sets his record straight By Wu
Zhong, China Editor
HONG KONG - In a rare
move, former Chinese premier Zhu Rongji has lashed
out at "mistakes" in current government policy,
indirectly criticizing his successor Wen Jiabao.
Speaking at the Tsinghua School of
Economics and Management in April, Zhu, who served
as premier from 1998 until 2003, took aim at
education, housing, taxation and relations between
the central and regional governments.
the Chinese Communist Party set to select a new
central leadership next year at the 18th National
Congress, the remarks come at a sensitive time.
Some observers say Zhu is trying to
influence this process.
Reading his speech carefully, however, it
seems more likely that Zhu intended to clarify
that problems facing the country are nothing to do
with the reforms he introduced.
83, said before stepping down that he would never
comment on any government work after retirement.
He had indeed kept this promise - until now.
On April 22, Zhu met with teachers and
students at Tsinghua University to mark its 100th
anniversary. Zhu, an alumnus of Tsinghua, served
as founding dean of its School of Economics and
Management for seven years.
sharp-tongued speech was filmed by some students,
and copies quickly began to privately circulate
among officials and academics in Beijing. Overseas
media learned of it only in early June when
Phoenix Weekly, a print publication of Hong Kong's
pro-Beijing Phoenix TV, published excerpts.
Housing prices On the problem of
skyrocketing housing prices, Zhu said, "Recently
there appears a fallacy in both the overseas and
domestic media, asserting that the current real
estate problem stems from the tax sharing system
[initiated and implemented by Zhu] because the
central government takes the lion's share of the
country's taxation revenue and regional
governments are so poor that they have to rely on
property development for fiscal incomes. This is
To support his argument, Zhu
gave a breakdown of revenues between central
government and regional governments for 2010. This
was the first time such figures have been made
According to him, China's fiscal
revenue totaled 8.3 trillion yuan (US$1.28
trillion) last year, of which 4 trillion yuan
directly went to regional government coffers.
Then, following the tax sharing system, the
central government gave the regional governments
another 3.3 trillion yuan from its own share as
"As a result, the regions got 7.3
trillion yuan in total. Still not enough? Still
poor? Now regional governments have plenty of
money," Zhu said.
Zhu said that current
policy was to blame for rising housing prices.
"The crux of the problem is that our housing
reform policy is wrong ... All property revenues
go to regional governments and they are even
allowed to mark such revenue as extra-budgetary
income." This means the funds are not subject to
scrutiny and supervision of local legislatures.
"This is horrible. Such incomes in fact
are made by exploiting people by pushing land
prices so high. This is absolutely not a
consequence of the tax sharing system."
recent years, a number of economists have seen
this problem and proposed that Beijing take the
power back from regions in land deals. Some have
suggested that the Ministry of Land and Resources
be empowered to scrutinize and approve any change
of land use for the purpose of property
development. Others have proposed that Beijing
demand all revenues go to state coffers first and
then get paid back to the regions concerned.
So far none of these policies has been
adopted by Beijing. This is likely due to either
fear of accusations China has returned to a
central command economy, strong resistance from
the regions, or both.
system Deng Xiaoping launched the economic
reform and opening up in 1979 to decentralize
China's economy. But as regional governments
gained greater say on local economic affairs, the
central government had less and less revenues at
Zhu's first move, after he
was appointed as vice premier in charge of
economic affairs in 1991, was to reform the
taxation system so that the central government
could have more money. After months of tough
negotiations and bargaining with economically
important provinces on how much they should
contribute to the state coffers, Zhu eventually
introduced the tax sharing system at the end of
According to the system, each
province would contribute a certain proportion of
its taxation revenues to state coffers. While the
proportion of contribution varies from province to
province, on average the central government
nominally could have a 60%-70% share of the
nation's fiscal revenues while the rest would go
to the regional governments.
the central government would give back some funds
to regional governments according to agreed
proportions. The reform boosted the central
government's revenues from 4.35 billion yuan in
1993 to 2.17 trillion yuan in 2003 when Zhu
Zhu apparently feels proud of the
tax sharing system, seeing it as one of his great
achievements. In his Tsinghua speech, he also
angrily lashed out at a book that is still
officially banned in China, Zhongguo Nongmin
Diaocha (An Investigation of China's
Peasantry) by the husband-and-wife authors
Chen Guidi and Wu Chuntao. The book blamed the tax
sharing system for hardship in rural areas,
arguing that because of the system local
governments lacked funds to support compulsory
education, family planning and social security and
Patting a copy of the book he
brought with him, an excited Zhu said those who
accused the tax sharing system of emptying local
governments' coffers and inflicting hardships on
peasants were "ignorant! Totally ignorant!"
Then he toned down his rhetoric, saying,
"On the way here, my daughter reminded me not to
lose my temper. I failed to restrain myself. But
this was absolutely not to [defend] myself, but to
[defend] the third-generation central collective
leadership," headed by former president Jiang
Zemin, of which Zhu was a key member. Taking a
step back, Zhu said, "Surely we had shortcomings
mainly in the arrangement of the rebates [to
According to the
tax sharing system as introduced by Zhu, the state
would take a large proportion of the revenues and
then give rebates to regions. However, the rebates
were given back indirectly and not in a lump sum,
rather taking the shape of subsidies on
infrastructure, education, welfare and other
sectors. This has given central government
authorities much greater powers.
rebates are not done well. Regions have to curry
favor with relevant ministries to beg for their
rebates. There are shortcomings in the tax sharing
system, which however I am not entirely
responsible for. For, I had said long ago that the
taxation reform was far from over and should be
What Zhu failed to mention was
that the arrangement for tax rebates to the
regions had become a hotbed of official
corruption, as central government officials often
took bribes before returning funds to the regions.
Automobile industry Zhu also
criticized the current transport policy, taking
aim at the automobile industry. He recalled a
speech he made during a visit to Beijing Public
Transport Corporation in 2003. "I said then that
for China to solve transport problems in cities,
the fundamental way was to boost the development
of public transport.
"This was my last
public speech [as premier]. I pleaded not to spend
public funds on buying cars ... I pleaded to boost
the development of bus transport and public
transport. Had my advice been followed, there
would not have been such problems today ... There
would have been no such traffic jams in Beijing,"
Zhu said at Tsinghua.
"There is an 'honor'
for China now that I really don't take as an
'honor'. China leads the development of the global
automobile industry. I cannot help but wonder,
when on earth did we begin to lead the development
of the global automobile industry? The world
laughs because they regard us as their market.
"I never stood for giving fiscal subsidies
to boost the automobile industry. I am always for
strengthening compulsory education in rural
areas," Zhu said.
In vivid language, Zhu
described the widening wealth gap in China. He
said he noticed that at an auto show in Shanghai,
the price tag of a luxury car was more than 100
million yuan. "Quite a few entrepreneurs even own
private aircraft. But in the countryside, people
in some places still do not have enough to eat. So
many years after the Liberation [the founding of
the People's Republic in 1949], rural residents
still remain so poor."
Then he commented
on problems with education.
Education A few years ago, to
show the government's concern and care for
children, China began promoting the so-called "Egg
plus Milk Project" in some inland rural areas to
provide, free of charge, primary and secondary
school pupils from poor families with an egg and a
glass of milk for breakfast.
But Zhu said,
"Even now many pupils in rural schools still
cannot get a glass of milk and an egg. In Qinghai
province, only 800 pupils can enjoy this as pilots
of the project. There are 30,000 primary and
secondary school students in Qinghai."
"What happened to our compulsory
education? Many [rural] students have dropped out
of school and gone to work in cities," a
distressed Zhu added.
As early as 1993,
Beijing set a goal to gradually boost government
spending on education to the equivalent of 4% of
the nation's gross domestic product (GDP).
However, the goal still remains on paper, so that
the "Outlines of Mid- and Long-term Education
Reform and Development Plan", approved by the
State Council at a meeting chaired by Premier Wen
Jiabao on May 5, 2010, had to set 2012 as the
deadline for achieving this goal.
criticized the outlines as "full of empty talk".
But he refrained from elaborating.
under Zhu that China began to "industrialize"
tertiary education, allowing schools to charge
students high tuition fees to help ease the
government's financial burden. Regional
governments saw this as a new "money tree" and
enrolled more and more students by expanding
existing schools or establishing new ones at a
"housing, higher education and medical care" have
become major sources of public complaints. The
fast expansion of higher education has also caused
other problems such as poor teaching quality and
However, in his speech,
Zhu distanced himself from the "industrialization"
of tertiary education. He said, "I don't advocate
for building up so many universities. To do what?
When I entered Tsinghua in 1947, there were only
2,000 students. Now the number is in the tens of
thousands. It is OK for Tsinghua to have tens of
thousands of students. But now even Jilin
University has 75,000 students. There are now a
lot of academic frauds, even professors fabricate,
plagiarize from papers by others. What would
happen it this continues? ... You'd better
concentrate efforts to do a good job in promoting
Then, taking the
recent earthquake in Japan as an example, Zhu
stressed the importance of civic education in
China. "Japanese people have lost so much during
this big earthquake that even we felt frightened.
But Japanese people in general were not afraid.
They remained very polite and public-spirited.
This could never have happened in China. If such a
big earthquake happened in China, there would have
been big chaos. Improving [our] national character
must start with civic education.
don't devote great efforts to civic education,
many problems will arise. Now many people [in
China] are interested only in personal gain," Zhu
However Zhu's speech is interpreted,
it is certain that President Hu Jintao and Premier
Wen Jiabao will be unable to take significant
moves to address them as they step down next year.
Therefore, hopes have to be placed on their
successors, tipped to be Xi Jinping and Li
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