early in that year, chief reform architect Deng
Xiaoping delivered his Southern Tour Speeches, proposing to accelerate the reform process.
Later that year, the Fourteenth National Congress of the Communist Party of China confirmed
the establishment of a socialist market economy as the country‟s economic system reform
objective setting China on the path of a becoming a transitioning market economy.
2.
China has had thirty years of continuous, rapid economic growth, unprecedented in
world history, at an average annual rate of approximately 10% 1 . In 2010, China‟s GDP
accounted for 9.3% of total global output, surpassing Japan to become the world‟s second
largest economy. At the same time, China transformed from an agriculture-based, centrallyplanned economy to an industrialized, market-oriented one. In 2011, the country‟s level of
urbanization exceeded 50%, with the urban population overtaking its rural counterpart for the
first time. Rapid economic growth enabled large-scale poverty reduction. The proportion of
the poor population (those earning less than $1.00 a day) declined from 73.5% in 1981 to 8.1%
in 2005. The population of the poor reduced by 624 million people during this period. Over
the same period, the global incidence of poverty fell from 41.7 to 16.1% or from 1.53 billion
to 879 million (Shaohua Chen and Martin Ravallion, 2008). China accounted for 96% of the
1
World Bank data.
2
651 million lifted out of poverty globally during this period. The Government of China reset
the national poverty line from 865 to 1,274 RMB, at the end of 2010. Even by this revised
classification there were only 26.88 million poor in rural areas. (PRC State Council News
Office, 2011). This sets an enviable record of poverty reduction and provides important
lessons for the developing world.
3.
China has similar significant achievements in public service delivery. In 1978, the
central government began to transfer the responsibility of public service delivery to local
government. By 1990 public service delivery was positioned as a key component of national
development, reflecting the collaborative roles of government, market and civil society.
According to assessments by the Ministry of Foreign Affairs and UN China (2008), the
country has fully met the second millennium development goal (MDG) of primary education
provision and is already moving forward to formulate a national development plan calling for
universal nine-year compulsory education. By the end of 2007, the rate of primary school
attendance for males and females reached 99.5%. From 2000 to 2006, the completion rate of
primary school (five years) rose from 95% to 99%, while the rate of middle school attendance
increased to 98% and universal nine-year compulsory education coverage, to 99.3%. During
the period 1991 to 2007, the infant mortality rate dropped from 50.2% to 15.3%, and the
under-five mortality rate, from 61% to 18.1%, accomplishing another MDG ahead of
schedule. The maternal mortality rate is likely to be 75% lower by 2015. In 1990, the number
of maternal deaths was 94.7 per 100,000 people. By 2007, this rate had already fallen to 36.6
per 100,000 people, representing a 61.4% decrease. Throughout this period, China
endeavoured to restructure its public service system. In 2003, it piloted nationwide the New
3
Rural Cooperative Medical Scheme. By the end of 2009, the number of participating counties
(cities and districts) reached 2,716, while the program‟s coverage included 833 million people,
or a participation rate of 94.19%2. In 1999, the government established the Minimum Living
Standards Guarantee Scheme, eventually extending this program into rural areas in 2007. By
2010, the scheme covered 23,105,000 urban residents and 52,140,000 rural residents3
3.
This remarkable story of social and economic transformation with striking results in
poverty reduction begs the question; Are there lessons in economic growth and poverty
reduction for the rest of the developing world? The prevailing view is that China‟s success is
due to circumstances which are not replicable elsewhere, as evidenced by the following: the
extended political stability, due to the Communist Party of China (Party) being continuously
in power since 1949 and enabling thereby, long term strategic planning and uninterrupted
implementation; the relative cultural homogeneity of China, diluting the political imperative
for multiparty politics, so important in more fractured societies; and the strategic convenience
of Hong Kong and Taiwan, as off shore conduits for foreign investment and the harmonious
assimilation of private sector led, market oriented policies, into the socialist political fabric of
the country. Barry Naughton, identifies three features of China‟s experience which are unique:
the scale of China and the possibilities offered by a large internal market; the emergence of
new industry based on labor intensive development after a period of state socialism based on
capital intensive development; and the maintenance and restructuring of China‟s hierarchical
authoritarian system (Minglu Chen and David S. G. Goodman, 2012).
4.
2
3
It is striking, however, that many developing countries have enjoyed similar
Ministry of Health, PRC, 2010
Ministry of Civil Affairs, PRC, 2011
4
advantages but without comparable results from episodic attempts at public sector reform,
most often funded by foreign aid. Tanzania has had the same political party in power since
independence in1962. It has an abundance of natural resources and direct access to the sea. It
enjoys tribal and religious harmony unlike much of Africa. It also went through thirty years of
socialist political rule before starting to liberalize its economy in 1992. However, the results
in poverty reduction, social and human development do not elicit widespread acclaim. India is
another continental sized country with a comparable population, a large domestic market, the
potential for export led growth, an extended period of state investments in industrial and
infrastructure development since the early 1950‟s and significant social transformation
through democratization, including political plurality at all levels of government over the last
twenty five years. Yet results in poverty reduction, social and human development remain
unexceptional.
The hypothesis
5.
This paper hypothesizes that the key difference between China and other developing
countries, is the selective but committed embedding of core good governance principles, as
the norm for government functioning. It is important here to distinguish between the core
good governance principles of “transparency, accountability and participation” and the
institutional forms of good governance which have become commonplace but rigid symbols
of good governance. The principle of transparency, which is intended to enable informed over
sight, has come to mean formal access to public information for citizens and an expansion in
the scope and range of public information preferably through a Right to Information law.
What is stressed in assessments of transparency is the legal right to information or the
5
existence of formal mechanisms for getting access to public information rather than
measuring the availability of information demanded by an average citizen. The principle of
horizontal accountability is measured on the basis of the existence and functioning of an
elected and capable legislature; an independent and capable judiciary and other oversight
entities, like an Audit Agency and Anti Corruption Agency, as essential institutions for
horizontal accountability. However attribution of a specific form of institutional development
to results with respect to services for citizens is uncertain. Vertical accountability is equated
to functional rules of service for public servants, clear identification of roles, responsibilities
and delegated powers with sanctions and rewards based on measurable criteria of individual
performance. Similarly the benchmarks for downward accountability to citizens are the use of
direct citizen feedback systems on the performance of government like service delivery
surveys and citizen score cards including, more recently, the use of social media for this
purpose. Increasing levels of participation of citizens from managing schools to street lighting
to local level planning and monitoring of budget execution are viewed under the “demand for
good governance framework” as positive outcomes of open government.
6.
China clearly does not fit into this model of “good governance”. It does not score
high on transparency indicators. Its leaders are not “democratically” elected by the people but
are selected through an inner party process which is not “transparent” in that a leader is
chosen by the Party. The line between what is permitted in the media and what is not is
unclear and needs to be negotiated with care and access to public information is not legally
enforceable by citizens. Citizens cannot march into a government engineer‟s office and
demand to see his accounts as they can in India. In China the Communist Party of China (The
6
Party) rules and is supreme. There is no concept of an independent judiciary or legislature so
horizontal accountability, beyond and outside of what the Party considers appropriate, does
not exist. Citizens were not invited, till recently, to participate in service delivery surveys or
to review the budget of their city or village or monitor government expenditure. However,
vertical accountability within the Party/government is rigidly enforced. Vertical accountability
is based on clearly developed work programs and responsibilities with quantified targets,
which feed into national programs. Performance is monitored and less than adequate
performance is sanctioned, sometimes harshly. While China does not fit into the conventional
model of good governance, this paper hypothesizes that it enforces the core good governance
principles of accountability and participation. It enforces downward accountability by making
the Party responsible for ensuring the well being of citizens. Participation is similarly ensured
through inner party democratization. Consensual adherence to these principles explains its
exemplary performance in poverty reduction, social development and economic growth. More
significantly in the thirty years since 1992 when the reform commenced China has shown its
capacity for adaptive behavior to align the Party with the aspirations of the people without
losing its dominance. This strategy has given it the political space for sustained reforms.
Building a Nation
7.
If “good governance” is equated with “development effectiveness” China is a star
performer based on sustained economic growth, social and human development and poverty
reduction. It does this by ensuring that all levels of the Party and the government, commit to
and work towards, implementing the shared objective of national development, but with
considerable freedom, for lower levels, to develop localized operational strategies. This sense
7
of personal commitment to a national goal is weak elsewhere and “nation-building” is no
longer considered necessary in a globalised world, except in the context of fragile states
where it is seen as“glue” which could bind fractured societies. However, as the recent Euro
zone crisis illustrates, even in the developed world, building and maintaining a citizen‟s sense
of belonging to a nation is based on a functional, credible and legitimate state. This is the
approach that China has taken since 1947.
State building in China
The Party and the State
8.
China does not distinguish between the State and the Party. This is not unique. There
are any number of countries where this distinction does not exist de facto, though the façade
of “democratic” elections is played out. China views democratization as a progressive goal
which must be preceded by developing a capable State and Party. It has consequently worked
to build the State over the last sixty years. The centrality of the Party provides the ground for
national consensus. China‟s political system has always been one of centralized state power.
In 1949, following the establishment of the Communist Party of China, the Party and the State
became indistinguishable. The relationship between Party and the State is principally reflected
in the notion of “Party represents and is indistinguishable from government” (以党代政，党
政不分) (Ding Xueliang 2011: 44). While this relationship has undergone changes post 1978,
the Party continues to lead the government through direct or indirect means.
9.
Beginning in 1982, and then again in 1988, 1993, 1998, 2003, and 2008, the Chinese
government implemented six institutional reforms, attempting to simplify and restructure its
structures and systems.
In the early years the government studied and implemented the
8
Soviet model of a planned economy, with planning administration as its primary means of
economic regulation. Prior to the reform and opening up, the Party designed national
development plans according to the guiding principle of continuous revolution, committing,
what would later be considered, a number of errors. In 1978, the Third Plenary Session of the
Eleventh Central Committee of the CPC decided to shift the focus of the Party and the State
toward the modernization of socialism. Since then, the Party not only produces a long-term
plan for socio-economic development, it also details specific objectives, focal points and
measures which the government and its various departments implement (Zhou Tianyong,
2008: 92).
Nation building
10.
Nation-building began at the turn of the 20th century, during the late Qing, early
Republican era, when Sun Yat-sen proposed the “Three Principles of the People,” attempting
to resolve the crisis in state authority and establish a modern State. In Sun Yat-sen‟s view,
following the expulsion of the Manchus from power, the Chinese people had been able to
recover their own nation and its political system (Sun Yat-sen 1956: 68-70). With the support
of nationalist sentiment, Sun Yat-sen achieved national integration and produced a cohesive
State. The Kuomintang, or Nationalist government, however, could not complete Sun Yatsen‟s nation-building project. Subsequent to the Party gaining power, China transformed into
a totalist state system, exercising absolute control over society. National development became
the common objective of the Party, government and the people and the interest of the State
superseded all other considerations. In 1953, the Party initiated the expropriation of all private
business rights. In 1958, the central Party-State called on the masses to construct backyard
9
furnaces as part of a large-scale, all-encompassing steel-smelting campaign. That same year, it
began the construction of the people‟s communes, collectivizing ownership of the means of
production and allocating labour based on work-points. The people‟s commune directly
eliminated the private ownership of land and squeezed out peasant household industries. In
1955, urban youth began to arrive in rural areas to engage in the reclamation of land. In
December 1968, Mao Zedong transmitted his instructions for “young intellectuals to be sentdown to countryside to receive the indispensible re-education of Chinese rural poverty,”
launching the “go up the mountain and go down to the village” (上山下乡) movement. In
those years, all middle and high school students (i.e., students who would have been attending
school between 1966 and 1968) were sent-down. An exceptionally high proportion of these
students were forced to participate as a result of political pressure.
11.
From 1949 to 1978, China‟s development plans failed to focus on citizens as partners
in the process of national building. Citizens were viewed as a source for labour for centrally
planned development. In 1978, the Eleventh Plenary Session of the Third Central Committee
of the CPC recognized that given the lagging economy, disordered political system, Socialism
faced a crisis of legitimacy. The Party resolved to initiate reform with the objective of
implementing citizen centric development, which was expected to reinforce the political
legitimacy of the Party. This trend was reinforced in the 1990s, following the momentous
changes in Eastern Europe.
Decentralisation
12.
Decentralisation, a key component of “good governance”, has been a key feature of
China‟s strategy for inclusive development. However, decentralisation has not followed the
10
traditional model of synergistic and parallel devolution of political, administrative and
financial powers and functions. China‟s model of decentralisation is a hybrid of centralised
revenue raising powers, policy development and government cadre management coupled with
high levels of fiscal and administrative decentralisation enabling tactical decision making at
the local level for implementing national policies. Political power remains tightly vested in
the Party. The Party in turn intervenes closely in the appointment of all government
functionaries. Fiscal powers for raising revenues have been centralised over the period 1978
to 2009. The share of local revenue in national revenue fell from a level of 84.5% in 1978 to
47.6% in 2009. However expenditure at the local level increased from 52.6% to 80% over the
same period4. This was aligned to the strategy to increasingly decentralizing power. With the
freedom to innovate on how to implement centrally planned development, local governments
have continuously expanded the scale of local economic activity, enhancing their local
economic potential. While the 1994 tax sharing reform, weakened local government‟s ability
to raise fiscal resources, it did not constrain the availability of fiscal resources for locally led
development, although all development is within the broad parameters of central policy. The
key innovation in China has been the centralisation of revenue raising powers, with the
objective of acquiring leverage to enforce central goals and policies and yet encourage
decentralized decision-making and strategies for achieving these goals, including the
decentralization of expenditure powers. Annex 1 gives a more detailed account of the
evolution of fiscal management in China.
Capacity development of Party and government cadres
4
China Statistical Yearbook-2010
11
13.
China gives great importance to shaping the mind set and skills of its cadres, to align
with the requirements of its development strategy. Elsewhere, capacity development is
primarily funded by foreign aid, loosely regulated, inadequately “owned” by governments and
usually delivered by international consultancy organizations, which thrive on “cookie cutter”
approaches. It is no wonder then, that it is often unrelated to the underlying incentives,
organizational structure and development strategy, leading to uncertain results in learning,
behavioral change or effectiveness in work. To construct a system conducive to economic
development, the objectives, priorities, sense of responsibility and expectation of shared
benefit of the process‟s core participants must be reshaped, thereby fundamentally cultivating
a common rationality (Dietrich Rueschemeyer, 1977). China adopted a three pronged strategy
for capacity development. The first component of this strategy was to disseminate the national
vision of the government. The second was to reinforce training. The third was to strengthen
the review and approval process of cadre appointments and promotions at all levels of the
party organization (Shen Dawei, 2011: 201). In 1995, the Party initiated the “Three Stresses
Campaign” announcing that cadre education would focus on three areas, namely, learning,
politics and righteousness. In 2004, it initiated an advanced education program and in 2008, it
developed a study program for development practioners. The Party attaches great importance
to cadre education and training. Since the beginning of the new century, the central
government has formulated two five-year plans for cadre education and training, the “20012005 National Cadre Education and Training Plan” and “2006-2010 National Cadre
Education and Training Plan,” in addition to the “2010-2020 Cadre Education and Training
Work Reform Outline.” In 2006, it also drew up a preliminary version of “Cadre Education
12
and Training Work Regulations.” Under the leadership of the central party committee, the
Central Organization Department oversees the division of work and responsibility within the
state apparatus and the management of cadre education and training at each level of
government. It is responsible for the overall regulation of nationwide cadre education as well
as for the education and training of centrally-supervised cadres of specialists and technical
experts of key state-owned enterprises and financial institutions. Each region must follow the
requirements of the cadre education and training management system, delegating
responsibility for relevant tasks.
14.
The content of cadre education and training is designed according to responsibilities
and administrative levels and primarily encompasses political theory, policy legislation,
professional knowledge, cultural education and skills training. While political theory
education remains the principal focus, the training also offers elective study, full and part-time
programs and learning opportunities both at home and abroad, promoting the all-around
enhancement of cadres‟ quality and capacity. In addition, the training targets particular partystate officials (i.e., leading cadres, reserve cadres, grassroots cadres, female cadres, ethnic
minority cadres, non-party cadres and other public functionaries) and, according to their level
and classification, provides party-state officials, enterprise managers and technical experts
with educational training. The cadre education and training mechanism primarily consists of
party schools and institutes / academies of governance, socialism and cadre management as
well as the Central Organization Department‟s directly-controlled Yan‟an Cadre Academy,
Jinggangshan Cadre Academy, Pudong Cadre Academy and China Business Executives
Academy (Dalian). There are about 2,700 party schools, more than 2,000 local academies of
13
governance and over 1,000 institutes of socialism nationwide. The party schools focus more
on politics and ideology, the academies of governance emphasize economic and practical
skills, and the institutes of socialism primarily train ethnic minority cadres and other United
Front representatives (David Shambaugh, 2008). In addition, members from business training
organizations, institutions of higher education and scientific research institutes also participate
in cadre education and training.
15.
By September 2000, the Central Party School had trained four million cadres of
which 2.3 million were from mid-to-high level ranks, 4,500 “young reserve cadres,” 3,000
ethnic minority cadres and 7,300 Propaganda Department cadres and Central Party School
instructors (Wan Fuyi, 2001: 292). By the end of 2001, half of the country‟s 6,932,000 cadres
had been trained; 989,000 at a party school; 195,000 at an academy of governance; 225,000 at
a cadre management college and 1,669,000 through other forms of professional training
programs (General Office of the Central Organization Department, 2002).
Performance management
16.
China has an effective system for performance management, which focuses on results
and not process. Even the Party subjects itself to performance review, with derived
performance measures for lower cadres and levels of government. Following the 1978
decision to concentrate on economic reform, China established an effective system for
evaluating the performance of local government officials based on economic growth rates.
The lack of “clutter”, or inclusion of multiple objectives for performance evaluation, enabled
quantitative evaluation though attribution of results to effort may have become uncertain.
Performance assessment is the determining factor in career progression of local officials. The
14
Chinese government uses a top-down approach to the formulation and articulation of
objectives, requiring lower levels of government to handle implementation. Performance
evaluation is based on quantitative measures derived from the “list of duties” of each
employee. At the beginning of each year, the State Council draws up a government work
report, summarising the past year‟s work and putting forth the current year‟s objectives. All
ministries and commissions use the relevant content of the government work report to craft
more specific departmental targets, subsequently transmitting them down the ranks. Every
level of local government must summarize and report on those targets passed down to them
from their superiors before transmitting them once again to even lower-level ranks. National
medium-to-long term strategic plans, likewise, follow the aforementioned process of target
formulation, dissemination and assessment.
20.
In China‟s model of collaborative leadership of party and government, the Party is
responsible for the evaluation and promotion of local officials while the central government
articulates development objectives. (Zhou Li‟an, 2007). Party-State officials of equal rank
from across all the Regions of China compete on the basis of economic growth rates as the
measure of their relative performance. This mechanism ensures that officials both articulate
and disseminate these growth objectives among their subordinates. In practice, the
performance evaluation system results in healthy but intense competition among local
officials of equal rank since it is closely linked to rewards and sanctions. This system aligns
individual incentives with national objectives. On the basis of panel data from 28 provinces
and directly controlled municipalities, between 1979 and 2002, Zhou Li‟an, Li Hong bin and
Chen Ye (2005) established that economic performance significantly influenced the
15
promotions of provincial officials. Secondly, they found that performance trends over several
years had a higher impact on career prospects than single year‟s performance signalling
appropriate attribution of results to effort.
21.
The shift in 1992 from single minded pursuit of economic growth to comprehensive
development presented a major challenge for performance evaluation since the performance
matrix has expanded. Due to information asymmetries and unquantifiable objectives the
previously “closed” system of performance evaluation has become insufficient. The Party and
government has responded to this new challenge by beginning to associate citizens with
performance assessments of government using surveys of the level of citizen satisfaction with
public services. The 2006 “Scientific Outlook on Development‟s Pilot Methods for the
Comprehensive Evaluation of Local Party and State Leading Groups and Cadres” lists the use
of statistical data to rate performance. Some of the principal performance indicators included:
local per capita GDP and its rate of increase, per capita fiscal revenue and its rate of increase,
urban and rural incomes and their rates of increase, resource consumption and production
safety, elementary education, urban employment, social security, urban and rural cultural life,
population and family planning, arable land conservation, environmental protection and
investment and innovation in science and technology. More specific targets are formulated
related to local conditions.
Meritocratic based career progression
22.
While adherence to Party principles is a primary requirement, recruitment and
promotion in China, is meritocratic and performance counts towards personal progress at all
levels. This is in sharp contrast to other developing countries where no more than lip service
16
is paid to performance management and results orientation and recruitment is often non
meritocratic and personal progress is often unrelated to performance. The Party manages the
entire process of cadre recruitment, evaluation, promotion and supervision. At the time of
cadre selection, it pays close attention to both political and professional criteria along the lines
of being “both red and expert” (又红又专). After 1978, with economic growth as the primary
development objective, while being “red” continued to be a fundamental criterion increasing
emphasis is placed on professional ability. When politics itself demands specialization, cadres
must become experts if they want to be considered “red” (James R. Townsend and Brantly
Womack 2003), In August 1980, Deng Xiaoping5 stated that “In accordance with enterprise
development, it is necessary to formulate new requirements and new means for upgrading
each industry‟s cadres and talented employees. In the future, many professions and positions
will hire only on the basis of tested qualifications.”
23.
Beginning in 1990, the Party laid out a series of new regulations to enhance the
overall quality of party-state cadres by consistently improving selection methods. In 1995, the
central government issued the “Provisional Regulations for the Selection and Appointment of
Party and State Leading Cadres.” Seven years later, in 2002, it again drew up the
“Regulations for the Selection and Appointment of Party and State Leading Cadres.” These
regulations stipulated that leading party-state cadres must possess the following basic
prerequisites: 1) They must possess knowledge about Marxism-Leninism, Maoist Thought
and Deng Xiaoping Theory necessary to fulfil their position‟s obligations and earnestly
practice the Three Represents‟ main ideas; 2) They must have a long term goal of communism
5
“Reform of the Party and State Leadership System,”
17
and a firm belief in Socialism with Chinese Characteristics, resolutely implementing the
Party‟s guidelines and policies and be committed to the reform, opening up and
modernization, during which they must endure hardship to achieve significant change; 3) By
maintaining liberation ideals, seeking evidence based options, remaining professionally
competent, being innovative in solving real problems and conducting investigations and
research, they are to integrate Party policy with practical conditions at the local level to make
performance more effective; 4) They must be committed to the revolutionary cause, be
politically responsible and have the practical experience; organizational ability, educational
qualifications and specialized knowledge to be a competent leader. In 2004, the Central
Committee of the CPC formulated its “Provisional Regulations for the Public Selection of
Party and State Leading Cadres” and it‟s “Provisional Regulations for Competitive Posting in
Party and State Organizations.” These two provisions institutionalised the government‟s
inclusion of merit and qualifications. In April 2005, the Fifteenth Session of the Tenth
National People‟s Congress Standing Committee approved the “People‟s Republic of China
Civil Servant Law,” stipulating that for appointments at the level of section head and below as
well as for other non-leadership positions, the methods of public examination, equal
competition and merit based recruitment should be adopted. In 2006, the Central Organization
Department began implementing the “Scientific Outlook on Development‟s Pilot Methods for
the Comprehensive Evaluation of Local Party and State Leading Groups and Cadres.” Within
these methods, it required a commitment to integrity and talent, real accomplishment and
publically accepted principles. In order to evaluate ethics and ability, it suggested a variety of
methods, including democratic nomination, democratic assessment, opinion polls, and
18
analyses of accomplishment and individual conversations.
Conclusion
24.
China‟s spectacular record in pro poor economic growth is a significant testimonial to
its policy for inclusive development. Viewed top down, from the perspective of international
development, it is difficult to endorse how consultative this process has been or whether the
tight time frame in which economic growth has been achieved was indeed arrived at in a
consensual manner or whether the costs to individual freedom were justified using a cost
benefit approach. Against this is the fact that China has lifted more than 600 million citizens
out of poverty over the last thirty years and today enjoys international political and economic
status. These achievements are plausibly the result of explicit policy choices. These policy
choices have emphasized nation building over individual freedom. The Party processes
represent the democratic choices of the citizens. To the extent this remains true, citizens drive
State action. China explicitly recognizes and facilitates local initiatives in the management of
development, within a national policy framework. China has a State led market oriented
economy. Significant effort is expended to enhance the effectiveness of the State in
implementing national policy. Capacity development for aligning the behavior, mind set and
skills of the Party and State cadres with the evolving needs of the nation is a key input into
enhancing State effectiveness. Performance management is similarly a priority and is
universally applied through the prescription of quantitative targets for State entities and
individuals. The targets are based on aggregate results related to economic growth and
development rather than the provision of inputs or the achievement of intermediate processes.
While the technical efficiency of a “performance for results” system is not well established
19
the fact that performance against targets is linked to individual rewards and sanctions
provides powerful incentives and motivation for the Party and State cadres to compete,
enhancing thereby system effectiveness. This performance management system has served the
State well during the phase of rapid economic growth. It is unclear however, whether the
same system can be adapted to subsequent phases of slowing economic growth and enhanced
citizen demands for deeper consultations and participation in decision making. The
commitment to use merit as a criteria for initial appointment and subsequent career
progression, coupled with rising incomes and the benefits from enhanced levels of human
development, enabling larger numbers to enter the competition for Party and State jobs,
provides the basis for inclusive nation building. All developing countries face the dilemma of
State building in terms of striking the right balance between State power and individual rights.
The intrusiveness of State power is also closely linked to the alignment of individual interests
with national interests, as interpreted by the State. States which seek to emulate external
models of governance, without testing these first against the context in which they are to
operate, face the possibility of State objectives becoming increasingly divergent from
individual interests, resulting in increasingly negative, often violent, interfaces between the
State and citizens, sparking of a vicious cycle of State repression and citizen protest. This is a
challenge which the Party has addressed by showing remarkable capacity to adapt and change.
In many ways, the pervasive influence of the Party has enabled this change to be implemented,
even when the demand for enhanced democratization has arisen because of the incompetence
of corrupt local Party officials. With enhanced human development levels and incomes and
the technology revolution, has come the challenge of managing social expectations and
20
adapting to the convening power of social media. It is not known how the Party will respond
to the increasing ability of citizens to mobilize virtually, including across borders and what
changes in Party structures and systems would be necessary to address the enhanced political
expectations of citizens. However the Party has three key strengths which are likely to enable
it to bridge the transition without losing its dominance. First, the system of merit based
selection of cadres and leaders provides equal opportunities to citizens, to share in political
power and participate in decision making, thereby diluting opposition. Second, the Party is
extremely conscious that its legitimacy rests on remaining responsive to citizen concerns,
within the framework of its dominance. Third, the growing non ideological orientation of the
Party will continue to focus its efforts on the delivery of results on the ground, with respect to
citizen satisfaction. These strengths are likely to enable the Party to transcend current
international trends in political pluralism.
25.
The key lessons for developing economies are that inclusive, pro poor economic
growth is a useful tool for nation building and establishing the legitimacy of the State.
Investments in social and human development are key for sustained economic growth and for
sustaining the credibility of the State. Sustained single party dominance can only be ensured
by testing leaders through inner party democratization, intensive cadre management,
including capacity development and aligning the party objectives with the interests of citizens.
Accountability and contestability are key for performance management in party or
government structures. Results orientation is a key ingredient of development effectiveness
which grounds the complex systems and processes of the State, in the reality of the lives of
citizens. None of these conclusions are new. However, what this paper seeks to hypothesize is
21
that China has internalized all these aspects of political and administrative governance. It is
therefore fertile ground for further research on performance management, inclusive growth,
effective capacity development and the adoption of “best fit good governance” principles.
22
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24
Annex 1
Fiscal management in China since the 1980’s
1
Beginning in 1980, the central party-state switched from the past system of fiscal
administration, namely, unified collection and allocation, to that of “eating in separate
kitchens” (分灶吃饭). This reform emphasized that the central and local government “divide
revenue and expenditure and delegate responsibilities” (划分收支、分级包干). In 1985,
central and local government put into practice the fiscal administration system of “dividing
taxes, auditing revenue and expenditure, and delegating responsibilities” (划分税种、核定收
支、分级包干), improving upon the former system of “eating in separate kitchens.” Three
years later, due to the decline in the proportion of central revenue, the central party-state
initiated the fiscal responsibility system. And although this system raised the proportion of
central revenues, it failed to increase them at the same rate as the country‟s economic growth.
More damagingly, it triggered interregional fiscal competition and closed-off local markets.
2.
In 1993, the State Council issued its “Decision on Implementing Fiscal Management
of the Tax-Sharing System,” and a year later, put it into effect. The principles and content of
the tax-sharing system reform include: in accordance with the division of authority between
central and local government, rationally determine the expenditure limit at level of the
financial administration; based on the principle of integrated authority and financial control,
designate each type of tax as either central, local or shared, and establish separate central and
local tax collection mechanisms; scientifically audit local revenues and expenditures,
progressively carrying out a relatively regulated central transfer system; and establish a strong
separated budgetary system, hardening budget constraints at every level. This tax system
25
reform stipulated that central, local and shared taxes all had to be legislated at the central level,
ensuring unified national policy and equal competition within an integrated domestic market
and among enterprises. The 1994 Tax-Sharing System accomplished the central party-state‟s
objective of a unified tax authority and stripped local government‟s right to levy and/or
reduce taxes. Local government could only adopt adaptive measures (e.g., fees, funds and tax
returns) to raise or reduce taxes. Table 1 lists the distribution of taxes between the centre and
local governments.
Table 1: Types of Central and Local Taxes
Domestic value-added tax
Central Tax
Local Tax
√（75%）
√（25%）
Domestic sales tax
√
Import value-added and
sales taxes
Export value-added and
sales taxes
√
√ (92.5%)
√ (2.5%)
√
√
Enterprise revenue tax
√ (60%)
√ (40%)
Personal income tax
√ (60%)
√ (40%)
Business tax
√
Natural resource tax
Urban maintenance and
construction tax
√
√
Property tax
Stamp tax
√
√ (97%)
√ (3%)
Urban land-use tax
√
Land value-added tax
√
Vehicle tax
√
Shipping tax
√
Vehicle purchase tax
√
Customs tariff
√
Arable land occupation tax
√
Contract tax
√
Tobacco tax
√
26
Other taxed income or
√
revenue
Source：National Bureau of Statistics，China Statistical Yearbook-2010.
3.
√
Under the current division of tax authority between central and local government, the
central fiscal administration is principally responsible for expenditures related to national
security, foreign affairs, ministerial operations, national economic restructuring, regional
development coordination, macro-level regulation and the development of centrally-run
public institutions. More specifically, this includes: expenditures for national defence, military
police, diplomatic affairs, foreign aid, central administration, centrally-owned enterprises
technical upgrading and prototype design, geological exploration, centrally-planned
agricultural support, repayment of domestic and international debts, central public security
authorities and programs related to culture, education, health and science. The local fiscal
administration is principally responsible for the expenditures of local authorities and the
development of the area‟s economy and public institutions. Specifically, this includes costs
related to local administration, public security, military police, the people‟s militia, project
planning and basic investment, local enterprise technical upgrading and prototype design,
agricultural supports, urban maintenance and construction, improvement of local culture,
education and health, price subsidies and other supports. Table 2 provides data on central and
local government revenues and expenditures‟
Table 2: Proportion of Central and Local Revenue and Expenditures, 1978-2009
Proportion of Fiscal Revenue
Proportion of Fiscal
(%)
Expenditure (%)
Year
Central
Local
Central
Local
1978
15.5
84.5
47.4
52.6
1980
24.5
75.5
54.3
45.7
27
1985
38.4
61.6
39.7
60.3
1990
33.8
66.2
32.6
67.4
1994
55.7
44.3
30.3
69.7
1995
52.2
47.8
29.2
70.8
2000
52.2
47.8
34.7
65.3
2005
52.3
47.7
25.9
74.1
2009
52.4
47.6
20.0
80.0
Source: National Bureau of Statistics, China Statistical Yearbook-2010.
4.
In 1994, to prevent the tax-sharing system from causing a decline in local financial
resources, the central party-state created a system of fiscal transfers. Using this mechanism, it
managed to achieve uniform public service provision across different localities. The fiscal
transfer system primarily includes tax returns, transfer payments, organizational and
settlement grants and special project transfer payments. The transfer payments include those
for general purposes, minority regions, wage adjustments, rural tax reform, and county-village
award stipends, among others. Special transfer payments include social security, health and
sanitation, science and technology, education, waterworks, etc. As the central party-state has
not placed too many restrictions on fiscal transfer funds, local government can be relatively
flexible with spending. The special transfer payments, by contrast, can only be used for
particular projects as directed by the central party-state. At the same time, they also require
local government to provide matching funds.
28