Cash-rich Beijing to set up rainy day
fund By Zhou Jiangong
SHANGHAI - Because of the country's
booming economy, the Chinese government has reaped
handsome extra-budgetary revenues in recent years.
Beijing has now decided to set up a special fund
to absorb such extra money so it can be spent to
help balance the budget in bad fiscal years.
The Chinese government normally works out
its annual budget based on estimations such as
real revenue or expenditure, which in the end
could be quite different from what is stipulated
in the
budget.
And the
government's budget has been notoriously
inaccurate and vague.
The central
government's annual budget needs to be
rubber-stamped by the National People's Congress
(NPC), the country's top legislature. And regional
governments' budgets must be submitted to local
people's congresses for approval.
However,
China's budget law allows the government to spend
the extra-budgetary income without the approval of
the legislature. As a result, when governments at
all levels work out their budgets, they often
deliberately underestimate their revenues in the
fiscal year so that at the end they can have some
"extra money" to spend.
The government
tends to make its budget plan in line with growth
in gross domestic product. In recent years,
China's economy has always exceeded government
expectations. Prime Minister Wen Jiabao set the
GDP growth target for 2006 at 8%, but the actual
growth reached 10.7% according to the National
Bureau of Statistics. As a result, the
government's revenue also exceeds what is
anticipated in its budget plan.
From 2000
to 2005, the budget plans made by the Ministry of
Finance projected revenue growth ranging from 8.4%
to 11%. But the actual growth ranged from 14.7% to
22.2%, doubling the budget plan estimation.
Largely because of this, governments at
all levels always have some extra money to spend
at the end of each fiscal year. So far, the
central government's extra-budgetary revenues have
been used to reduce fiscal deficits, give tax
rebates due to the regions and exporting
enterprises, and make other transfer payments. In
2004, the central government paid 200 billion yuan
to exporting enterprises that had been owed the
money for years.
The central government
has also used the extra-budgetary revenues to
support public policies. The central government's
extra-budgetary revenue in 2006 could reach 300
billion yuan (US$38.65 billion). Some of the extra
money will be spent on education, tax rebates to
local governments, subsidies to ethnic minority
regions, tax rebates to exporting companies, and
reducing the fiscal deficit of the current year.
Part of the fund will be allocated to help balance
the budget for 2007.
Over past years
fiscal revenue has been growing so fast, thanks to
robust economic growth, that experts suggest the
government not only eliminate the fiscal deficit,
but also save some money for poor fiscal years or
emergency expenditures in the future. Preparations
for the establishment of such a special fund began
in late 2006.
Informed sources told the
China Business News, a leading business newspaper
based in Shanghai, that the State Council, China's
cabinet, has given the green light for setting up
the fund, tentatively named the Central Fund for
Budget Stabilization and Adjustment. The project
is expected to be presented to the annual session
of the NPC, which starts early next month, for
consideration.
Once rubber-stamped by the
NPC, the fund will receive an initial injection of
50 billion yuan from the central government's 300
billion yuan extra-budgetary revenue for 2006.
The fund cannot be treated as a second
budget as it is not supposed to be spent in the
current fiscal year.
There is controversy
over the scope of the fund and how it will be
spent. A lot of experts have suggested that the
purse strings must to be tightened. The fund
should be used to help balance the budget in a
poor year or deal with a major unforeseen or
emergency situation.
Some suggest that the
local governments may apply to the minister of
finance for tapping into the fund. But experts
believed that it would be hard for local
governments to get money from the fund for
investment and infrastructure construction
projects. Priorities would be given to rural
development, education, health care and social
security.
Wang Yongjun, dean of the
Finance and Economics Institute of the Central
Finance and Economics University in Beijing, said
the stabilizing fund set up a platform to
implement "anti-cyclical" fiscal policy. It could
be used in case of a natural disaster or economic
recession, it could provide relief or an insurance
mechanism for local governments in fiscal
predicaments; and it could be used to pay
government debts.
But Finance Minister Jin
Renqing is concerned that the fast growth of
fiscal revenue is not sustainable. The government
fiscal income has jumped from 1 trillion yuan in
1999 to 2 trillion, 3 trillion, and nearly 4
trillion in 2003, 2005 and 2006. As a former chief
of China's General Administration of Taxation, he
acknowledged that such growth is "abnormal".
For Jin, the government budget is not as
strong as it appears. He said the current budget
situation is barely more than an "overhead
budget". There is a very long way to go to fulfill
"people's needs for public services".
On
top of a foreign-exchange reserve exceeding $1
trillion, the government is also boosting a
rocketing fiscal income. The government is indeed
ready to spend tens of billions of yuan on
education, social security or public health. Yet
it is frustrated by its poor administrative
system, which cannot efficiently spend the money
without waste or corruption.
And the
government still has some very huge bills to pay.
The Communist Party once boasted of throwing off
the three mountains on people's back -
"imperialism, feudalism, cronyism and capitalism"
- with the success of its 1949 revolution. Now
poor social-security, public-health and education
systems are called the new "three new mountains"
on people's backs.
Zhou Jiangong
is a Shanghai-based analyst on China's political,
economic and foreign affairs.
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