A Report on China’s Administration Reform (Research Series on the Chinese Dream and China’s Development Path) [1st ed. 2021] 9811626928, 9789811626920

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Research Series on the Chinese Dream and China’s Development Path

Yukai WANG

A Report on China’s Administration Reform

Research Series on the Chinese Dream and China’s Development Path Series Editors Yang Li, Chinese Academy of Social Sciences, Beijing, China Peilin Li, Chinese Academy of Social Sciences, Beijing, China

Drawing on a large body of empirical studies done over the last two decades, this Series provides its readers with in-depth analyses of the past and present and forecasts for the future course of China’s development. It contains the latest research results made by members of the Chinese Academy of Social Sciences. This series is an invaluable companion to every researcher who is trying to gain a deeper understanding of the development model, path and experience unique to China. Thanks to the adoption of Socialism with Chinese characteristics, and the implementation of comprehensive reform and opening-up, China has made tremendous achievements in areas such as political reform, economic development, and social construction, and is making great strides towards the realization of the Chinese dream of national rejuvenation. In addition to presenting a detailed account of many of these achievements, the authors also discuss what lessons other countries can learn from China’s experience. Project Director Shouguang Xie, President, Social Sciences Academic Press Academic Advisors Fang Cai, Peiyong Gao, Lin Li, Qiang Li, Huaide Ma, Jiahua Pan, Changhong Pei, Ye Qi, Lei Wang, Ming Wang, Yuyan Zhang, Yongnian Zheng, Hong Zhou

More information about this series at http://www.springer.com/series/13571

Yukai WANG

A Report on China’s Administration Reform

Yukai WANG Chinese Academy of Governance Beijing, China

ISSN 2363-6866 ISSN 2363-6874 (electronic) Research Series on the Chinese Dream and China’s Development Path ISBN 978-981-16-2692-0 ISBN 978-981-16-2693-7 (eBook) https://doi.org/10.1007/978-981-16-2693-7 Jointly published with Social Sciences Academic Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: Social Sciences Academic Press. © Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Introduction: Building a Fair, Just, Clean, and Effective Government

(i) Within the span of the broader history of human development, 35 years may seem like a mere speck in contrast. However, for China, a large nation that has a population of 1.34 billion and has experienced 30 years under a centrally planned economy, the reforms undertaken in this period have been nothing short of magnificent and spectacular. During this period, we have seen much exultation and excitement, many successes and victories, as well as much difficulty and pain, and many setbacks and failures. In my opinion, only individuals who have experienced for themselves such profound reforms can truly understand just how complex and arduous this path has been. Perhaps people will never ever forget the spiritual exultation that they had received with the thought liberation that came at the beginning of the reform and opening-up policy, as well as the subsequent boundless passion released with regard to political reforms; many of us also clearly remember how the planned economy was “beaten back” bit by bit by the sharp market reforms, and eventually replaced by the market economy; of course, we will not forget how China has taken off her mysterious “veil” as a nation that has taken arduous steps to open up and to embrace the world. During this profound transformation, people discovered that something has had deep influence on us along the way: thought liberation. In other words, when we can truly be committed to thought liberation, just like how Deng Xiaoping had put it back then (“go forth boldly, and make bold attempts”), our endeavors will see swift and sound development. Conversely, if we do not try, then no progress will be made in our endeavors, worse, we may even retrogress. If we see the country’s experience with reform and opening-up over the last 35 years as a process of difficult choices, we can then identify at least two rounds of major thought liberation. The first one happened in 1978 with the so-called discussion on the criterion of truth, and the second was in 1992 with the speeches made by Deng Xiaoping during his southern tour. We should say that these two rounds of thought liberation have had very clear trajectories with the issues to be resolved clearly specified. The discussion on the v

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criterion of truth that set minds free in 1978 was thought agitation started by the older-generation revolutionaries (represented by Deng Xiaoping), and it directly led to the beginning of reform and opening up in China. The discussion targeted at the Cultural Revolution which had put China into chaos and at negating class struggle to successfully shift the focus of the Party and government’s work. Through this round of thought liberation, not only did we decisively realize the shift in focus of the Party and government’s work, we also embarked on the path of the implementation of reform and opening up, thus bringing China into a brand-new era. As for the 1992 round of thought liberation, it occurred under an extraordinarily complex and special set of circumstances. As we all know, China experienced political turmoil in 1989, and reforms in the country were also at a low point. No substantive progress had been made in the reform and opening-up for years, and China’s economy grew slowly in this period. In fact, in 1991 the Chinese economy even shrank. Just as Deng Xiaoping saw that his idea of “focusing on economic development” might be derailed, the then 87 year old took a tour of southern China where he made his famous speeches that formed the outlines of this round of thought liberation. In my opinion, the three key statements by Deng during this tour are as follows: (1) “We must not waver from the basic path, not in a hundred years”; (2) “Both planning and the market are means to developing the economy, but do not otherwise determine a nation’s political system. Economic planning is possible with capitalism, and the market is also possible with socialism”; (3) “If we do not implement reforms, we would be doomed to fail.” The latter two lines laid the foundation for China’s shift toward the market economy and for decision to let the market play a major role in resource allocation that was announced at the Third Plenary Session of the 18th Central Committee of the Communist Party of China in 2013. It is no exaggeration to say that had we not had the articulation of these key thoughts by Deng at a critical moment in China’s reforms China would not have opted for the market economy, and China may not have achieved what she has achieved today in terms of reforms and development. It is worth noting that after 35 years of the implementation, reforms in China seem to have come to a turning point in terms of strategy. One key sign would be in 2013, when China established its strategy of comprehensively deepening reform and laid out top-level plans for reforms in all areas, including the reform of the economic, political, social, cultural, environmental institutions, and systems. Although economic reform has remained a focus in this plan, the importance of the proposed reform of the political system, centered on the government, has been significantly foregrounded. A greater focus on the reform of political and administrative institutions and systems has, to a certain degree, become the key to deepen reform in all areas and further opening up. Without a doubt, the effort to further deepen political and administrative reform in the context of new historical conditions is unimaginable without the thought liberation that has allowed China to take bold measures for innovations in governance and the modernization of her governance capabilities.

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(ii) Reforms in the past 35 years have mostly been related to reforms of the administrative system. On the surface, since 1978 there have been seven rounds of major administrative reforms to date. However, every reform advance made in various areas in China cannot be divorced from administrative reform. However, just what kind of government reforms of the Chinese administrative system should lead to is not a question that invites easy consensus. For instance, the authorities speak of building a government that the people are satisfied with (i.e., a service-centered, responsible, clean, and highly efficient government, with rule by law) while the people say that the focus should be on the building of a good government, and so on. However, it is equally difficult to define just what a “government that the people are satisfied with” and a “good government” is. However, one thing is very clear: the people have the ultimate say as to whether a government can be considered “good” or “bad”. The logic is simple: the daily lives, social interactions, protection of rights and interests, individual dignity, sense of happiness of the people as well as their perception of whether the government is clean, and their perception of the government’s actions and performance, etc., are undoubtedly their most direct and “real” assessments of the government. Thus, the assessment from the majority of a country’s population can more or less tell us if the government is “good” or “bad”. This is the commonly cited issue of how a population is usually for a government or against a government in numbers. Although it is not an easy task to evaluate the government, it does not mean that we cannot apply generally accepted standards and values for people’s assessments of the government. For instance, people often speak about the rule of law, a responsible government, a clean government, an efficient government, and a service-centered government, etc. These are all descriptions of the basic characteristics of government made by the public, and which stand in stark contrast to ideas such as the rule of man, a corrupt government, an inefficient government, and a bureaucratic government. However, in the Chinese context, in my opinion the vast majority of the people may be more concerned with these three key phrases: whether the government can stay “fair and just,” whether the government can stay “clean,” and whether the government can be “capable” at the local level. I term this as a “fair, just, clean, and effective government.” In a certain way, a “fair, just, clean, and effective government” has already become the synonym for a “good government” in the eyes of the Chinese people. First of all: fairness and justice are the cornerstone of public governance. That fairness and justice have become important concepts to the people and a generally agreed-upon virtue among many had to do, to a very large extent, with the value of the government’s existence. We know that within the structure of public governance, there are many actors, such as community organizations, enterprises and work units, and individual citizens. However, among all these actors participating in public governance, the one with the greatest authority is undoubtedly the government. At the core of this sort of authority on the part of the government is the fact that the

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government holds the power to establish public policy and is in a position to maintain normal social order through policy implementation. Whether the policy established is fair and just determines in turn whether the government is able to maintain fairness and justice in society. It is difficult to imagine a government with severely distorted public policy and policy implementation that is able to take on the responsibility of maintaining fairness and justice in society. In the context of public governance in China, the root of many problems lies in how fair or just certain policies are. It has been said that in certain aspects of policymaking, the influence of the rich and the powerful seems to be increasingly felt while the impact and voice of the general public (particularly the disadvantaged) appear to be diminishing. This is a key source of issues such as unequal income distribution, the distortion of interest distribution within society, the contestation between the government and the people for various interests, and even the corruption of power and of the judicial system. In this sense, the fairness and justness of government policies and the maintenance of fairness and justice in society by the government in the course of policy implementation have become the core of public concern and also the foundation stone of public governance. If the populace no longer believes the government to be fair and just, then its legitimacy will be imperiled. This is a rule that has been proven time and again in China and overseas through history. Second: lack of corruption and governance capabilities are the two “wings” to effective governance. If we liken the fairness and justice of the government to an aircraft body, then clean and capable actions would be the two wings of this aircraft. An aircraft, no matter how brilliantly designed, cannot take to the air without its wings. For a good government, even if it holds on to the values of fairness and justice, it is not enough for it to establish public policies with the guidance of such values. If the government does not have two key assurances in the form of clean and capable actions it would still be difficult for such a government to be recognized by the masses. In the context of public governance in China, the government faces stiff challenges both in the areas of clean behavior and governance capabilities. The government must be clean, as do its officials. This is a most obvious principle. There have been countless illustrations of this principle over the long course of China’s political history. A common saying among officials in ancient China goes: “clean behavior gives rise to lack of corruption, and lack of corruption gives rise to authority”. This saying points out the importance of being clean for an official. However, this perennial issue has become a major difficulty in governance in China. According to statistics from the Central Commission for Discipline Inspection (CCDI) since the implementation of reform and opening-up in China, more than 4.4 million crimes committed by those on official duty have been investigated nationwide, with more than 490 senior officials involved in corruption cases at the provincial level. The majority of crimes and senior officials involved were investigated for corruption. This indicates that there have been strong efforts to combat corruption in China. However, to be frank it would appear that corruption continues to spread in China. Even though the new generation of leaders has embarked on a new anti-corruption campaign with great fanfare following the 18th CPC National Congress the masses do not appear to be satisfied. This indicates that in this area

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there are too many problems accrued. Therefore, the 18th CPC National Congress report stipulated three reform objectives: “officials are honest, the government is clean, and political integrity is upheld”. Once again, high-level officials warned that the failure to eradicate corruption would have a devastating impact on the Party and country. Thus, apart from fairness and justice, the general populace’s next greatest expectation of the government is clean governance. The people’s greatest wish for the seven million public servants is to provide non-corrupt service. If corruption takes root in officialdom and becomes hard to eradicate, it would be very difficult for the government to earn back the trust of the people. This is something that we must recognize. The government’s performance is another key indicator of the public’s assessment of the government. The government needs to implement effective management and its officials need to turn in adequate performances in governance. This goes without saying. Surely, the people cannot be happy with a taxpayer-funded government that cannot perform. However, in China today there are many officials in various governments who have not shown that they are capable of strong performance. There are even more who have misbehaved in, or abused, their positions. That is, improper behavior or actions by the government are perhaps even more salient problems. For instance, certain governments have overly interfered with the market and with society. There have been cases of excessive contestation with the people for certain interests and even harm inflicted on the public interest due to policy-making and the establishment of administrative vetting and licensing procedures. Certain officials have gone against the opposition of the people, poured in massive amounts of resources, and placed the environment at risk simply to enhance their performance records or for vanity projects. Certain governments and officials have even broken the law and engaged in misbehavior and abuse of their power. In many cases, the acts of government officials have been the catalyst to mass incidents. These phenomena, which are not very obvious in China’s governance, are hindering the formation of a positive governance environment. Hence, we see that the masses need a effective government but not a government that engages in misbehavior. What they need is a government that is capable of performing between the framework of the rule of law and where the power of the government is strictly circumscribed. This would be a government that respects the rhythms of the market, that respects the autonomy of society, and which is capable of protecting the people’s interests and rights. Only this sort of effective government can truly serve taxpayers and become a good government that can strengthen and enrich the country and which works for the good of the people.

(iii) As for the current circumstances of the Chinese government, the picture is not optimistic when we consider either “fairness and justice” or “clean governance.” There is some way to go before we can achieve the ideal “good government” that is in the hearts of the people. We have made such a judgment not because we wish to deny

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the Chinese government’s tremendous efforts in upholding fairness and justice or to deny the tremendous achievements the Chinese government has made in fighting corruption and in promoting economic growth in China. What we are saying is that currently there are issues of fairness and justice in the area of policy-making, and that such issues together with the issues of corruption in government and government misbehavior are sufficient to pose a threat to the positive development of society as a whole. If we are not determined to correct the problems present and to curb these issues, then we may see grave consequences. A prominent example is the issue of the “two-fold deprivation” that rural residents suffer in the course of urbanization. On the one hand, the countryside has provided the cities with an endless stream of cheap labor. However, the government did not provide rural workers working in the cities with resident identities, thus depriving them of true life in the cities. These “migrant workers” often engaged in the dirtiest and most tiring manual work but were treated as the lowest of the low. This is the first deprivation suffered by rural residents. On the other hand, urbanization has in some places evolved into the “concentric expansion” of cities. Governments have monopolized the benefits from the increase in land value but excluded rural residents in the sharing of such benefits. Thus, bitter conflicts over land have emerged, resulting in further deprivation from which rural residents suffered. Although the government may not be deliberately sought to deprive rural residents in such a manner, and although the government has also sought in various ways to improve the lives of rural residents and to grow their incomes, some policies have not achieved their intended goals, leading the government to appear less than just in some cases. Of course, for the public, the most unacceptable thing is to see the government behave improperly and seek its own interests in the course of establishing rules for society and public policy and thus lead to the erosion of fairness and justice in society. For example, certain government institutions and officials have made use of their power to establish regulations for their own gain, thus drawing criticisms of corrupt behavior such as government-business collusion, of trading power for money, and devouring the interests of the people while being backed by powerful interest groups. These instances have caused grave harm to the fairness and justness of public policies and have been a major reason for the public’s skepticism and even distrust of the government’s governance legitimacy. The aforementioned phenomena tell us that even in a rapidly developing economy like China where the majority of the people have gained significantly from the reform and opening-up of China and where the government’s role in promoting economic and social development cannot be denied, there is a limit to the people’s patience with improper behavior by government officials. In fact, with the development of the market economy and as actors in society become more self-reliant, independent, and competitive as well as fairer, people are paying increasing attention to the fairness and justice of government policies. Furthermore, they are also making more demands with a louder voice. In such a situation, if the government continues to stay all high and mighty above the people like some messiah, then it would naturally be questioned and even doubted by the public. Thus, we see that in order to raise governance levels in China and to enhance levels of satisfaction among the people with regard to

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governance, we must seek to improve public policies in terms of fairness and justice. Only this way can our public governance be supported and welcomed by the general public and can the government’s credibility be significantly enhanced. Back in 2004, in an article The Situation Confronting Public Governance and the Corresponding Strategies, I mentioned the fourteen-character program for public governance in China: “The strict management of officials, treating the people with kindness, innovations within the political body, and stabilizing the monetary situation.” A decade later, this program has put into practice by the new generation of leaders with Xi Jinping as representative. Fundamentally speaking, firstly a good government or a government that the people are satisfied with must treat the people well. This is a basic requirement: only in this way will the people’s interests be placed as top priority and only in this way will true fairness and justice be realized in society. Second, there must be strict limits on the behavior of government officials and on government power in order to make clean government a possibility. If our government cannot even meet these basic requirements, then even grander objectives may become moot and the government may even eventually be abandoned by the people. In this sense, developing a fair, just, clean, and effective government must always be a central theme of institutional development and reform in China. There is no other path to the modernization of governance in China. This volume comprises three parts and fifteen chapters. The first part is mainly concerned with developments in administrative reforms in China since the beginning of reform and opening-up of China. Here, there is a special focus on analyzing the administrative reforms that took place between 2008 and 2012 and in 2013. Two chapters in this part focus on the results of public opinion surveys’ about these two rounds of reforms. In the second part, we look at economic and social transformation and administrative reforms in China and analyze the features of economic and social transformation in China, the issues encountered, and the relationships between these transformations and reforms of administrative institutions and systems, etc. In the third part, we analyze the relationship between government reform and administrative reforms. Topics covered here include changes in the government’s governance philosophy, efforts to enhance the openness and transparency of governance, enhancing the supervision of the power of the government, and innovations in governance, etc. Of course, as reforms have been going on of China’s administrative institutions and systems for quite some time now, there are a lot of materials to cover. Despite our best efforts, there will be omissions or errors in this volume. We welcome constructive criticisms and corrections. Beijing, China May 2014

Yukai WANG

Contents

Part I 1

2

3

4

The Course of Administrative Reforms in China

An Outline of the History of Administrative Reforms in China . . . . 1.1 The Three Stages of Administrative Reforms in China . . . . . . . . . 1.2 The “Four Key Themes” of Administrative Reforms in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 The “Five Key Pathways” of China’s Administrative Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reforms to the Administrative System in China, 2008–2012 . . . . . . . 2.1 The Main Achievements of the Current Government in the Area of Administrative Reforms . . . . . . . . . . . . . . . . . . . . . . 2.2 Prominent Issues Faced by the Current Government Over the Course of Implementing Administrative Reforms . . . . . . . . . . 2.3 Trends in Administrative Reforms by the Current Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assessment: Analysis of Results from the Survey on Reforms to the Administrative System in China (2008–2012) . . . . . . . . . . . . . . . 3.1 The Survey Sample and Basic Demographics . . . . . . . . . . . . . . . . . 3.2 Overall Assessments of Current Administrative Reforms in China by Party and Government Officials . . . . . . . . . . . . . . . . . . 3.3 Assessments of Administrative Reforms in Key Areas Undertaken by the Current Government . . . . . . . . . . . . . . . . . . . . . 3.4 Expectations of Further Reform Efforts . . . . . . . . . . . . . . . . . . . . . . The 2013 Administrative Reforms Centered on the Transformation of the Government Functions . . . . . . . . . . . . . 4.1 Significant Advances in Efforts to Transform the Government Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 The Arduous Task of Transforming the Government Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Pathways Toward the Restructuring the Relationship Between the Government and the Market . . . . . . . . . . . . . . . . . . . .

3 4 6 8 13 13 21 22 27 27 28 31 37 39 39 44 46 xiii

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Contents

Assessment: Analysis of Results from the Survey on Reforms to the Administrative System in China (2013) . . . . . . . . . . . . . . . . . . . . 5.1 The Survey Sample and Basic Characteristics of the Sample . . . . 5.2 Basic Assessments of Reforms of State Council Agencies and of Efforts to Transform Functions of the Government . . . . . . 5.3 Respondents’ Opinions on the Handling of the Relationships Between the Government and the Market and Between the Government and Society Through Delegating Power to Lower Levels and Transforming Government Functions . . . . . . . . . . . . . . . . . . . . 5.4 General Opinions About the Current Round of Institutional Adjustments Made by the State Council . . . . . . . . . . . . . . . . . . . . . 5.5 Respondents’ Opinions on Efforts to Change the Way the Government Works and Governs . . . . . . . . . . . . . . . . . . . . . . . . 5.6 Expectations of Future Administrative Reforms and Policy Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 6

7

8

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57 61 63 65

Social and Economic Transformation in China and Reforms of the Administrative System

Economic Transformation and Government Reforms in Post-crisis China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Lessons That can be Drawn from the “Three Strengths and Three Weaknesses” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 The Dual-Engine Strategy of Economic Development . . . . . . . . . 6.3 Start from County-Level Reform for Government Reform . . . . . . Challenges in Public Governance in China and Economic Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 The Rare Development Opportunities Provided to China by the Olympic Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Challenges Faced by China in the Post-Olympics Era . . . . . . . . . . 7.3 Measures for Issues Concerning Governance in Economic Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.1 Guarding Against Stagflation . . . . . . . . . . . . . . . . . . . . . . . 7.3.2 Maintaining Economic Growth . . . . . . . . . . . . . . . . . . . . . 7.3.3 Augmenting People’s Share of National Wealth . . . . . . . 7.3.4 Reverting Power to the People . . . . . . . . . . . . . . . . . . . . . . Reforms in the Income Distribution System and Dismantling Entrenched Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 The Challenges that China Faces with Her Reform Process . . . . . 8.1.1 Reforms Have Stalled and the Government Has Come Under the Spotlight . . . . . . . . . . . . . . . . . . . . . . . . . 8.1.2 Social Risks in China Tending to Escalate in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69 69 73 75 81 81 83 84 85 86 88 90 93 93 93 94

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8.1.3

8.2

8.3

8.4

9

Determined Action and Choice of Right Measures by Higher-Ups Critical to Breaking the Reform Stalemate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Breaking Vested Interests Being the Key to Reforming the System of Income Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.1 Exacerbation of the “Four Gaps” Reflecting Distortions in the System of Income Distribution . . . . . . 8.2.2 Obstacles Put up to Efforts to Dismantle Vested Interests Being the Greatest Challenge to Reforms of the System of Income Distribution . . . . . . . . . . . . . . . . 8.2.3 Dismantling of Vested Interest Groups Must Begin with Reforms of the Power of the Government . . . . . . . . Gray Power Must Be Dismantled in Order to Ensure Market Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.1 Reflecting on the “Three Grays” Phenomenon . . . . . . . . 8.3.2 The Adverse Effects of Gray Power . . . . . . . . . . . . . . . . . 8.3.3 Dismantling Gray Power Through Reforms . . . . . . . . . . . Giving Priority to Dismantling the Government’s Special Economic Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4.1 The Government’s Interests Must not Be Allowed to Evolve into Specific Economic Interests . . . . . . . . . . . 8.4.2 Key to Deepening Reforms of the Administrative System Being the Suppression of Government Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Dual Problem of Social Transformation and Political Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 The Historical Significance of the 12th Five-Year Plan . . . . . . . . . 9.1.1 The 12th Five-Year Plan Signals Important Changes in Chinese Development . . . . . . . . . . . . . . . . . . . 9.1.2 “Four Unsustainables” Will Force China to Change Its Development Model . . . . . . . . . . . . . . . . . . 9.2 The Dual Problem of Social Transformation and Political Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.1 Social Transformation and Its Influence . . . . . . . . . . . . . . 9.2.2 Problems with Political Reform . . . . . . . . . . . . . . . . . . . . . 9.3 The Need for Another Round of Emancipation of the Mind . . . . . 9.3.1 A Change in the Idea of Governance . . . . . . . . . . . . . . . . . 9.3.2 Emancipate the Mind to Solve the Dual Problem . . . . . .

10 Changes in Reform, Development, and Public Governance . . . . . . . . 10.1 Challenges to Public Governance in the New Era of Reform and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.1 Big Changes in the Reform and Opening up . . . . . . . . . . 10.1.2 Traditional Development Has Reached the End of the Road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95 96 96

98 100 104 104 106 107 109 109

112 115 115 115 116 118 118 121 122 122 123 125 125 125 126

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10.1.3 The Chinese Society Faces More Risks . . . . . . . . . . . . . . 10.2 Significance of Reforming Public Governance . . . . . . . . . . . . . . . . 10.2.1 The Importance of Political Reform . . . . . . . . . . . . . . . . . 10.2.2 The Future of China’s Public Governance . . . . . . . . . . . . 10.3 Reform Needs Courage and Wisdom . . . . . . . . . . . . . . . . . . . . . . . . 10.3.1 Two Types of Resistance to Reform . . . . . . . . . . . . . . . . . 10.3.2 Courage and Determination . . . . . . . . . . . . . . . . . . . . . . . .

127 128 128 129 133 133 135

Part III Transformation of Government Functions and Reforms of the Administrative System in China 11 Optimizing Government Structure with Greater Government Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 The System of Greater Government Departments and the Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.1 The Basic Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.2 The Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 The Necessity of Introducing the System of Greater Government Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.1 Institutional Restructuring Since the Beginning of Reform and Opening up . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.2 “Small Government, Big Society” is the Goal of the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Difficulties in Implementing the Reform to Establish Greater Government Departments . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3.1 How to Optimize Organizations Under the System of Greater Government Departments . . . . . . . . . . . . . . . . . 11.3.2 How to Contain Departmental Interests . . . . . . . . . . . . . . 11.3.3 The System of Greater Government Departments is Related to Political Reform . . . . . . . . . . . . . . . . . . . . . . . 11.3.4 How to Implement the Reform to Greater Government Departments . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4 Assessing the Implementation of the System of Greater Government Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4.1 The Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4.2 The Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Optimizing Government Structure with Vertical Administrative Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 Reducing Administrative Levels and Delegating Power to Lower Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1.1 Look at the Province-Controlled Counties in the Context of the Major Strategy of Urban– rural Integration in China . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1.2 Accelerate Reform in Local Governments’ Vertical Administrative Structure . . . . . . . . . . . . . . . . . . . .

139 139 139 140 140 140 141 142 143 143 144 145 146 146 147 149 149

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12.2 Ensure Equal Access to Basic Public Services, and Restructure the Basic Public Service System . . . . . . . . . . . . . . 152 12.3 Deepen Finance Reform to Iron Out Issues Between Central and Local Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 12.4 Reforming the System of Selection and Appointment of Officials to Raise the Public Governance Capability of Local Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 13 Changing the Concept of Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 Enriching the People as a National Strategy . . . . . . . . . . . . . . . . . . 13.1.1 Should Enriching the People Be Raised to the Level of a National Strategy? . . . . . . . . . . . . . . . . . . 13.1.2 Implementing the Strategy of Enriching the People . . . . 13.2 Tolerance for Ideas is the Manifestation of the Rulers’ wisdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.1 Tolerance for Ideas is an Important Condition for Social Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.2 Tolerance for Ideas Imparts Vitality to the Society . . . . . 13.3 Social Management Shall Emphasize Social Service . . . . . . . . . . . 13.3.1 Learning the True Meaning of Social Management . . . . 13.3.2 The Core of Social Management is to Improve Social Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 Reform Guided by Science-Based Top-Level Design . . . . . . . . . . 13.4.1 Science-Based Top-Level Design Can Reduce Risk of Impasse to Reform . . . . . . . . . . . . . . . . . . . . . . . . . 13.4.2 Reform Success Depends on Science-Based Top-Level Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Transparent Government Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 Forcing Reform by Making Government Business Public . . . . . . 14.1.1 Making Government Business Public is a Necessity of Modern Governance . . . . . . . . . . . . . . . . . . 14.1.2 Four Aspects of Government Transparency . . . . . . . . . . . 14.2 Codification of Online Political Participation . . . . . . . . . . . . . . . . . 14.2.1 Online Political Participation is a New Way of Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2.2 Institutionalizing Online Political Participation . . . . . . . . 14.3 Use the Law to Regulate Government Behaviors . . . . . . . . . . . . . . 14.3.1 Government Officials’ Expense Accounts Should Be Regulated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3.2 Use the Law to Restrict Government Budget and Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4 Declaring Personal Assets of the Officials . . . . . . . . . . . . . . . . . . . . 14.4.1 Disclosing Personal Assets is a Common Practice in the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

157 157 157 158 159 159 160 161 161 162 163 163 163 165 165 165 167 167 167 168 169 169 170 171 172

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14.4.2 The Public Has Great Expectations About Officials’ Personal Assets Disclosure . . . . . . . . . . . . . . . . 14.4.3 Accelerate the Pace of Government Reform and the Officials’ Assets Disclosure System . . . . . . . . . . 14.5 Eradicating Formalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.1 Do not Underestimate the Harm of Formalism . . . . . . . . 14.5.2 Finding the Cause of Formalism from Within the System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3 Combating Formalism Has to Start from the Higher Echelons of the Government . . . . . . . . . . . . . . . . . . . . . . . . 14.6 The Official Residence System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1 The Official Residence System is Practiced Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.2 The Official Residence System Prevents Corruption Through Housing Privileges . . . . . . . . . . . . . . 14.6.3 Four Suggestions for Establishing the Official Residence System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Innovative Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 E-government Innovates Governance . . . . . . . . . . . . . . . . . . . . . . . . 15.1.1 Achievements and Issues in Developing E-government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1.2 Trends of E-government Development . . . . . . . . . . . . . . . 15.2 E-government Promotes Innovative Governance . . . . . . . . . . . . . . 15.2.1 We Must Insist on a Uniform Base System with Multiple Applications Which Shares Resources and Avoids Duplication of Effort and the Possibility of Fracturing Into Information Silos. This Uniformity Should be a Structural Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2.2 We Must Redefine Network Structures, Scopes, and Even Names to End the Current Confusing Situation and Make Future E-government Development Easier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2.3 Government at All Levels, but Especially the State Council, Must March to the Drumbeat of Uniform E-government Development and End the Fragmented State of Government Networks . . . . . . . 15.2.4 We Should Create a Law-Based Environment Suitable for E-government Development . . . . . . . . . . . . . 15.3 Perfecting IT Application Management to Raise Government Innovation Capability . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3.1 IT Application Management is an Urgent Requirement of the Information Age . . . . . . . . . . . . . . . . .

173 174 174 175 175 176 177 177 178 180 183 183 183 185 188

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15.3.2 China’s IT Application Faces Challenges and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 15.3.3 Some Suggestions for Building an IT Application Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

About the Author

Yukai WANG M.A. in Law, is currently Deputy President of the China Society of Administrative Reform, Professor at the Chinese Academy of Governance, and Ph.D. Supervisor at the Peking University School of Government. In recent years, Wang’s research has focused on the fields of public administration, Chinese government reforms, e-governance, and non-profit organizations. Wang has published a total of eight monographs and essay collections, including Defining the Limits of Government, There is No Turning Back from Reforms, Building a Fair, Just, Clean and Effective Effective government, Social Reform and Scientific Progress, Public Governance and Public Powers, and Public Governance and the Management of Non-Profit Organizations. Wang is also Author of over 300 articles. Wang has served as Team Leader for a number of research and consultancy projects both within China and overseas. Findings from some of them have been adopted by the Chinese government. Wang has been frequent Visitor to research institutes in the USA and Europe. Confessions of a New Generation of Chinese Thinkers is one of a number of compilations of Wang’s academic output completed during these trips.

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Part I

The Course of Administrative Reforms in China

Chapter 1

An Outline of the History of Administrative Reforms in China

In the course of China’s reforms, issues relating to the reform of administrative institutions and systems have always been a topic of interest. On the one hand, administrative reforms are an important part of the reform of the political system and are closely related to the state’s governance capabilities and performance and to government management and operations. On the other hand, there is also a direct relationship between administrative reforms and the making and implementation of government policies, as well as with the interests of each and every member of society. Thus, the people’s concern with the reform and building efforts of the government is in fact a concern with their own interests and development. As such, it is highly valuable for us to organize the facts relating to the history of administrative reforms in China for more than 30 years in the past, describe this history, and analyze the achievements, issues, and prospects of administrative reforms to date. Further, it is also very useful for us to engage in in-depth discussion of the internal patterns of administrative reforms and the transformation of the Chinese economy and society, as well as of the transformation of the government itself together with the lessons learned. The introduction to this book as well as the analyses contained within is based on this very premise. In this chapter, we sketch out the outlines of administrative reforms in China for the past 35 years, including the three stages of administrative reforms in China, the four key themes of such reforms, and the five key pathways for these reforms.

© Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_1

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1 An Outline of the History of Administrative Reforms in China

1.1 The Three Stages of Administrative Reforms in China1 Since China’s beginning of reform and opening-up, reforms of the administrative system have been conducted on a continuous basis for more than 30 years. Thus, in order to understand China’s administrative reforms, we must first understand how this 35-year-long process began and developed. Since the Third Plenary Session of the 11th Central Committee of CPC in 1978, China has conducted multiple rounds of administrative reforms, including seven rounds of a more significant scale in 1982, 1988, 1993, 1998, 2003, 2008, and 2013. Although these reforms have taken place over the course of three decades and each round of reform has been carried out with a different emphasis, when we examine this process closely, we will discover that we can categorize these reforms into three phases or stages. Upon even closer examination, we can further categorize these forms into “four key themes” and “five main pathways.” The first stage occurred between the Third Plenary Session of the 11th Central Committee of CPC in 1978 and the 14th National Congress of CPC in 1992. This was a stage of active exploration and experimentation. During this stage, the key objective of reforms was to put an end to the highly centralized planned economy and model of administrative management. With the implementation of reform and opening-up in China, economic and administrative reforms designed to decentralize power were carried out in stages. Efforts were focused on dismantling the people’s commune system and to strengthen grassroots power at the township levels; to expand the autonomy of enterprises and production units, and to delegate more management power to local authorities in terms of economic and social management; to conduct the reform of government institutions and to simplify the personnel system; to promote revolutionary attitudes among leading officials, to build a team of younger officials who are armed with greater knowledge and professionalism, to abolish the practice of lifetime leadership positions, and to begin to look at the establishment of a civil servant system. The second stage occurred between the 14th National Congress of CPC in 1992 and the 16th National Congress of CPC in 2002. This stage saw important developments in the reform of the administrative system. The focus during this stage was on the promotion of reforms on all fronts in accordance with the objective of establishing a socialist market economy and the requirement that a socialist market economy be developed as established at the 14th National Congress of CPC. Subsequently, there were changes in the reform of administrative systems in accordance with the needs presented by efforts to build a market economy. The focus of reform during this period was on separating administration and enterprises and the transformation of the functions of government. Efforts were made to promote the reform of state-owned enterprises (SOEs), cultivate the market economy system, and to promote management reform with planning, investments, treasury and trade and 1 See

Wei, Liqun (2008). Building and improving an administrative and management system with the characteristics of Chinese socialism: a look back at 30 years of reforms in the administrative system as well a look into the future. Qiu Shi, June 2008.

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commerce agencies; to decentralize authority, to minimize administrative processes, to reduce direct intervention and management by government actions with regard to the production of enterprises, to separate Party and administrative organs from the economic units that they have set up; to adjust over time the relationships between government agencies and to resolve issues such as overlapping job responsibilities, undefined job responsibilities, and the problem of multiple responsible agencies for one issue, etc.; to balance the relationship between the central government and local authorities, particularly in the area of taxation; and to further streamline agencies and staffing. The period from the 16th National Congress of CPC in 2002 to date is the third stage, wherein administrative reforms are being deepened in all respects. The key task in this period is to build a service-oriented government and a government that abides by the rule of law. In this stage, the central government bodies have laid out a number of major objectives including implementing a scientifically sound view of development and building a harmonious socialist society. Work focused on deepening administrative reforms has been subsequently carried out in all areas with the aim of building systems and mechanisms that would facilitate scientific development and social harmony. Much effort has been expended on encouraging system and mechanism innovations, as well as innovation in the area of management approaches. An even greater point of focus here is the shift to put people first and to pursue comprehensive, balanced, and sustainable development on the economic and social levels and promote well-rounded development of the person. Another stronger area of focus is in the development of socialist democratic politics, with strong efforts to promote scientific and democratic decision-making and to make decision-making more transparent and participatory. Also more important than the building of new mechanisms and approaches is a focus on transforming and fully fleshing out the roles of government with the strengthening of social management and public services. There has been a greater focus on the regulation of the government’s actions with efforts to promote governance by law and the building of a government that works by the rule of law in all respects. Further, there has been a greater focus on improving management approaches through strong efforts to promote open governance and e-government services with attempts to implement a performance-based administrative system. New breakthroughs were achieved in 2008 with the State Council’s institutional reforms, and we have also seen significant advances in terms of the transformation of the government’s roles. Major steps forward have also been made in the most part with attempts to implement organic functional unity across government agencies. A new round of bold administrative reforms has taken place with the formation of a new government in 2013. Compared to previous reforms, the current round of reforms has had an even greater focus on the transformation of the government’s roles, and administrative reforms are being used as the chief levers of reform. Significant results have been achieved.

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1 An Outline of the History of Administrative Reforms in China

1.2 The “Four Key Themes” of Administrative Reforms in China The course of 30 years of administrative reforms has been mostly centered on four key themes: the dismantling of the highly centralized system of planned management, transforming the roles of the government and building a system of macrocontrol, optimizing the structure of the government, and enhancing administrative effectiveness. In terms of the specific reform process, the four themes have been foregrounded in various periods over time. In other words, these four key themes have been selected neither based on subjective assumption, nor were they chosen arbitrarily. They have been determined based on the key issues and the main tasks in various stages of reform in China. Abolishing the highly centralized planned management system—In the early days of reform and opening-up, the greatest issue that China faced was how to abolish the highly centralized system and model of planned management in order to create a favorable environment for reform and opening-up. To tackle these challenges, the Chinese government undertook a series of major policy changes and specified the decentralization of powers and the dismantling of the highly centralized system of planned management as the focus of administrative reforms. Transforming the government function and building a macro-control system, after 1984, as the focus in China’s reforms shifted, the disadvantages of the lack of separation between government administration and enterprise management and between the government and institutions with the “almighty government” became increasingly clear; these issues became a massive obstacle to the reform of the economy. Thus, the transformation of the government functions and the realization of separating government administration from enterprise management and separating government administration from management of public institutions became crucial to the continued reform of the economic system. Thus, the transformation of the government function was proposed for the first time at the 13th National Congress of CPC. This requirement also became another theme in subsequent rounds in the reform of China’s administrative system. The building of a socialist market economy was set as one of the ambitious goals of the Party at the 14th National Congress of CPC in 1992. This was a historic breakthrough achieved after more than a decade of experimentation and exploration in the area of Chinese reforms. As the market economy developed swiftly in China, just what kind of role the government would play within the market economy, how it would handle the relations between the government and the market and between the government and society, and how the government would exercise effective macro-control following major changes in the allocation of social resources have become major issues that have to be solved in the area of administrative management. Hence, since the 14th National Congress of CPC reforms of China’s administrative system have been centered on facilitating the development of the socialist market economy and the building of a system, as well as the closely related issues of transforming the roles of government, separating government and

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enterprise, building a modern enterprise system, and deepening reforms with SOEs, etc. Optimizing the structure of government—Since the first administrative reform in 1982, optimizing the structure of the government has been an important goal in reforms and a goal that is almost always present during the entire course of reform. Since the beginning of the fourth round of administrative reform in 1998, regarded as the largest round since the founding of the People’s Republic of China, the building of a government structure that is more compatible with the market economy has taken on higher priority. For example, during the administrative reforms of 1998, over 50 central government agencies were consolidated into 29, with most agencies responsible for the direct management of economic affairs merged. In 2008, another round of reforms with government agencies and institutions occurred according to the requirements of establishing greater government departments and cutting the number of government agencies and in line with the principle of separating decisionmaking, implementation, and supervision. While efforts were made to optimize the structure of the government horizontally, there were also early efforts to optimize the various layers of administrative management (i.e., vertically). Over the course of these reforms, since 1982, efforts have been made to promote the establishment of municipal management systems in place of prefectural and administrative offices that fell under provincial purview. Some issues have emerged in the years that this approach has been implemented, and thus there have also been efforts to explore the system of direct management of counties by the provincial government within the scope of vertical reforms in administration. Currently, the direct financial management of counties by the provincial government has been implemented in several places, while a small number of localities are also exploring direct administrative management. The deepening of the reform in which the county is directly administered by the province has reduced the number of administrative layers involved and promoted the integration of town and country. Raising levels of administrative effectiveness—Enhancing the efficacy of government administration has been a key goal for each round of reforms that has occurred. What has differed from stage to stage is the specific focus of such enhancement, as well as the indicators used for evaluation. If we are to say that for a relatively long time, our focus with administrative effectiveness has been of the quantitative kind and then with the deepening of efforts to transform the modes of economic development, the focus with the administrative effectiveness of the government may shift more to innovations in government administration and the quality of economic development, etc.

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1 An Outline of the History of Administrative Reforms in China

1.3 The “Five Key Pathways” of China’s Administrative Reforms In relation to the four key themes, enumerated above are five main pathways of administrative reforms in China: institutional reform and the transformation of the government function, the reform of the official and personnel systems, changes to central and local authority, the building of an administrative legal system and the regulation of the exercise of power, and the building of a government that the people are satisfied with. Institutional reform and transforming the roles of the government—The institution is the vehicle of public authority and also a platform for the performing of the function. On the political level, the institution is a reflection of the allocation and demarcation of authority. On the administrative level, the institution is a reflection of the realistic need to fulfill one’s job responsibility. Thus, historically institutional reform has been a hot topic within the area of government administration in China. It has also been a core concern within reforms of China’s administrative system. Since the reform and opening-up of China, the reform of government institutions has been a consistent concern in reforms of the administrative system in China. The objective of such reform, no matter it be the institutional reforms of 1982 termed as “a revolution” by Deng Xiaoping, the comprehensive institutional reforms of 1998, or the current round of reforms with major agencies, is the optimization of the organizational structure of government for making the superstructure compatible with the economic base. Another critical issue within the reform of China’s administrative system is how to connect institutional reforms and transform the government function. The transformation of the government function has been a priority with subsequent reforms of the administrative system since such a transformation was proposed for the first time with institutional reforms in 1988. The power and job responsibilities of government agencies were defined and regulated through the specification of institutions, job responsibilities, and personnel systems, at the same time, micro-management and direct interference were reduced while macro-control was enhanced. The fundamental role of the market in resource allocation and the role of market mechanisms were also foregrounded, thus changing the ways in which the government managed and performed. After years of hard work, the Chinese government has more or less broken free of the planned economy in terms of its organizational and functional configuration. The Chinese government has also been able to establish a government structure and operating model that, in general, are compatible with the market economy. Reform of the official and personnel systems. The public servants who work within administrative organizations are needed for the fulfillment and completion of both government administration tasks and services. Thus, a strong official and personnel system must be established to ensure the effective and high-quality implementation of job responsibilities. There were severe flaws with China’s original official and personnel system, including the system of lifelong tenure for officials, the lack of a scientific talent management system, the lack of an open and competitive

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system of personnel selection, and the lack of management measures such as in the areas of performance assessment, promotion and demotion, incentives and penalties, dismissal, and retirement. Therefore, the reform of the official and personnel system became another key pathway in the reforms of China’s administrative system after the implementation of the reform and opening-up. Since 1982, over the course of administrative reforms in China, efforts have been made to make the base of government officials more revolutionary, younger, more knowledgeable, and more professional. The system of retired officials was established, and the power of the government officials was delegated. A number of selection models such as appointment, selection, examination, and hiring have been used for the recruitment of officials, and efforts have been made to explore the management of personnel along more specific classifications. In August 1993, the State Council released its Provisional Regulations on Civil Servants and began to establish a national civil servant system across the entire country. After years of hard work, as of the end of 1998, the national civil servant system has been essentially established at the central government level and at the levels of provincial, local (municipal), county, and township (town) institutions. The establishment of the national civil servant system signaled a key advance in China’s efforts to reform its official and personnel system. This establishment also provided a strong institutional foundation for the building of a high-quality and professional civil service. The promulgation of the Law on Public Servants in 2005 and the official implementation of this law in 2006 have been major measures in the reform of China’s official and personnel system. These measures have signaled the growing maturity and improvement of China’s civil service system. After years of reforms to the official and personnel system, currently the selection and appointment of personnel for China’s government agencies are conducted strictly in accordance with the principles of openness, fairness, meritocracy, and competition. The implementation of the competitive selection and job rotation systems have ensured the smooth resettlement of personnel and at the same time ensured greater vitality in the official pool. These measures have vastly improved the situation for officials who for many years have found themselves stuck and have also helped a batch of young and capable officials to stand out, changed the personnel structure of various government agencies, and enhanced the overall quality of the civil service and its willingness to fulfill its job responsibilities. As such, the government’s implementation capabilities and management and service efficiency have been vastly enhanced, facilitating the smooth modernization of the civil service. Changes to central and local powers—Another key long-term issue in the history of administrative reforms in China since the founding of the People’s Republic of China is how to adjust power relations between the central and local authorities and to clarify the authority of office and expenditure responsibilities between the two. It is also one of the central themes in administrative reforms in China since the Third Plenary Session of the 11th Central Committee of CPC in 1978. Whether the issue is properly solved will exert influence on whether China will be able to effectively abolish the highly centralized model of management that has plagued it her for a long time, mobilize the enthusiasm on the parts of both the central and local authorities, give full play to the autonomy and creativity of local authorities

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1 An Outline of the History of Administrative Reforms in China

and the grassroots, and maintain the authority of the central government and the consistency of government decrees. Further, the issue of power allocation also has tremendous import on the building of a macro-control system and the authority to exercise macro-control within the context of developing a socialist market economy. Since the reform and opening-up of China, in general, we have seen a number of twists and turns on the path to adjusting the powers of the central and local authorities. Prior to 1988, the general trend was in the decentralization of power with local authorities granted more autonomy. The task of adjusting the power relations between the central and local authorizations was clearly laid out at the Third Plenary Meeting of the 11th Central Committee of CPC. Beginning in 1980, in line with the requirements laid out by the CPC Central Committee authorities, a series of major measures were taken with this as focus. They include the implementation of a new financial system in 1980 wherein the boundaries of central and local fiscal revenue and expenditure were clarified; the 1984 Decisions of the Central Committee of CPC on the Reforms of the Economic System document further expanded the autonomy of local authorities; and the 13th National Congress of the Central Committee of CPC in 1987 called for the following change in the power relations between central and local authorities: “Wherever it is suitable for the local authority to act, the decision and implementation should be made by the local authority. In terms of the relationship between the central and local authorities, the responsibilities of the central and local authorities should be clarified step-by-step while ensuring the consistency of political decrees across the country. The objective is to ensure that local matters are administered by local authorities while the central government bodies have to be responsible for the establishment of broader plans and to supervise policy implementation.” The principles of adjusting the power relations between the central and local authorities were proposed in accordance with the requirements laid out at the 13th National Congress of the Central Committee of CPC. After 1988, the central government bodies then granted local authorities more autonomy in a number of areas, such as the rights to review and approve foreign enterprises and import/export enterprises. These measures expanded the power of local governments in the areas of social and economic governance. At the 14th National Congress of the Central Committee of CPC in 1992, new objectives and requirements were laid out for further adjustments to the power relations between the central and local authorities. Such adjustments were required to facilitate the development of a socialist market economy, to reasonably demarcate the authority of the central and local governments, and to ensure that both the central and local governments continue to play an active role. In line with these requirements, the central government bodies continued to establish a series of new policies to further refine the relationship between the central and local authorities. In particular, the tax reforms of 1994 as well as other fiscal, financial, tax, planning, and trade, etc., reforms subsequently further demarcated the authority and responsibility of the central and local governments and clarified the relationship between the central and local governments. These reforms played a significant role in promoting the establishment of reasonable, systematic, and standard demarcations in authority between

1.3 The “Five Key Pathways” of China’s Administrative Reforms

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the central and the local and in promoting the establishment of a macro-control system. Building of an administrative legal system and regulating the exercise of power— The administrative system is the foundation of the national system of administration. For a state to govern effectively, its administration must be built upon a strong administration system. On the other hand, the administrative system is the institutional expression of organizational structure, organizational principles, and administration methods. To give full play to this kind of system, we must prioritize the institutional and system building within the system as well as the implementation of the rule of law. Then, we should standardize and regulate the operations of the administrative system and regulate the process of administration. In line with this requirement, in the 30 years of reform following the Third Plenary Session of the 11th Central Committee of CPC, China has all along placed the building of the administrative system, the establishment of regulations and rules, and the use of legal measures to regulate administrative activity as important parts of its reform. Given the severe damage to China’s rule of law in the ten years of the Cultural Revolution, at the beginning of China’s reform and opening up, the work focus for the building of China’s legal system was on restoring the authority of laws and regulations and the rebuilding of the administrative law system. Another focus was on the complete review and revamp of all laws and regulations that had been promulgated since the founding of the People’s Republic of China. The grand objective of establishing a socialist market economy was proposed at the 14th National Congress of CPC in 1992. The market economy at its very core is a kind of legally governed economy. The rule of law is an effective guarantee of market order. A comprehensive legal system is, thus, a mandatory condition for further economic development and social progress. After China’s entry into the World Trade Organization in 2001, the pace of establishing administrative laws was accelerated. A large number of laws and regulations related to the building and improvement of a socialist market economy were established, amended, and promulgated, thus providing a guarantee for the healthy development of the market economy. Apart from building a complete and comprehensive system of administrative law, China has also worked on institution building in the legal arena in the course of her reforms as well as enhanced the supervision of administrative law. Since the beginning of the reform and opening-up of China, China has established regulatory agencies in the areas of environmental protection, land management, food safety, financial regulation, and supervision, etc. Further, China has also consolidated and strengthened administrative agencies in the areas of trade and commerce, taxation, public security, judicial system, and customs, etc., and established systems of administrative litigation and administrative review, thereby significantly enhancing administrative law as well as the government’s supervision of administrative law enforcement. Building a government that the people are satisfied with—The mission of our government is to serve the people wholeheartedly. This is also the ultimate principle for each and every civil servant. In the more than 30 years of administrative reforms, on the one hand, we have worked continuously to implement administrative reforms

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and streamline institutional structure and the workforce, and to enhance administrative efficiency, etc., and at the same time we have also worked to change the management methods used by the government, promote e-governance, improve the government’s public services, and enhance levels of satisfaction among the people toward the government through further and greater reforms. In particular, following the 16th National Congress of CPC in 2002, the objectives of government reform gradually coalesced into the building of a service-oriented government that works by the rule of law and which is responsible and clean. At the same time, the government’s social management and public service functions were strengthened, and significant investment was made to provide more equal access and treatment with basic public services in the areas of health care, education, social security, employment services, and public housing. Thus, more people were able to enjoy the fruits of the “opening-up” of China and the attendant reforms. Further, the people were also encouraged to participate in public governance and to supervise the government through various means. In particular, with the swift development of the Internet, online democracy and the public oversight on the government online have become strong forces to contend with over a short period of time. The Internet had become an important way for the populace to participate in public governance, and means such as the ability to ask questions of the government online, online surveys, hearings, and the growing openness of the way government deals with information, etc., have created positive conditions for the people to participate in the public governance process. Thus, all these have been important factors that have facilitated the transformation of the government and the building of a service-oriented government that the people are satisfied with.

Chapter 2

Reforms to the Administrative System in China, 2008–2012

In March 2008, Premier Wen Jiabao began his second term as the Premier of China. If we are to say that in his first term (that started in 2002) he had focused on microadjustments to departments under the State Council, then in the second term that began in 2008 the focus of the government was on bold and sweeping reform of the administrative system. In this chapter, we look at the key achievements made by the current government in the area of administrative reforms, the issues that have stood out in the course of these reforms, and future developments in administrative reforms under the current development.

2.1 The Main Achievements of the Current Government in the Area of Administrative Reforms The related issues of administrative reform have become a consistent point of focus for reforms under the current government since the strategic objective of building a socialist administrative system with Chinese characteristics by the end of 2020 was first put forward at the Second Plenary Session of the 17th Central Committee of CPC in 2008 for the first time. After more than four years of hard work, significant achievements have been made in at least seven areas. 1.

China has been able to maintain the stability of the macro-economy in the face of the financial crisis, guide economic development with the Scientific Outlook on Development, and promote changes in development approaches through government reforms. Therefore, although the financial crisis dealt a severe blow to China’s economy under the central government bodies’ policy of maintaining growth, employment and stability, the State Council quickly established a series of major measures in response to the crisis. As a result, China was the first economy worldwide to the get out of the crisis and was able to keep

© Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_2

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the macro-economy basically stable. Over the course of this process, the related government reforms were successful in ensuring continued growth, employment, and stability as well as promoted the structural reform of the economy and promoted changes in development approaches. For instance, in 2009 when the financial crisis was at its worst, the Chinese economy was the first to rebound and grew by 9.2% that year. It grew further by 10.3% in 2010 and 9.9% in 2011. In 2012, in the course of implementing the 12th Five-Year Plan, China further prioritized the transformation of development approaches and structural adjustment. Although the US economy hit rock-bottom for the second time and the crisis in Europe still remained, magnifying the pressures on the Chinese economy, the economy was kept stable with an emphasis on scientifically-driven development and the transformation of China’s development approaches.

Box 1 Significant enhancement of national strength in various areas The economy has developed comparatively quickly. Between 2003 and 2011, gross domestic product (GDP) grew by an average of 10.7% a year, with growth of more than 10% registered in six years. In 2009, when China was hit fairly hard by the international financial crisis, the economy still grew by 9.2%. The annual growth rate in this period is far above the 3.9% growth rate for the global economy in the same period and also higher than the 9.9% growth rate that China has registered since the beginning of the reform and opening-up. GDP continues to hit new heights. In 2011, China’s GDP reached the value of RMB4.72 billion. After adjusting for inflation, this was a 150% increase over the 2002 GDP figure. The national economy has leapt upward in the world. China’s GDP exceeded that of Germany in 2008 to take the third place in the world, and in 2010 China surpassed Japan to take the second place. This means that China is the world’s second-largest economy after the USA. The growth of China’s economy has also led to increasing contributions to the global economy. In particular, in the second half of 2008 following the eruption of the global financial crisis the Chinese economy was the first to bounce back and maintained relatively high growth rate while other key global economies showed signs of significant slowdown or even the prospect of recession. The Chines economy became a key engine for the recovery of the global economy. China’s share of global gross production rose from 4.4% in 2002 to around 10% in 2011. China’s share of the growth of the global economy is more than 20%. GDP per capita has also risen swiftly as GDP rose steadily. In 2011, GDP per capita in China stood at RMB35083. After adjusting for inflation, this figure is a 140% increase over the 2002 GDP per capita figure and marked an average increase of 10.1% per year. Taking changes in exchange rates into account, GDP per capita in China rose from USD1135 in 2002 to USD5432 in 2011.

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The national financial strength significantly boosted. The swift growth of the economy has also contributed to steady increases in government revenue. In 2011, China’s government revenue exceeded RMB1 trillion to hit RMB1.0374 trillion. This was a 450% increase or an annual average increase of 20.8% from the 2002 figure. The swift growth in government revenue has also stimulated the government investments in the areas of education, health care, and social security and enhanced the government’s ability to allocate resources. Strong growth in the national foreign exchange reserves. China’s foreign exchange reserves exceeded the USD1 trillion mark in 2006 and the USD2 trillion mark in 2009. In 2011, it went past USD3 trillion to reach USD3.1811 trillion. This was a 1010% increase over the 2002 figure with an annual average growth of 30.7%. The size of China’s foreign exchange reserves has been the largest in the world for six consecutive years. (Source National Bureau of Statistics)

2.

3.

The government was consolidated and its organizational structure was optimized in accordance with the plan for establishing greater government departments. Starting from 2008, the current government has implemented the reform to establish greater government departments first with the State Council and then with local governments. Although the State Council performed this reform in only five departments, we should say that it had taken significant steps forward. On the other hand, local governments such as Shunde in Guangdong Province and Fuyang in Hangzhou have achieved significant breakthroughs. In particular, with the pilot reform headed directly by Wang Yang in Shunde, 41 Party and government agencies were consolidated into 16, creating a highly efficient power structure that integrates the Party and the government and wherein the decision-making, implementation, and supervision parts of government are balanced and checked against each other. This reform led to major impact on society. Currently, the Shunde model of reform is already being implemented in some other parts of Guangdong. Breakthroughs achieved in terms of transforming the government functions, balance the relationships, and strengthening the government’s capabilities in terms of social management and public services. One key feature of reforms under the current government is the framework of functional transformation, handling of various relations, structural optimization, and improving the performance. The idea is to consolidate the functions of the government so that as much as possible a single issue is managed by a single agency. This would avoid an overlap in functions and the issue of multiple decision-makers. Reforms have strengthened the government’s capabilities in public services and social management, made basic public health services more equitable, and led to breakthrough developments in areas of public concern, such as in health care, education, social security, employment services, and public housing. Over the course of these five years, no matter it be with the central government or with

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local governments investment into public services has grown. This increase has helped to achieve preliminary nationwide coverage in the areas of rural health care and the elderly care system, meaning that the majority of the population are now enjoying the results of China’s reform and opening-up. This is a historic breakthrough. For instance, China has already made compulsory education freeof-charge. In another example, on 27 July 2012 the Minister of Health Chen Zhu announced that 96% of the population was already covered under basic healthcare insurance, making China one of the countries worldwide with a national healthcare insurance system.1 One example would be how on September 10, 2012, the Vice Minister of Human Resources and Social Security Hu Xiaoyi announced that currently over 700 million persons had been covered under the country’s basic old-age insurance system, with a targeted coverage of around 1 billion people.

Box 2 A focus on improving the people’s living standards Since the 16th National Congress of CPC in 2002, the Central Committee of CPC have made ensuring and improving living standards the starting point and goal of all the work. In this regard, they have implemented various reforms pertaining to resource allocation and worked to raise minimum wages and pension levels by increasing employment. The government has also worked ceaselessly to raise transfer payments for low-income groups and its policy coverage for such groups. It has implemented a series of policy measures, such as raising the salary threshold for personal income tax, and worked to diversify its income channels so as to increase individual income. In particular, the government has sought to increase farmers’ income. Through measures to increase both grain production and income, encourage farmers to enhance the quality of their grain, raise grain prices and go to cities for work, and through the provision of subsidies, the income of rural residents has grown significantly for a number of consecutive years. In 2011, the per capita disposable income of urban residents reached RMB21810, which is a 180% rise over the 2002 figure and which marked an annual increase of 9.2% after adjusting for inflation; the per capita disposable income of rural residents was RMB6977, which was an 180% increase over the 2002 figure and which marked an annual increase of 8.1% after adjusting for inflation. The income of both rural and urban residents grew by an average annual growth of 7.4% between 1979 and 2011. This is the fastest rate of growth in history. With continued income growth, the people saw their living standards improve dramatically, and their ownership of key durable consumer goods also increased significantly. As of the end of 2011, on average 61.5 refrigerators were owned by 100 rural households, which is a 310% increase; the average figure of 22.6 air-conditioners per 100 rural

1 Gansu

Daily, July 28, 2012.

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households was an increase of 890%; rural households also saw their average ownership of mobile phones jump 1210% to 179.7 sets per 100 households. Since the 16th National Congress of CPC China has introduced a good number of systems in the area of social security. The social security network in China has been improved over time. Efforts have also been made to strengthen various social security systems such as the elderly care and healthcare systems for urban residents. Various kinds of social security schemes for rural residents are also being incorporated gradually into the national social security system. By the end of 2011, a total of 283.91 million people were covered by basic old-age insurance for urban residents, up 136.54 million compared to 2002. A total of 143.17 million people were covered by unemployment insurance for urban residents, up 41.35 million from 2002. The establishment of the new old-age pension system for rural residents, in particular, is another major policy following the introduction of agricultural subsidies, the abolition of agricultural tax, and the introduction of the new type of rural cooperative medical care system since the 16th National Congress of CPC, and yet another important step forward in efforts to build a national system of social security for both urban and rural residents. By the end of 2011, the government carried out trials of new type of old-age insurance for rural residents in 1914 counties (county-level cities, districts, banners) in 27 provinces and autonomous regions and four municipalities directly under the central government. At the same time, the government launched trials of old-age insurance for non-working urban residents in 1902 counties (county-level cities, districts, banners) in 27 provinces and autonomous regions, four municipalities directly under the central government, and the Xinjiang Production and Construction Corps. The coverage of this insurance was extended to approximately 60% of China’s counties. Around 330 million individuals were covered by the trials of the new type of old-age insurance for rural residents and the old-age insurance for non-working urban residents. (Source National Bureau of Statistics of China). Another key measure taken by the current government to transform the functions is the reform of the reform of the system concerning matters subject to government review and approval. Over the last few years, with several rounds of reforms conducted in this area the number of matters that require review and approval by the State Council and local governments has been reduced drastically. At the same time, the administrative review and approval process has become much more regulated and open in nature. In particular, there have been new developments in terms of the more than 2800 administrative service centers nationwide. Many of these centers have consolidated services, management, and resources under one roof, thus significantly enhancing the overall service capabilities of the center.

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Box 3 The State Council abolishes the need for government review and approval for various matters over six occasions In May 2004, the State Council decided to abolish, or make changes to, the review and approval process in 495 items for the third time. These 495, together with those canceled or adjusted in the previous two rounds, totaled 1795. At the same time, changes to another 11 items involving nine laws were recommended. The amendments to these nine laws were passed at the 11th Session of the Standing Committee of the 10th National People’s Congress on August 28, 2004. At the time, the State Council had abolished, or made changes to, the administrative review and approval process for a total of 1806 items or 50.1% of the total, thereby realizing the objective of significantly reducing the number of items for which such review and approval are needed. This has had a positive impact on the political, economic, and social aspects and won wide acclaim at home and abroad. In April 2007, the State Council decided to abolish, or make changes to, the review and approval process in 186 items in what was the fourth wave of such reforms. Among them, administrative review and approval were abolished in 128 cases while changes were made to another 58 (including decentralization to lower authorities in 29 cases, changes to the implementing agency in eight cases, and consolidating with other similar items in 21 cases). Another seven items wherein administrative review and approval are to be abolished or adjusted have been put in place by the corresponding laws. As such, the State Council will seek to amend the corresponding laws and regulations by means of a request to the Standing Committee of National People’s Congress in accordance with established legal procedures. In 2009, the State Council decided to abolish the review and approval process and delegate administrative review to lower authorities in 184 items in what was the fifth wave of such reforms. Out of these 184 items, administrative review and approval have been abolished for 113 items, and the other 71 items have been decentralized and delegated to lower authorities. In 2011, a reform of administrative review and approval processes was conducted for the sixth time for State Council agencies. Administrative review and approval were abolished or adjusted for 314 items. (Source National Bureau of Statistics).

4.

Enhancing the openness and transparency of governance and the public’s supervision of public authority. In 2008, the Chinese government established regulations on maintaining the openness of government information. With the implementation of these regulations the openness of government information has become an important item on the Chinese government’s agenda. Government information has been made more open with the use of various channels such as government portals, thereby ensuring the people’s rights to be informed, to participate, to be heard, and to oversee. At the same time, efforts to build a

2.1 The Main Achievements of the Current Government …

5.

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“Sunshine Government” gathered greater pace with a number of local governments across the country. These efforts toward greater transparency and the emergence of politics online and official government social media accounts for e-governance purposes have dramatically encouraged the public to participate in public governance and served an important role in the public’s supervision of authority. Promoting the reform of the system of province-controlled counties and optimizing administrative structures. Since 2008, the current government has worked hard to implement the reform of province-controlled counties. The related financial reforms have been implemented with nearly one thousand counties across the country, and at the same time, certain regions have been selected as pilot sites for administrative reforms. These reforms are designed to enhance the financial capabilities of county governments and accelerate the development of county economy to promote the integration of rural and urban areas.

Box 4 Progress in urbanization and public service levels in rural areas Urbanization has been a strategic focus within broader efforts to grow domestic demand. It is also an important symbol of the transformation and development of society. Since the 16th National Congress of the CPC, a number of urban development plans have been implemented based on the principles of unified planning, reasonable structuring, improvement of various structures, and leading the development of smaller actors with the mass of bigger actors. Urban systems and functions have been continually improved and cities continue to be more capable of aggregating peoples and economic resources. In 2011, the urban population was 37.6% greater than in 2002, while the rural population was reduced by 16.1%. In the same year, China’s urbanization rate crossed the 50% point for the first time to reach 51.3%. This was 12.2 percentage points more than the 2002 rate. A historic change occurred in China’s urban–rural landscape. The ability of cities and towns to provide jobs is also continually being strengthened. In 2011, a total of 35.914 million persons were employed in urban areas, an increase of 10.755 million over the 2002 (or an increase of 11.95 million persons per year). The urban economy accounts for 47% of all persons employed in the country, 12.7 percentage points higher than the 2002 figure. The swift increase in the number of jobs in urban areas has led to the continual shift of labor from the countryside to the towns and cities. The rural area is changing faster than ever, and a new landscape for integrating rural and urban economic and social development is emerging in stages. Dramatic, historic changes have occurred with China’s rural area and agricultural sector in the decade since the 16th National Congress of CPC was held. It has also been the period where rural residents have benefited the most in what has been yet another “Golden Period” for agriculture, rural areas,

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and farmers. Since the CPC Central Committee instituted plans for building new socialist rural areas, the Party and the central government have remained committed to developing public services in rural areas as a means of narrowing the urban–rural gap. As such, efforts have been consistently made to enhance rural infrastructure and public services, with an even greater emphasis on basic infrastructure such as water, electricity, gas, and telecommunications services. Thus, the rural environment and rural life have been greatly improved. In 2011, the length of roads built in counties and townships totaled 1.6 million km, an increase of 260,000 km over the 2002 figure. The goal to connect villages in terms of basic infrastructure (roads, telecommunications, broadcasting, etc.) has been accomplished in the east and in central China, while in western China 98% of administrative villages is connected to public roads. As such, the State Council’s rural road building objective under the 11th Five-Year Plan has been fully accomplished. Efforts to make drinking water available to more people have also provided 326 million people living in rural areas with safe drinking water (Source National Bureau of Statistics).

6.

7.

Improvements in the way the government conducts performance-based management. A key reform measure taken by the current government is to strengthen performance-based management by the government as it seeks to fundamentally change the model, formed over the long term, and centered on GDP growth. During this period, not only was the government’s system of performance-based evaluation established and improved (including indicator systems for basic services), at the same time the government has underlined its commitment to building a responsible government by establishing greater oversight over civil servants. After much ceaseless effort, the Chinese government’s system of performance-based management has gone through significant changes, with clear results in terms of regulating the performance-based management process and ensuring that such a process is systematic. These improvements have played a key role in regulating governance and government operations as well as the governance behavior of public servants. Establishing an overall plan for the reform of public institutions and stepby-step implementation of such reforms across the country. The reform of public institutions had been lagging behind for a long time. Such reforms, which will become the reform of greatest scale following the reforms of the Party and government structure and of SOEs, will involve the interest of more than 30 million people. An important measure taken by the current government is the establishment of an overall reform program for public institutions with plans to complete classification reforms for public institutions in 2015. Then, there will be further reforms in the areas of personnel management, income distribution, eldercare, and corporate governance structure with such institutions. Since 2009, the central government bodies have chosen to conduct pilots for such reforms in certain areas. Currently, classification reforms are already in full swing.

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2.2 Prominent Issues Faced by the Current Government Over the Course of Implementing Administrative Reforms While we should fully recognize the achievements that have been made in the area of administrative reforms in China we should also be clear about the issues that are present in this area. These issues can be categorized into six types: The first issue that there is too much interference in the market and in social affairs. That is, the government is still playing the role of the “strong government.” This is not compatible with the market economy system and mechanisms that have been built up in China after more than 30 years of reform. In many places, there is still an excessive use of administrative power in the allocation of resources in society. This has led to the displacement or even marginalization of the market in the process of resource allocation. Second, the government structure is unbalanced, and the transformation of the government’s functions has been slow. This has led to the existence of entrenched departmental/agency interests and high costs of administration. Although post-2008 we have sought to consolidate government agencies, in general the impact has been limited. Government agency structures remain unbalanced, and there is still plenty of room for further consolidation. This is especially true with agencies responsible for the management of the economy and of social issues. The unbalanced state of government structures includes an excessive number of administrative levels. At the same time, changes to administrative districts and urban management have not been able to keep up with the onset and requirements of the strategy to integrate rural and urban developments. In terms of the government’s functions, the government remains relatively weak in the areas of social management and public services and its performance still lags behind the demands of the masses. Just how to further strengthen the government’s public service functions, increase investment in the area of public services, enhance the government’s public services capabilities and to implement social management that is both harmonious and effective remain a key issue. Third, the relationships between the central and local authorities, particularly financial relationships, have yet to be clarified. The approach taken by local authorities to use land sales as a source of revenue is unsustainable. There has been a dramatic increase in recent years in the number of mass incidents related to land acquisition and housing demolition. The fundamental reason here is that local governments are over-reliant on the use of land sales as a source of revenue. That this has been a long-term issue has in turn to do with the unreasonable financial relationship between the central and local authorities. In particular, after making access and treatment more equal with basic services became an important item on the agenda the fundamental issues in the power and financial relationships between the central and local authorities have become even more salient. Fourth, the exercise of the power of the government has not been effectively limited. After the sagging of efforts to reform the government, we have not seen

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the objective of “curbing officialdom” play out amidst efforts to build a government that operates by the rule of law. Although strong efforts have been made in recent years to combat corruption and despite the fact that significant achievements have been made in this area, corruption has continued to spread. In particular, in the last few years, issues pertaining to the exercise of the power of the government such as “gray power,” “gray capital,” and “gray violence” have created a strongly negative social impact and have become the greatest obstacles to reform. In addition, the public’s dissatisfaction with officials’ use of public funds for private purposes and their demands for officials to declare their assets are all phenomena that indicate that the need to better manage the power of the government has become an urgent one. Fifth, the leverage effect from the distribution of government income has not been fully expressed. There have been distortions in the distribution of interests across the country in general. This has undoubtedly to do with the government’s inability to manage interests. Furthermore, objectively speaking, those with vested interests in terms of power, monopolies and in the real estate and resource industries control vast amounts of social resources. This has further exacerbated conflict between governments and the people, between labor and capital, and between the rich and poor, thereby directly affecting social stability and development. Sixth, there is room for further reform of the political system. Currently, reforms of China’s administrative system have become increasingly difficult. One key reason is that reforms of the political system are lagging behind. Although the reforms of the administrative system are the “downstream” of reforms of the political system, and although the former have also resolved several issues in governance and government operations, it is not enough to implement reforms solely on the administrative level. We need to also promote higher-end reforms such as reforms of the constitutional system and of Party politics and seek to strengthen socialist democracy and the socialist rule of law. The current predicament of reform efforts in China also validates this point.

2.3 Trends in Administrative Reforms by the Current Government Based on the analysis above, we can say with certainty that after the 18th National Congress of CPC, reforms of the administrative system will become a key component of reform efforts in general. At the core, such reforms will be implemented to resolve three key issues: first, transformation of the model of public governance and optimization of government structure; second, operation and control of the power of the government; and third, making the role of Party members and the public more systematic in the public-servant selection process. These reforms will take place in seven areas:

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First, in the continuation of the consolidation of government agencies. Greater consolidation of government agencies with overlapping roles and functions will be conducted in line with the needs of economic and social development so that the structure of the government would be more balanced and optimal. In particular, after the 18th National Congress of CPC, we need to focus on establishing an overall framework for the further implementation of such reforms and clarify the thinking and direction for such reforms. Further, there is also the need to perform a round of significant consolidation and restructuring with State Council agencies, from its component committees, subsidiary institutions, and executive agencies. The idea is to shorten the painful process of reform to maintain relative stability. The focus here should be on tackling the issue of the excessively detailed division of labor and targeted functions of various agencies, the diffuse nature of market supervision and social management, and the lack of effective separation between decision-making, implementation, and supervision. Second, there is the need to significantly reduce the government’s power and transform the traditional strong-government model of governance. We will be able to return to a rational state and truly establish a diverse structure of governance that involves the government, the market, and social actors if we can dramatically reduce or transfer/decentralize to lower authorities the government’s micro-management functions, lower market access standards, and fundamentally change the existing model of strong-government governance through methods such as clarification, separation, and transfer. Third, there is the need to adjust the relationships between the central and local authorities, especially in the area of finance, so that local and primary governments can have greater autonomy. The unreasonable and unbalanced pattern of the power and spending responsibilities between central and local governments should be changed. The practice of relying on land sales for local government revenue, which is at the end of its road, should be ended and replaced by new sources of tax revenue by adjusting the balance of tax revenue between the central and local governments and redraw boundaries between the central and local governments in terms of their respective rights and obligations based on the basic public services that local governments at various levels are responsible for. We must improve on the transfer payment system and consolidate the existing system of five administrative levels to three, i.e., the central government bodies, provincial authorities, and city/county authorities. The system of county management of township budget should be adopted so as to move toward operating along the rule of law. We must shrink as much as possible the scope of special transfer payments projects and enhance the scale of general transfer payments from the central government in order to eradicate the stubborn problem of local governments seeking to elicit more funds from the central government through lobbying and the cultivation of personal relationships. Fourth, we must further enhance the openness and transparency of governance and strengthen oversight over public authority. We must, through reforms, put more effort into establishing “Sunshine Governments” nationwide where public authority is exercised under the public oversight. This will fully protect people’s right to stay informed about, participate in, express views on, and oversee Party and

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government operations. We must take decisive measures to eradicate “gray power,” “gray capital,” and “gray violence.” We must also initiate reforms of the publicservant asset reporting and disclosure system. We can first implement this reform with newly promoted officials, including newly promoted Party and state leaders. Fifth, we must accelerate reforms of the province-controlled counties system, adjust administrative division and change the way cities are managed. We must advance reforms of the province-controlled counties system, adjust administrative division, work vigorously to promote economic development at the county level, accelerate the implementation of the urban–rural integration strategy, and realize the horizontal organization of the vertical administrative levels. At the same time, we must change the way cities are set up and managed, and try as much as possible through legal means to establish and strengthen the autonomy of city authorities, minimize administrative hierarchies over city administrations, and work continually at new models of city administrative set-up and management. Sixth, we have to also accelerate the pace of government reforms. Such reforms include the further acceleration of reforms of the administrative review and approval system, the establishment of a stringent public-servant accountability system, and increase oversight over officials through the building of a government that runs on the rule of law. We must significantly reduce the costs of administration so that more fund can be used for the improving people’s living standards. At the same time, we must also accelerate reforms of the official-selection system both within the Party and with regard to the people’s congress, for which there should be more candidates than electoral vacancies. We must change the current system wherein officials are only responsible to those above them and not accountable to the people. The masses must have greater choice and a louder voice when it comes to the selection, supervision, and evaluation of officials. Seven, we must change the ways in which we advance reforms, and initiate reforms of the political system as soon as possible in order to remove obstacles to the further reform of the administrative system. The reform of the administrative system is critical to China’s future development. In terms of developmental trends, if we do not have substantive progress in reforms of the political system, there is very little future for administrative reforms. Another possibility is that we may later see backsliding with any administrative reforms achieved. The scope of political-system reform is broad, but based on the issues faced by the Chinese economy and by Chinese society currently we can seek breakthroughs in three areas: first, we should seek to introduce as soon as possible a reform plan for the allocation of income without fear of touching the “cheese” of those with vested interests. This way, we will be able to reform what is a distorted landscape of interests. It may appear at first glance that any initiation of such reforms would be a matter of economic or administrative concern. However, considering the current state of Chinese society it has actually become a challenging political issue. If we do not consider the issue or adopt measures from a political or strategic perspective, it will be unlikely for us to achieve any substantive progress. Second, we should use newly-promoted Party and government officials as an entry point into the implementation of an asset and financial disclosure system for public servants. Such a system should cover roles ranging from that of township

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head all the way to the highest leadership within the new government. Although this reform would be a single reform by itself, it has important meaning as it can raise the confidence levels of the masses and reframe common understanding of the reform process. Third is to extend democracy within the Party by first implementing the system of multi-candidate election within the Party. Then, the Party can then extend this system to the people’s congress at various levels. This way, we will be able to reform the current structure wherein Party members and people’s congress members have too little say in the appointment of key Party members and where leaders are only accountable to their superiors but not to the people. At the same time, we can also pilot direct elections for key Party officials at the township and county levels with a view to implement full autonomy for the primary level. Experience will be accumulated with bold experimentation.

Chapter 3

Assessment: Analysis of Results from the Survey on Reforms to the Administrative System in China (2008–2012)

The survey asks respondents to evaluate the administrative reforms conducted by the current government between 2008 and 2012. Respondents included Party and government officials, individuals from the corporate world, and participants from public institutions.

3.1 The Survey Sample and Basic Demographics The aim of this survey is to gain a better understanding of various parties’ perceptions of the administrative reforms that had been conducted. Respondents were drawn from bureau-level Party officials from certain public institutions and SOEs who were attending various types of training programs in Beijing. More specifically, they were mainly from the youth cadre program of the Chinese Academy of Governance, the training program for those newly appointed as directors at central agencies, Xiamen’s training program for its Party and government officials, Peking University’s advanced public management program for Party and government officials serving in institutions under the purview of the Yunnan provincial government, the mixed training program for officials from various local governments and enterprises nationwide, and the training program provided by the Party School of the CPC Haidian District Committee for its leaders. The backgrounds of the aforementioned respondents are highly representative: there are respondents from CPC Central Committee and central government authorities and also from the provincial, district/county and even township levels; there are respondents from Party and government authorities as well as respondents from enterprise or public-institution backgrounds; there are senior officials at bureau director level as well as respondents at division head or section head level; finally, there are officials from more economically advanced regions like Xiamen and also those from comparatively less developed regions like Yunnan. © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_3

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Specifically, a total of 229 questionnaires were distributed, with 222 valid completed questionnaires returned. In particular, 40 were of bureau director level from Party and government agencies and public institutions, 159 of division head level, and 19 from other positions. In terms of the educational qualifications of the respondents, nearly all of them hold at least a bachelor’s degree, with half of them holding either a master’s degree or doctorate. In terms of age, the majority of respondents are in the 30–50 age range. They are in the prime of their lives and careers. In general, the survey sample is mainly comprised of Party and government officials with comparatively high levels of education, of a relatively young age, and who are comparatively more accomplished in their careers. The questionnaire contained a total of 28 questions that fall into three categories: the questions under the first category ask for the respondents’ overall evaluation of administrative reforms conducted by the current government, including their overall assessments of the state of reforms conducted by the current government (2008 to date) and about the results obtained from such reforms. The second group of questions is concerned with the various aspects of administrative reform, with a particular focus on evaluating reforms in various focus areas and particular issues that have emerged. The reforms covered include: the “reform to establish greater government departments,” the transformation of the government functions, reforms of the provincecontrolled counties system, the building of a service-oriented government, and the building of a government that operates by the rule of law, etc. The third category of questions is concerned with government reforms, including the system of government accountability, the asset and financial disclosure system for officials, the use of public funds for private expenditures by officials, the anti-corruption campaign, the government’s performance-based management efforts, the credibility of the government, reforms of public institutions, and e-governance (such as on Weibo). The fourth category of questions is concerned with the political reforms related to the administrative reforms and future developments in administrative reforms, etc. The design of the questionnaire and the selection of both Party and government officials and leaders from SOEs and public institutions can give us better understanding and insights into how mid-to-lower level Party and government officials in China and leaders of SOEs and public institutions comment on the administrative reforms that have been implemented.

3.2 Overall Assessments of Current Administrative Reforms in China by Party and Government Officials Since the establishment of the current government the central government bodies have adopted a key measure in the area of administrative reforms: the introduction, in the name of the central government, of a number of opinions on the deepening of reforms of the administrative system and the setting of the broader goal of building a socialist administrative system with Chinese characteristics by the year 2020. Further,

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detailed regulations have been introduced with regard to areas related to the reform and building up of the government, such as the transformation of the government’s roles, the advancement of the “reform to establish greater government departments,” the enhancement of the government’s capabilities in the areas of social management and public services, the acceleration of the reform of the province-controlled counties system, the building of and improvements to the government’s performance-based assessment system, enhancing effective restraints and limits on the power of the government, the building of a service-oriented government, the building of a government that operates on the rule of law, and making governance information more open. The administrative reforms of the last five years have been conducted under such a program. The respondents provided overall ratings of the administrative reforms that have been conducted over the last five years from their various perspectives and based on their individual judgments. In general, respondents were fairly cautious in their assessments. For instance, in response to the question “How would you rate, in general, the administrative reforms that have been implemented by the current government of China (since 2008)?”, a total of 107 respondents or only 48% of the sample had rated such reforms positively (“Good” and “Pretty good”). Only seven respondents, or 3% of the sample, selected “Good.” 68 respondents (30.7% of the sample) chose “So-so, I don’t see much change,” while 57 respondents or 25.6% of the sample chose “Not very good.” A respondent wrote in the notes section that although the current government has put in a lot of effort in the area of administrative reforms “there is still some way to go before the masses’ expectations are met. Changes to institutional structures and organization have not been standard across the board. Relationships and specific responsibilities remain hazy, with overlapping administrative responsibilities and lack of clarity where agency responsibilities are concerned. While we are seeing preliminary results from the administrative reforms, the job is far from complete.” It is worth noting that there are significant differences between various groups of respondents in terms of their overall ratings of administrative reforms conducted by the current government. Respondents from the 9th Youth Leader Training Program (division head Level) and the Central Agencies Division Heads Training Program rated the administrative reforms most highly in general, with 62.8 and 58.3% of respondents from these groups rating the administrative reforms undertaken by the current government positively. On the other hand, respondents from the Xiamen Bureau Official Training Program and the training program conducted for officials from Yunnan Province by Peking University rated such reforms comparatively more poorly, with as much as 32.5 and 37.9% of respondents from these two groups rating the reforms as “Not so good.” Of the 98 respondents from these two groups, no one had answered “Good” to the question posed. This indicates that in terms of overall ratings of administrative reforms performed, division head-level officials from Party and central government tend to give higher ratings than those from local authorities. Those from lower administration level also tended to rate such reforms more favorably compared to those from higher level.

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However, all respondents surveyed provided positive ratings to the question “Which are the results of the administrative reforms performed over the last few years that have stood out to you?” 56.3% of respondents selected the option “The standard of public services provided by the government has been raised, with greater access”; 53.6% of respondents selected the option “Significant effect has been seen from the reforms of the administrative system, with the people benefiting tremendously from the one-stop services offered”; 43.6% of respondents selected the option “There is now a greater emphasis on social management and innovation”; 38.7% of respondents selected the option “Governance is even more open”; 33.7% of respondents selected the option “Administrative supervision has been significantly enhanced, with a highly vigorous campaign against corruption and for clean government”; and 31% of respondents selected the option “New breakthroughs have been achieved in the hiring system, with measures such as the public servant examination and the competitive appointment system a better expression of fairness and justice.” What this indicates is that the vast majority of respondents is positive about developments in the areas of public services, the system of administrative review and approval, and social management, etc., and has more concerns about key issues like the oversight of the power of the government and the hiring system. For instance, a respondent stated, using the “Other” option, that “There should be a greater focus on the fight against corruption and the promotion of clean government, and on the social impact of and the public’s feedback on cases being investigated”; others have pointed out the need to pay even more attention to make the competitive appointment system a fairer and more just one. However, there are significant differences between various groups of respondents in terms of their overall ratings of the results achieved from the administrative reforms conducted by the current government. For example, the top three choices for division head-level Party and government officials from central agencies are: “Significant effect has been seen from the reforms of the administrative system, with the people benefiting tremendously from the one-stop services offered,” “There is now a greater emphasis on social management and innovation,” and “Governance is even more open”; on the other hand, the top three choices for bureau director-level officials from local authorities are: “The standard of public services provided by the government has been raised, with greater access,” “The standard of public services provided by the government has been raised, with greater access,” “There is now a greater emphasis on social management and social innovation,” and “Significant effect has been seen from the reforms of the administrative system, with the people benefiting tremendously from the one-stop services offered.” The top three choices made by division headlevel officials from local authorities are: “Significant effect has been seen from the reforms of the administrative system, with the people benefiting tremendously from the one-stop services offered,” “The standard of public services provided by the government has been raised, with greater access,” and “Administrative supervision has been significantly enhanced, with a highly vigorous campaign against corruption and for clean government.” The results above tell us that local Party and government officials turn to have greater awareness of improvements in public services and innovation in social

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management as their jobs place them closer to the general public. On the other hand, Party and government officials at a higher level have expressed comparatively greater satisfaction with the status of the reform of the administrative review and approval process. However, one phenomenon we see here is that officials from the central government bodies and local authorities have listed reforms of the administrative review and approval process as among their top three choices. This indicates that the current government’s efforts in reforming the review and approval system are indeed greater and have been more widely recognized.

3.3 Assessments of Administrative Reforms in Key Areas Undertaken by the Current Government Apart from looking at general assessments of the administrative reforms undertaken by the current government, in this survey, we also looked at assessments of reforms undertaken by the current government in the last five years in key areas. The survey divides these key areas into three categories: in the first category are reform issues related to the administrative system, such as the “establishment of greater government departments,” issues encountered in working to transform the government functions, reforms of the province-controlled counties system, and prominent issues concerning the relationship between the central and local governments. In the second category are issues relating to the building of a service-oriented government, the building of a government that runs on the rule of law, the building of a responsible government and the building of a clean government. In the third category are issues related to government reform, such as the system of accountability, the asset and financial disclosure system for officials, performance-based management, open governance, the perceived credibility of the government, and e-governance. Moreover, we have also included another two key issues: first, the reasons for the issues encountered in the course of administration reforms in China, and second, future developments in administrative reform, particularly, in relation to reforms of the political system. This ensured that on a certain level we would be better able to understand the thoughts of a Party or government official about administrative reforms in China from a more comprehensive point of view. 1.

About optimizing the structure of government and transforming the government functions

Optimizing the structure of government and transforming the functions of the government have long been key areas of focus in administrative reforms undertaken by the current government. Since the establishment of the new government in 2008, the determination of this government to undertake reforms in these two areas has been clearly shown from the initiation of the “reform to establish greater government departments,” and from the program laid out to reform the functions of the government, balance various relationships, optimize various structures, and

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enhance performance and effectiveness. To our understanding, optimizing the structure of government and transforming the functions of government mainly include the following three prongs of action: the first is to reform and optimize the organizational structure of government through the establishment of larger departments; the second is to merge government functions, clearly define the responsibilities of each agency, and give higher priority to handling various relationships; the third is to accelerate the pace of the reform of the province-controlled counties system, balance the relationships between the central and local governments, and optimize the administrative structure vertically. The vast majority of respondents surveyed offered positive assessments of reforms in the aforementioned three areas. At the same time, respondents also spelled out the problems that exist. Comparatively speaking, the respondents were less satisfied with the “reform to establish greater government departments.” In general, respondents, either from central or local authorities, did not rate this reform very highly. For example, in response to the question “What is your take on the ‘reform to establish greater government departments’ that has been implemented since 2008”? the top three choices selected by respondents are: “The reform has not been conducted well enough, with certain merged agencies only unitary in name” (39.6% respondents); “The key lies not in how the reform is conducted, but in establishing systems and standards, making power more transparent, and decision-making more scientific” (35.5%); and “The effects of the establishments of greater government departments are not yet obvious, and there is no sense of a clean slate” (32.4%). The aforementioned phenomenon tells us that although China has made an important step forward with the introduction of the “reform to establish greater government departments” since 2008, such as with several consolidations performed by the central government and significant results achieved through experimentation in certain regions (for example, the “reform to establish greater government departments” in Shunde, Guangdong, and the reform of the special committee system undertaken by the Fuyang authorities in Hangzhou), such reforms have yet to meet the expectations of Party and local officials as they are only in the early stages. As for the deep-seated issue of transforming the government functions, the vast majority of those surveyed hold the opinion that the biggest reasons for the lack of results from such efforts are the embedded interests of various agencies, the excessive focus on GDP indicators in performance assessments, the preponderance of administrative review and approval processes in place, and the lack of clarity when it comes to the government’s responsibilities. Respondents were allowed to make multiple selections for this question. The four selections listed above were selected by 75.7%, 55.4%, 45.9%, and 43.7% of respondents, respectively. From this, we see that government officials’ assessments of the issue are similar to what the general public feel about the subject. As for reform of the province-controlled counties system, although 45.9% of respondents were in favor, 16.2% of respondents were against it. Even more respondents expressed concern. 56.7% of respondents selected the option “I do worry that one-shot reforms may cause new problems to rise,” while 41.4% of respondents expressed the hope for pilots before such reforms are implemented on a broader

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scale. Compared to their concerns about reforms of province-controlled counties, respondents expressed even more concern about reforms of the relationships between the central and local authorities. For instance, when answering the question “What is the greatest issue with the relationships between the central and local governments?” 73% of respondents selected the option “Lack of systematic guide about the payment transfer system, with local officials lobbying for more resources from the central government a salient problem,” while 67.6% of respondents selected the option “Conflicts between the central and local governments in terms of decisionmaking and financial powers.” 41% of respondents selected the option “Power too centralized, with too little powers given to local governments.” There are significant differences between central and local officials on this issue: 66.7% of respondents from central agencies selected the option “Lack of systematic guide about the payment transfer system, with local officials lobbying for more resources from the central government a salient problem.” On the other hand, this option was selected by 82.9% of respondents in the youth cadre program of the Chinese Academy of Governance, who are mainly made up of county heads. 79.3% of trainees in Peking University’s advanced public management program for Party and political officials serving in institutions under the purview of the Yunnan provincial government also selected this option. This difference in perception is a reflection of a difference in perception of the policy outcome for a certain policy among officials at various levels. 2.

About the building of a service-oriented government and a government that runs on the rule of law

The building of a government that is service-oriented, that runs on the rule of law, and that is responsible and clean has been key goals of the administrative reforms under the current government. Apart from focusing on the issues of a responsible and clean government by asking questions about government reforms, in the survey, we have also focused on the building of a service-oriented government and the building of a government that runs on the rule of law. In general, those surveyed thought highly of the achievements made by the government in promoting the building of a service-oriented government and the building of a government that runs on the rule of law. To take the youth cadre program of the Chinese Academy of Governance (comprising mainly county heads) as an example, 54.2% believed that efforts to build a service-oriented government have achieved significant effect. These respondents spoke highly of reforms in the areas of administrative review and approval, open governance, and the building of public infrastructure. 69% of respondents expressed satisfaction (“Satisfied” and “Generally satisfied”) with the efforts to build a government that runs on the rule of law. However, at the same time, the vast majority of those surveyed also pointed out the salient issues in efforts to build a service-oriented government and to build a government that runs on the rule of law. In terms of efforts to build a service-oriented government, four main issues were highlighted: multiple inadequacies in the areas of education, housing, health and healthcare, food safety and roads and traffic (74.8% of respondents); bureaucratic obstacles which are commonplace (53.6%); severe corruption and the common problem of rent-seeking in terms of power (50.4%); and

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the lack of a scientific and rational system of governance assessment (50.4%). In the area of efforts to build a government that runs on the rule of law, the four main issues highlighted are: the common issue of interference and overreaching by those wielding power (84.2% of respondents); the inability of the government to set a positive example by following the letter of the law (55%); the lack of consistent legal enforcement (52.7%); and a legal system that needs further improvement (33.8%). These results tell us that although the vast majority of Party and government officials are positive about the achievements made by China in efforts to build a service-oriented government and a government that runs on the rule of law, the pressure on the government has also become greater in the meantime due to social and economic development, and rising expectations of the general public for the government. From another perspective, they all tell us that we need to put in even more effort into services that impact the public, such as into equalizing public services like healthcare, education, social security, and employment services. We shall work even harder to raise levels of satisfaction among the people with regard to basic public services. Similarly, in the case of the building of a government that runs on the rule of law, the government should set a positive example with regard to placing oversights and restraints on the power of the government. 3.

About government reforms and the strengthening of oversight over the power of the government

Government reforms have all along been the area within administrative reforms that the public has been most concerned with. The reason is very simple: the obstacles to government reforms are the greatest, while the public’s expectations for this area are typically very high as well. Therefore, whether the government can reform itself in the course of administrative reforms has been regarded as a key indicator in the assessment of administrative reforms undertaken as a whole. The scope of government reform is also fairly wide. In this survey, we asked respondents about issues such as administrative accountability, the financial and asset disclosure system for officials, the use of public funds for private purposes by officials, restraints on the power of the government and anti-corruption efforts, the perceived credibility of the government, e-governance and the government’s performance-based management efforts. In general, although the public has been positive about government reforms that have been undertaken, they have also expressed a fair bit of concern. For example, in response to the question “What is your opinion on the current issue of ‘three public expenses’ (vehicle purchase and maintenance, overseas trips and official receptions)?” (multiple selection allowed), only 11.7% of respondents selected the option “The government’s measures in combating the issue of ‘three public expenses’ have been effective and we are seeing significant results,” while 66.2% of respondents chose the option “The government’s measures in combating the issue of ‘three public expenses’ have not been effective”; 64.9% of respondents chose the option “There is little transparency in efforts to combat the issue of ‘three public expenses,’ and such efforts constitute to be a ‘black hole,’ while 55.9% of respondents chose the option “The public’s supervisory role over the issue of ‘three public expenses’ has not been given full play.” These results tell us that even the vast majority of Party

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and government officials are not very satisfied with efforts that have been taken to combat the problem. As for the campaign against corruption, the vast majority of Party and government officials (85.1%) are of the belief that it is critical to the survival of both Party and nation and thus determined efforts are needed. Only 9% of respondents are of the belief that the anti-corruption campaign “has shown significant results and that corruption has been effectively curtailed”; on the other hand, 56.8% of respondents are of the belief that the anti-corruption campaign “has not shown significant results and the issue of corruption is still a common issue.” 71.6% of respondents are of the belief that the system of anti-corruption measures has to be further improved and the monitoring of public opinion, enhanced. This indicates that there is a clear awareness of the challenges that surround China’s anti-corruption efforts, including among the majority of Party and government officials. In the same vein, when asked “What do you think are the issues that remain in efforts to restrain the exercise of the power of the government?” the selection that was most made by respondents (69.8%) is “Negative phenomena such as autocratic, tyrannic and non-transparent decision-making have continued to exist.” 61.7% of respondents chose the option “Lack of stringent and just legal enforcement,” while 54.5% of respondents chose the option “The corresponding laws and regulations need to be further improved.” In addition, 47.3% also chose “Abuse of power and the law, and not acting in accordance with the law” as an issue. We were surprised by this set of results, for they indicate that problems like the autocratic abuse of power have become an important source of corruption in certain regions, agencies, or units. This requires a high level of attention. If even Party and government officials at the division head level and above feel so strongly about the issue, we can imagine that this would also be the case with ordinary public servants and the general public. The respondents also shared their opinions on how to enhance oversight and restrains over the exercise of the power of the government. For instance, with regard to the financial and asset disclosure system for officials that the public is most concerned with, the most popular choice among respondents (44.6%) is to start with “Newly promoted officials.” 28.8% of respondents believed that the system “Would need some time for transitioning.” Together, the two items above were chosen by 73.4% of respondents, while 23.9% of respondents believed that the above said system “Is not mature enough.” This indicates that the vast majority of Party and government officials are in favor of the reform according to which a financial and asset disclosure system for officials should be established. In response to the question “What are the obstacles to the establishment of the financial and asset disclosure system for officials?” the most commonly selected answer (64.9% of respondents) is “The answer is with the upper levels” followed by “Party and government officials at lower levels” (62.2%). This indicates that the key obstacles to the establishment of the financial and asset disclosure system lie on two ends. Whether this system can be truly established or not mainly lies in the determination of officials at the upper level. In response to the question of how one would critique and improve the government’s performance-based management efforts, as many as 73% respondents are of the belief that “The indicators used are not scientific enough, and the emphasis

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on GDP-based indicators is still dominant.” 61% of respondents are of the belief that performance-based assessments conducted by the government in the past have been based mostly on evaluation of the government per se and is thus distanced from the public; 70.35% of respondents recommended that the reforms in the area of performance-based management be integrated with reforms of human-resource measures and systems such as the official-selection system. The accountability system is a key part of performance-based management for officials. In response to issues that are present in the implementation of a system of administrative accountability, the most popular answer (68.9% of respondents) is that “The law of accountability needs to be further improved, for who plays the role of oversight and the issues involved are unclear,” followed by “The accountability process needs further improvement, together with the system of relief” (64%). As for how the accountability system can be further improved, the four most popular selections made by survey respondents are: “Promote open governance, establish a system with multiple efficient channels for complaints” ( 64.9%); “Consolidate the accountability system, define the subjects of oversight and accountability, make the accountability process stringent” (64.4%); “Improve the legal and regulatory framework for administrative accountability, establish a complete system of government accountability” (56.3%); and “Work actively on establishing a system of administrative accountability that is fair” (55.9%). All these tell us that the Party and government officials who have had first-hand experience of the government’s performance-based management efforts appear to have fairly high agreement on the issues in this area and have also given valuable suggestions for how such efforts can be improved. We have also included content on perceptions of the government’s credibility, open governance, and e-governance in the questionnaire. The results of the survey show that in the Internet age there is a clear relationship between perceptions of the government’s credibility and the new media age, and e-governance, etc. The public’s demands for open disclosure of governance information are also related to the further enhancement of their awareness of their rights to be informed, to participate, to be heard, and to oversee. For instance, in response to the question “How do you perceive the issue of the government’s credibility?” the two most selected answers were: “To have public credibility, the government must first be trustworthy; that the government does not appear to be trustworthy is the key reason for the decline in its credibility among the public” (81.1% of respondents) and “The government does not enjoy great credibility, which is also declining among the public” (63.1%). This indicates that Party and government officials are concerned about the decline in the government’s perceived credibility and believe that the issue of the government’s credibility has become a focus for society (74.8% of respondents). In response to the question about open governance (which is closely related to the issue of government credibility) only 11.7% of respondents chose the option “We have made great progress in terms of open governance and satisfaction levels in society have been raised greatly” while as many as 77.5% of respondents chose the option “While openness is possible with ordinary issues, ‘black box operations’ have continued with key issues.” 61% of respondents selected the option “There has been much talk about open governance but little action” and 41.9% of respondents chose

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the option “Efforts toward open governance have been lackluster and the people are not satisfied.” In addition, in response to the question “What are officials’ social media accounts being followed?” 64.9% of those surveyed are of the belief that “This is a form of e-governance and public accountability mechanism where the people’s opinions can be communicated and issues, resolved” while 60.8% of respondents are of the belief that “Officials have a special status, and the more senior they are the greater the attention they receive.” 30.2% of respondents are of the belief that “Officials must be less haughty and should speak to the people on the same level honestly instead of in official-speak.” This conclusion once again reminds us that in the Internet age where there are 550 million Internet users and 330 million microblog users the openness of governance has a direct impact on the levels of trust the public places in the government. Further, it will also form sustained challenges and pressures for the government. With official micro-blog accounts, which are a key part of e-governance and public accountability, to enhance the government’s credibility and to give full play to the role of these accounts Party and government officials must come down to the level of the people and have the courage to face questioning from netizens and negative information.

3.4 Expectations of Further Reform Efforts The respondents surveyed expressed strong concern about future developments in China’s administrative reforms and the obstacles encountered in the midst of implementing such reforms, and they are generally in agreement in terms of their opinions. For example, in response to the question about the reasons for difficulties in administrative reforms 45.4% of respondents chose “slow pace of reforms of the political system.” These respondents are also of the opinion that “Without successful reform of the political system it would be difficult to achieve success with either reform of the economic system or reform of the administrative system. In fact, such reforms may even backslide.” Out of the total, 38.7% of respondents generally agreed with this viewpoint. Together, the two groups added up to 84.1% or the majority of the sample. Only 11.3% of respondents expressed disagreement. It is worth noting that there are two phenomena of note among officials at various kinds in their answers to this question. First, the bureau director-level officials from Xiamen and the division head-level officials from central government bodies are in high agreement with each other: 85% of the former group selected “Agree” or “Generally agree” while 83.3% of the latter group selected the same. Second, there are distinct differences between officials at various levels with regard to their answers on this question. For instance, 93.1% of the Peking University class from Yunnan (division head-level leaders at provincial Party and government agencies) selected “Agree” and “Generally agree” while the only 74.3% of the Chinese Academy of Governance young-cadre class (mostly county heads) selected the same. The difference between the two groups is nearly 20 percentage points. This indicates that differences in the leadership position of Party and government officials as well as in their target subjects, job scopes, and

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environments, etc., can create cognitive and perception differences on the same issue. Once again, this also proves the complexity and arduousness of the task to reform the administrative and political systems. As to the question of how to remove the obstacles to reform of the administrative system through reform of the political system, those surveyed were also in high levels of agreement with each other. For instance, in response to the question “Some say that in order to have a breakthrough in reforms of the political system so as to pave the path forward for administrative reforms, it is necessary to first fully implement multi-candidate elections within the Party and then extend such elections to the People’s Congress at various levels, how feasible do you think this is?”, a whopping 54.5% of respondents answered “Feasible, we can try with pilots first” while 11.3% of respondents selected “This is the best choice." Together, the two groups make up 65.8% of the sample. This indicates that the majority of respondents recognizes the benefits and support multi-candidate elections as a means of extending democracy within the Party, and that they are full of confidence about the future of administrative reforms—including political reforms—in China. However, there are also differences between different groups of Party and government officials in their answers to this question. For instance, 93.7% of the central government bodies’ division head-level official class selected “This is the best choice” and “Feasible, we can try with pilots first.” On the other end of the spectrum, only 77.1% of those in the youth cadre class at the Chinese Academy of Governance opted for the same answers. The bureau director-level official class from Xiamen and the Peking University class of division head-level officials from Yunnan government were similar at 87.5% and 86.2%, respectively. The proportion of those who selected “Not feasible, the risk is fairly great” ranged from 4.2 to 22.9% across various groups of respondents. The group with the lowest proportion at 4.2% was the Xiamen cadre class, while the group with the largest proportion of 22.9% was the Chinese Academy of Governance youngcadre class. The proportion of those who selected “Not feasible, the risk is fairly great” stayed under 9% with the other groups. This phenomenon tells us that there are differences in terms of their sense of risk and in terms of their attitudes between officials from central and local government authorities.

Chapter 4

The 2013 Administrative Reforms Centered on the Transformation of the Government Functions

The transformation of the government functions has been a focus of administrative reforms since it was first mooted as a goal of such reforms in 1988. From the earliest government efforts to regulate the market and market-led enterprises to subsequent economic regulation, market regulation and oversight, social management, and public services, and then later on to the transformation of the government functions to the creation of positive environments, the provision of high-quality public services and to ensuring social justice and fairness, the transformation of the government functions in China has moved through several phases in both theoretical and practical terms. Although China continues to face a number of significant changes in terms of transforming the government functions, the line of thought for the related administrative reforms is already very clear. Since the establishment of the new government in 2013 there have been breakthrough developments in terms of the decentralization of power and in the transformation of the government functions. In this chapter, we look at the advances that have been made in efforts to transform the government functions, the importance of such efforts, and the pathways toward restructuring the government’s relationship with the market.

4.1 Significant Advances in Efforts to Transform the Government Functions Li Keqiang was elected as the new incoming Premier in March 2013. After the formation of the new government, the new leadership was regarded as a collective leadership that was effective, diligent, substantive in its actions, and armed with forethought and strategy. For instance, with the strategy to create an “upgraded version” of the Chinese economy, comprehensively promote reforms of the administrative system and implement plans to transform the government functions we have seen clear lines of thought, great determination, and strong action. A year later in March © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_4

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2014, we have seen a strong performance that has also been widely recognized in various walks of society. And in terms of the decentralization of power, transforming the functions of the government and further reforms of the system of administrative review and approval, breakthrough advances have been made. There are, in particular, four highlights: 1.

2.

The swift implementation of the reform program. The new government began to implement various reform tasks that had been planned, including the six measures planned to transform the functions of the government, at the first State Council meeting it called. At this meeting, the new government identified the participating and responsible units as well as established a timeline for the reforms. Soon after, the new government also called a national teleconference on implementing the plans for administrative reform and transforming the functions of the government in order to make the broad arrangements for such an implementation. The swiftness of its action and the business-like attitude shown left a deep impression on the public and strengthened the public’s confidence about the ongoing administrative reforms and efforts to transform the functions of the government. The advancement of reforms of the administrative review and approval system and voiding/decentralizing 221 such items in line with the government’s line of thought on decentralizing authority to the market, to society, and to local authorities. The decentralization of authority and the deepening of reforms of the administrative review and approval system have been an important breakthrough for the current efforts to reform the administrative system and to transform the functions of the government. The government’s past track record of dealing with all matters great and small have had an impact on its image as well as posed significant obstacles to the harnessing of the potential of the market and of society. As Premier Li Keqiang put it: “to get a project started, an enterprise must go through 27 departments and more than 50 links, which will take as long as six to ten months. Clearly, this will have an impact on the willingness of enterprises to make new investments or set up new businesses.” Since the establishment of the new government there have been three rounds of reform where over 300 items requiring administrative review and approval have either been taken off the list entirely or decentralized to lower-level agencies. This was done in order to implement the reform program as quickly as possible. Specifically speaking:

The first instance was on 16 May, when the State Council announced the cancelation of, and adjustments to, 133 items where administrative review and approval was needed. Among them, 71 items had review and approval process abolished, 20 items had authority delegated to lower levels of authority, 10 items where evaluation for commendation was conducted were canceled, three administrative charges were either canceled, and 13 items pertaining to internal agency affairs and confidential items were either canceled or delegated to lower-level governments. Another 16 items canceled or delegated to lower-level governments were established in accordance with the corresponding laws and thus the State Council has, in accordance

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with the law, requested the Standing Committee of the National People’s Congress to make necessary amendments to the corresponding laws and regulations. The second round of reforms was conducted on 13 July, when departments under the State Council canceled the requirement of or delegated the power for review on 50 items. In particular, the 29 items were completely canceled or delegated to lower-level governments, 13 items were partially canceled or delegated to lower-level governments, three performance evaluations were canceled or delegated to lowerlevel governments, one item pertaining to confidential matters was canceled. Four items that were canceled or delegated to lower-level governments were established in accordance with the corresponding laws and thus the State Council has, in accordance with the law, requested the Standing Committee of the National People’s Congress to make necessary amendments to the corresponding laws and regulations. The third round of reforms in this area was conducted on 10 December when the State Council announced the cancelation and delegation of 82 items requiring administrative review and approval. In particular, 68 items requiring administrative review and approval (including two pertaining to confidential matters) were canceled or delegated to lower-level governments. The State Council also released a list of the 82 items that were canceled or delegated to lower-level governments. As of December 2013, the current government has canceled or delegated a total of 221 items requiring administrative review and approval and 113 evaluations and charges, totaling 334 items. In line with Premier Li Keqiang’s promise made at a press meeting on 17 March for the current government to reduce the number of items requiring administrative review and approval, currently 1700, by another one third, 567 such items have been cut to date. This is almost two fifths of the imposed target, significantly surpassing public expectations. The items requiring administrative review and approval which have been canceled or delegated to lower-level governments by the State Council in 2013 can be categorized into three main groups: First, maximum efforts to reduce the need for administrative review and approval with regard to investment-related items. To take the example of the 117 items that have been canceled or delegated to lower-level governments in the 6 May round: 24 items canceled or delegated to lower-level governments by the State Council and the National Development and Reform Commission (NDRC) pertained to enterprise investments. 13 of these were canceled and the remaining 11 were delegated to lower-level authorities. These 24 items covered a number of sectors, with the number of energy-related projects ranking top in terms of number. The authority for administrative review and approval for projects involving hydroelectric projects to be built on waterways other than key rivers, wind power stations, distributed gas power generation stations and certain projects involving coal mining, the electrical grid and oil and gas pipelines will be delegated to the investment departments of local governments. This will undoubtedly have an important impact on facilitating the development of China’s energy industry, encouraging enterprises to be more proactive, and giving full play to the role of local governments.

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Second, there has also been a trend of reducing the number of items pertaining to enterprise manufacturing and operations which require administrative review and approval. Reducing intervention in enterprise manufacturing and operations so that enterprises may better exercise their autonomy is a key part of the current rounds of administrative reforms and also a direct expression of the government’s intention to allocate more autonomy to the market. A good number of items among the items requiring administrative review and approval cut by the State Council pertain to the production and operational activity of enterprises. For example, in the case of the Ministry of Transport, there are seven items among the 117 canceled and delegated to lower-level governments by the State Council in the first round this year. They include administrative review and approval for matters pertaining to international shipping agency business, mergers, and acquisitions between operators, inland waterway crew service businesses, connections between enterprise-owned railway lines and state-owned railways, and the use of enterprise-owned vehicles in railway transport. While these matters may all seem to rightfully belong under the autonomous purview of the enterprise in the past enterprises would have to seek the approval of the corresponding government agencies in order to conduct these activities. Third, a number of unnecessary evaluations reviews and charges have been canceled, lessening the burden on enterprises and society in general. For example, among the 117 items canceled or delegated to lower-level governments in the first round, 10 evaluations and three charges were canceled. The ministries and commissions involved include the Ministry of Industry and Information Technology, the Ministry of Human Resources and Social Security, the Ministry of Civil Affairs, and the Ministry of Finance. The issues covered include: the assessment of electronic engineering and design projects for awards at the ministerial level, assessment and selection for the Master of Chinese Arts and Crafts designation, assessment and selection for the National Rural Talent designation, and assessment for hightech parks for start-ups created by students who have studied overseas. The types of administrative fees which have been canceled include the training fee for Electronic Engineering Budget personnel, the testing fee for tobacco products and raw and auxiliary materials, and material fees for security card packaging. In the current round of reforms, NDRC had the largest number of administrative reform and approval items canceled or delegated to lower authorities. In addition, significant decentralization of authority has also occurred with the State Administration of Press, Publication, Radio, Film and Television; the Ministry of Industry and Information Technology, the State Forestry Administration, the Ministry of Transport, the Ministry of Finance, the Ministry of Human Resources and Social Security, the Ministry of Land and Resources, and the Ministry of Commerce. To take the NDRC as an example: the commission is undoubtedly the most important agency in the current round of reforms, with nearly 40 items (the largest number) relating to the commission canceled or delegated to lower authorities. Among these 40 items, 18 were canceled entirely and 12, delegated to lower authorities. Together with the nine items under the National Energy Administration (managed by the NDRC) which were canceled we should say that undoubtedly the NDRC has been the focus of

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the current round of reforms pertaining to the system of administrative review and approval. The reform was widely introduced in the review and approval of investment and has played an important role in unleashing the vitality of the market and the market’s determining role in resource allocation. 3.

4.

Timely amendments to the corresponding laws and regulations have provided legal assurances for reforms of the system of administrative review and approval. The system of administrative review and approval has been formed over time through the passing of laws or regulations. The decentralization of review and approval authority and reforms of the system of administrative review and approval will thus have to have a legal basis. To provide the legal assurances for the reform of the system of administrative review and approval, amendments were made to a total of 12 laws such as the Coal Industry Law at the Third Meeting of the 12th National People’s Congress Standing Committee. This round of amendments is a way of advancing reforms of the system through legal means as well as a reinforcement of past reforms. The cancelation and delegation of administrative review and approval lie at the heart of these amendments. To take amendments to the Coal Industry Law as an example: the Plan for Institutional Reform and Functional Transformation of the State Council document mandates that the fundamental role of the market in resource allocation must be given full play. The current round of amendments to the Coal Industry Law concerns mainly the cancelation of the need for administrative review and approval for the establishment of coal enterprises. This not only embodies the thinking of making better use of the basic role of the market in allocating resources but also provides a fair market environment for competition between various forms of capital. The establishment of the first free trade zone in Shanghai, with key breakthroughs in the areas of administration, the law, and the economy making the zone an important “weathervane” in efforts to upgrade the economy and to deepen reforms. The China (Shanghai) Pilot Free Trade Zone is a regional free trade zone set up by the Chinese government in the city of Shanghai. It falls under the category of Chinese free trade zone. The Zone was officially established on 29 September 2013 with the approval of the State Council. The China (Shanghai) Pilot Free Trade Zone encompasses four special customs zones: the Shanghai Waigaoqiao Free Trade Zone, the Waigaoqiao Free Trade Logistics Park, the Yangshan Free Trade Port Area and the Pudong Airport Free Trade Zone with a total area of 28.78 km2 . The Zone has become a new pilot zone for the Chinese economy with the implementation of several reforms pertaining to the transformation of the government functions, the financial system, trade services, foreign investment and taxation policy. The Zone will also seek to vigorously promote the further development of Shanghai’s entrepot and offshore businesses.1

1 http://www.luzhou-news.cn/shzcgs/zmq/.

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The key tasks of the newly established China (Shanghai) Free Trade Zone are: exploring new pathways and models of “opening-up for China” and promoting the transformation of the government functions and administrative reforms as a means of promoting the transformation of the model of economic growth and the optimization of China’s economic structure; realizing and accumulating replicable and promotable experiences in the area of openness-driven development, reform and innovation; and at the same time, building new competitive strengths for China in the global market, new platforms for cooperation and development with various nations, and creating new room for economic growth.

4.2 The Arduous Task of Transforming the Government Functions In the Decision of the Central Committee of the Communist Party of China on Several Major Issues concerning Deepening of Reforms in an All-around Way document that was passed at the Third Plenary Session of the 18th CPC Central Committee, the Party clearly stated that reforms of the economic system were the focus of efforts to deepen reforms in an all-around way, with the core issue being the relationship between the government and the market. The key is to have the market play a decisive role in resource allocation and to have the government better perform its functions. This major pronouncement by the CPC Central Committee forms the basis for future restructuring of the relationship between the market and government. It is also a principle that we must abide by when advancing the transformation of the government functions. That is to say, on one hand, we have to drastically reduce direct allocation of resources by the government and promote the allocation of resource in accordance with market rules, market pricing, the maximization of benefits from market competition and the optimization of efficiency, while on the other hand, the government is responsible for maintaining the stability of the macro-economy, strengthening and optimizing public services, ensuring fair competition, strengthening market oversight, maintaining market order, promoting sustainable development, promoting prosperity for all, and making up for market failures. In terms of the overall thinking on transforming the functions of the government and delegating power to lower-level governments, currently, the focus has been on reducing to the greatest extent government interference in the market, among other issues. Thus, while we should recognize the breakthroughs and achievements that have been made in streamlining the administration, transforming the government functions, and reforming the system of administrative review and approval, we should also be aware of the issues and obstacles faced in these areas. Transforming the functions of the government has been an objective since the second institutional reform of 1988. It had been made a key objective in subsequent rounds of reform. Significant advances have also been achieved in this area. Take the

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example of the reform of the system of administrative review and approval, which is most related to efforts to transform the functions of the government. Since the implementation of the “first-encounter responsibility” system (which requires that the first civil servant a client encounters should provide sufficient information and help so that the client can readily proceed to the next step) by Shenzhen that marked the beginning of reforms of the review and approval system in 1998 various local governments around the country have worked continually to deepen this reform. For example, the State Council has introduced six rounds of reforms since 2002 and has canceled as many as 2497 items needing administrative review and approval, or 69.3% of all items requiring State Council review and approval. During this period, administrative review and approval were canceled for a total of 37,000 items (68.2% of the original number) in 31 provinces (autonomous regions, municipalities directly under the central government) across the country. Nevertheless, the issue of excessive government administration in public governance remains fairly salient, so are the issues of overreaching and interference by the wrong actors. This has had a direct impact on the market’s fundamental role in allocating resource and limited the role of society. These issues mainly have to do with poor efforts at transforming the functions of the government. Specifically speaking, currently, there are three factors that are holding back efforts to transform the functions of the government: first, there are still too many items for which administrative review and approval are required. Review and approval are in the hands of a minority of local authorities and agencies, and the process is too arbitrary with insufficient regulation and standardized procedures. There is also far too much “black box operation” and discretion given to public servants in these processes. On a certain level, currently, the structure of administrative review and approval in China is a “freak creature” that has appeared in the transition from a centrally planned economy to a market economy. This “freak creature” has limited the vigor with which enterprises and citizens participate in economic activity. Furthermore, it can easily give rise to corruption. The vast majority of corrupt behaviors and power-for-cash trades by many officials have been related to this. Second, entrenched agency interests have also become a key factor holding back efforts to transform the functions of the government. Some commentators have described such interests thusly: “the departmentalization of power, the ‘interestifying’ of the department, the individualization of interests, and the setting of individual interests into legalized statuses.” The interests of a minority of government agencies have become the chief reason for conflicts over interests between the government and the people and even in cases where the power of the government is harming the public interest. Hence, if entrenched department interests cannot be effectively limited there will be very little substantive progress in the reform of the administrative review and approval system (including delegating more power to lower levels) and efforts to transform the functions of the government. Third is the management philosophy of government officials. This is also another key factor that has had an impact on efforts to transform the functions of the government. As China has, for a long time, focused on the economic growth, the increase of GDP at the local level can have a major impact on officials’ promotion prospects. Thus, GDP has become an overriding focus for some

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Party and government officials, and in turn led to the government’s unconscious exercise of excessive power in the economy. A superficial understanding of the basic role and functions of the government has undoubtedly also presented negative obstacles to efforts to transform the functions of the government. Thus, if we cannot achieve breakthroughs in terms of values and beliefs and if we cannot fully implement the proposal made at the Third Plenary Session of the 18th CPC Central Committee to reduce the weightage of GDP in officials’ performance evaluation we will not be able to fundamentally resolve the aforementioned issues as we seek to advance the transformation of the government functions.

4.3 Pathways Toward the Restructuring the Relationship Between the Government and the Market Restructuring the relationship between the government and the market has a direct impact on whether the market can exercise its determining role in resource allocation. On the other hand, transformation of the government functions is undoubtedly at the core to the restructuring of this relationship. First, transforming the functions of the government must start with transforming the beliefs and attitudes of public services and with the suppression of institutional interests. The beliefs and attitudes that we are talking about here mainly refer to the positioning and functions for the government. We should say that the government is not the main actor in the creation of private wealth. Instead, it is the main actor in the creation of the right environment, in the provision of services, and ensuring fairness and justice in society. Enterprises and citizens are the true key actors in the creation of private wealth. The government acts as an authority that provides services to all creators of private wealth. In terms of curbing institutional interests on the part of various government agencies, the most critical thing is to clarify the specific responsibilities and powers of various agencies, remove the conflicts of interests between government agencies and the services that they have oversight of and between public servants and the duties that they perform, and maintain the public nature of government so that it is able to perform the responsibility of upholding justice and fairness in society. Behavior that is in conflict with, or harms, the people’s interests must be strictly punished. The incomes of public servants must also be strictly regulated in order to eradicate the issue of “gray income.” Although implementing this reform is highly challenging and likely to meet with much resistance, it is necessary to regulate the government behavior and to transform the government functions. Second, transforming the government functions must begin with reducing the power of the government and cutting the number of items requiring administrative review and approval. We know that the power of the government is mainly given by authorization of the law, while the administrative review and approval process is a chief means of obtaining power for the government. Due to the legacy of the centrally

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planned economy, there are far too many items in China that require administrative review and approval, and the scope covered is overly broad. Moreover, review and approval processes are not regulated and standardized enough, with too much discretion given to officials for the process. These together with the “black box operations” of the process tend to breed government corruption. Although in the last few years, China has conducted several rounds of reform of the administrative review and approval system and significant effects have been achieved there is still some work to do in order to meet the needs posed by social and economic development. Hence, the deepening of reforms of the system of administrative review and approval was defined as the most important means of transforming the government functions at the 18th National Congress of the CPC. From the perspective of the development of the market economy and society, there can only be substantive advances in China’s reforms of the system of administrative review and approval if reforms are implemented in line with the three principles laid down by the State Council. These three principles are: (1) There should not be requirements for administrative review and approval in place for issues that citizens and individuals can resolve on their own; (2) There should not be requirements for administrative review and approval in place for issues that can be regulated by market mechanisms; and (3) There should not be requirements for administrative review and approval in place in instances where community organizations can serve as substitutes and where the government can purchase services from private actors. If governments at various levels can conduct reforms in line with these three principles we should still see significant advances in reforms of the system of administrative review and approval. This is undoubtedly the fundamental way to limit and cut down on the government power and to advance the transformation of the government functions. Third, in efforts to transform the government functions, the government power must be limited and reduced, and be delegated to lower levels. The government must delegate more power in various degrees to enterprises and private actors, so do those further up the hierarchy to those at the primary level. We should say that China’s reforms can almost be said to have begun with the dismantling of the highly centralized structure of power that existed under the centrally planned economy. The delegation of power was a key part of China’s earliest reforms. However, with the building of the market economy and the emergence and development of community organizations China has been confronted with a series of new issues and circumstances. The most salient of these issues and circumstances fall into two categories: first, within the administrative system many powers that should rightfully be exercised further down the hierarchy are still held by the central or higher authorities, which means that the right of lower authorities to make decisions independently is not being upheld; second, outside the system, the government has unwittingly taken the authority for matters that should be resolved by the market or private actors, thereby limiting the role that the market and private market can play. Thus, on one hand governments, at various levels have not managed to remove their control over certain matters despite multiple rounds of reforms and the streamlining of the administrative service. This is why governments at various levels are feeling a manpower crunch. The “borrowing” of personnel from lower authorities, enterprises, or public

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institutions appears to be very common. On the other hand, the government remains very aggressive and juggles multiple roles including macro-control and regulation of the economy, market oversight, social management, and the provision of public services and even the organizing and management of major projects, fundraising, and even working to attract investments on behalf of enterprises. This has left the government overstretched. Therefore, future reforms of the administrative system must not only be introduced to the system of government investment, but more importantly to delegating more power to lower levels, allowing the market and society to play a bigger role. In particular, in the area of resource allocation, the government must avoid as much as possible the use of administrative means, but allow the market to play its fundamental role in this process. If we cannot achieve substantive progress in this area, “transforming the functions of the government” would simply be empty talk. Fourth, the government’s public nature must be established in efforts to transform the government functions and to delegate the power to lower levels. Further, a framework to limit the exercise of the power of the government should also be established. The government’s right that “disappears” is also a form of the power of the government. This sort of the power of the government can be summarized as follows: the representation of the public interest, the exercise of the power of the government, the management of public affairs, the provision of public services, the maintenance of public order, and taking responsibility for the public. The aforementioned public nature of the government means that it should mainly act in the public sphere rather than the private sphere. In the Chinese context, as the government has been playing a leading role over the course of the development of China’s market economy and as not all Chinese enterprises are in the public sphere with many competitive fields involved, there is some difficulty in defining the public functions of the Chinese government as a result. However, from the development perspective, even with a government-led market economy like China’s and even if SOEs are involved in a number of competitive fields, we still need to define the government functions as strictly belonging to the public sphere, delegate the government power, establish a reasonable power structure, and work toward creating an institutional framework that can effectively limit the power of the government. This is not only an important task but also an increasingly urgent one. Fifth, following the delegation of power to lower levels, the government would also have to strengthen its roles in the macro-control and regulation of the economy, and in exercising market oversight. The reduction in the number of items requiring administrative review and approval, and the delegation of the government power toward the market and lower levels are undoubtedly the focus in efforts to transform the government functions. However, this does not mean that the government can abandon its roles of maintaining macro-control and regulation over the economy and the necessary oversight over the economy and society. In terms of maintaining macro-control and regulation over the economy, the government has focused on establishing the program and strategies for social and economic development with a particular emphasis on policy coordination and macro-economic stability. It terms of market oversight, the government should work to figure out how oversight can

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be maintained even with the scrapping of administrative review and approval. The key is to allow the economy and society to play their roles to their full potential and to maintain fundamental market and social order at the same time. Only this way can the government be truly described as fulfilling its role. Similarly, we face many challenges in this area and bold reforms and efforts are needed.

Chapter 5

Assessment: Analysis of Results from the Survey on Reforms to the Administrative System in China (2013)

This survey is conducted among Party and government officials, individuals from the corporate world and leaders of public institutions, community personnel and ordinary citizens for their assessment of administrative reforms by the new government in 2013.

5.1 The Survey Sample and Basic Characteristics of the Sample The target group of this survey include: trainees at a Chinese Academy of Governance-State Council General Office seminar program for division head-level officials, trainees from a People’s Public Security University of China training program for bureau directors (deputy mayor of prefecture-level city), trainees from a Peking University public management program for officials from Yunnan Province, trainees from a Tsinghua University training program for officials from quality assurance authorities of Shanxi Province, a 2013 Zhejiang University-Lanzhou program for county and section head-level officials, trainees from a Central Institute of Ethnic Administrators training program for minority township officials from Guizhou, and the Zhejiang-Lishui training program for minority officials. Apart from the aforementioned public servants from different position levels, positions of different types and personnel from public institutions, for this survey, we also polled individuals from SOEs and the community. Respondents also included trainees from the 8th Party School of the Central Committee of CPC-China Railway Construction Corporation Official Training Program, trainees from the Chinese Academy of Governance-State Development & Investment Corporation Leadership Training Program, and individuals from the Sub-district Administrative Approval and Service Center of Xicheng District, Beijing. A total of 547 questionnaires were distributed, and 499 questionnaires were returned. © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_5

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The questionnaire contains a total of 37 questions. Apart from the first five questions regarding the demographic information of the respondent, the remaining 32 questions fall into five groups: in the first group are questions about the respondents’ overall assessment of the State Council’s current round of institutional reforms and its efforts to transform the functions of the government, including the overall assessment of the plans and the impact of the reforms on local governments, enterprises, and the public. In the second group are questions about efforts to delegate power to lower levels and to transform the functions of the government. The aim of these questions are to gain a better understanding of the opinions of Party and government officials, enterprise leaders, and community personnel on arrangements regarding the relationships between the government and the market, between the government and society, and regarding the functions of the government, as well as on the management and services provided in the areas of the economy and society. In the third group are questions about the respondents’ attitudes toward the current round of institutional changes and “establishment of greater government departments” by the State Council. In the fourth group are questions about the respondents’ attitudes toward efforts at government reform, such as efforts aimed at changing the government work style, at enhancing the openness and transparency of governance, and efforts to implement greater limits on the power of the government, etc. In the fifth group are questions about the respondents’ expectations of administrative reform and questions that seek to solicit policy suggestions from the respondents. We should say that the survey has met our initial expectations. The survey sample has the following characteristics: respondents come from a variety of backgrounds and have generally high levels of education. They are generally young, and are highly representative, In particular, of the 499 questionnaires returned to us, 236 were from Party and government officials from governments at the central, provincial, municipal, county, and township levels from various areas; 110 were from individuals from public institutions; and 97 were from individuals from SOEs. In addition, individuals from private enterprises and joint ventures, ordinary urban residents and those from financially challenged households and vulnerable groups also made up a small part of the sample. In terms of the job positions of those surveyed, 11 were holding appointments of bureau director level and above (2.2% of the sample), 75 of deputy department director level (15.03%), 50 of division head level (10.02%), 116 of deputy division head level (23.25%), and 123 of section head level (24.65%). Among the aforementioned personnel who were holding specific positions, apart from Party and government officials and personnel from public institutions there were also a number of senior managers from SOEs. For instance, among the 86 respondents holding appointments of deputy bureau director level and above there were 53 individuals holding appointments equivalent to those of general manager and deputy general manager at SOEs. Of the 499 respondents, 420 or 84.17% of the sample held at least a bachelor’s degree (308 bachelor’s degree holders, 100 master’s degree holders, and 12 doctorate holders). 407 persons or 81.56% of the sample were aged under 50.

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5.2 Basic Assessments of Reforms of State Council Agencies and of Efforts to Transform Functions of the Government The State Council’s program for institutional reform and the transformation of the government functions drew widespread attention upon release, and comments on the program have been fairly positive. This was also verified by our survey results. In this respect, we have designed three questions from the micro perspective. 1.

Overall assessment: while respondents reacted positively to the reform program, they were also concerned about the implementation of the program

For the question “What is your overall assessment of the State Council’s program for institutional reform and for the transformation of the government functions?” (multiple selections permitted) 155 respondents or 31.1% of the sample chose the option “The central government has intensified efforts to advance the reform in breadth and depth, and the public has responded very positively." 251 respondents or 50.3% of the sample chose the option “The program is highly specific, and the key is whether it can be faithfully implemented.” A total of 306 respondents, or 61.32% of the total, opted for these two answers. This indicates that with regard to the reform program the majority of respondents are in favor, and there is a widespread concern whether such a good program can be fully and faithfully implemented. It is worth noting that there were another two answers popular with respondents: 39.7% of respondents believed that “There are some flaws in the program, and it can be further improved.” 33.26% of respondents also stated that “I worry that we may simply repeat the mistakes of past reforms again and again and end up putting the general public into trouble.” Together, a total of 361 respondents or 72.96% of the sample opted for these two answers. This is 11.62% higher than the total for the previous two options. This indicates that a good number of officials, including those from Party and government agencies, enterprises, and public institutions, are not entirely satisfied with the current reform. Even more importantly, they have expressed concern about the future implementation of the program, and can even be said to lack confidence about such implementation. When we compare responses from different groups of respondents, the pattern that emerges is thought-provoking: the two groups who have most highly rated the State Council’s current round of institutional reform and efforts to transform the government function are trainees from the Chinese Academy of Governance-State Council General Office seminar program for division head-level leaders (a total of 100% of respondents in this group selected the first two positive options in response to this question) and trainees from the Central Institute of Ethnic Administrators training program for minority township officials from Guizhou, 95.45% of whom opted for the first two answers. These two groups are followed by senior managers from SOEs. For instance, 41 respondents from the 8th Party School of the Central Committee of CPCChina Railway Construction Corporation Official Training Program (minister level),

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or 87.23% of the 47 respondents from this class, selected the first two answers in responding to this question. This group is followed by the group of respondents from the Sub-district Administrative Approval and Service Center of Xicheng District, Beijing, individuals from private enterprises, and ordinary citizens. A total of 74 out of 87 polled from this group (85.05% of the total) responded positively to the reform program by selecting the first two answers to the question. On the other hand, local officials of a comparatively higher rank at the prefecture-level city tended to rate the current reform program less favorably. For instance, only 72.22% of respondents from the People’s Public Security University of China training program for bureau directors (deputy mayor at the prefecture-level city) opted for the first two answers in response to the question. This indicates that in terms of overall assessments of the State Council’s current program for institutional reform and the transformation of the government functions, there are significant differences between groups due to differences in their respective positions, geographic locations, and their feelings about the government. Generally speaking, those on the lower levels of the bureaucracy and those in underdeveloped regions had greater awareness while those working at higher levels and in more powerful positions tended to be more cautious in their assessments. Unexpectedly, those holding leadership positions at SOEs appear to be more aware of the reform program compared to their peers holding appointments of similar levels at Party and government agencies. 2.

Local governments have very high expectations when it comes to the delegation of power by the central government

The impact that the State Council’s institutional reforms centering on the delegation of power and the transformation of the government functions had on local governments is the issue that local governments are most concerned with. It is also the issue that public servants are generally most concerned with. Hence, in the survey, we asked respondents: Which of the following policies do you think is the most popular with local governments? Respondents were also asked to specify the reason for their choice. The five items for selection are: reducing the number of investment items/delegating such items for administrative review and approval to lower authorities, reducing the number of items where transfer payments and charges are required, minimizing responsibility overlap and fragmentation across multiple agencies, reforming the system of social organization management, improving and strengthening the system of macro-controls, and strengthening the building of basic systems. The survey data shows that the top-ranked option is “Reducing the number of investment items/delegating such items for administrative review and approval to lower authorities,” which was selected by 221 respondents or 44.29% of the sample. Ranked second is the “Minimizing responsibility overlap and fragmentation across multiple agencies” option which was selected by 175 persons or 35.07% of the sample. The third-ranked option is “Reducing the number of items where transfer payments and charges are required,” which was selected by 127 persons or 25.45% of the sample. 114 respondents or 22.84% of the sample opted for the “Strengthening building of basic systems” option. This indicates that for local governments, granting more autonomy to local authorities, reducing extraneous investment-related

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approval and review items, addressing issues concerning the entrenched interests of central government agencies, introducing reforms designed to consolidate agency oversight and to reduce transfer payments and charges, and strengthening the building of the government’s basic systems have all become top areas of concerns for local governments. It is worth noting that there are significant differences across various groups in terms of their understanding of local governments with regard to certain key reform measures by the central government. The first three options selected by trainees from state-owned investment companies at the Chinese Academy of Governance and the Sub-district Administrative Approval and Service Center of Xicheng District, Beijing are, in order: “Reducing the number of investment items/delegating such items for administrative review and approval to lower authorities,” “Minimizing responsibility overlap and fragmentation across multiple agencies,” and “Reducing the number of items where transfer payments and charges are required.” On the other hand, this group of respondents did not appear to place high emphasis on the “Strengthening the building of basic systems” option. However, for the group from the People’s Public Security University of China training program the top three selections were, in order of emphasis: “Strengthening the building of basic systems,” “Reducing the number of investment items/delegating such items for administrative review and approval to lower authorities,” and “Minimizing responsibility overlap and fragmentation across multiple agencies.” This indicates that for management personnel of enterprises and sub-district authorities and the general public the more important reforms are of a more practical nature. On the other hand, for officials at the minister level, the issue of building of basic systems for governance is of greater importance. 3.

Enterprises look forward to the transformation of the government functions at a faster pace so that they may have more room and autonomy to act

To delegate power to lower levels and reduce administrative review and approval items for enterprise production and business activities as well as administrative charges, so as to grant greater business autonomy to enterprises are the points of focus for the current round of administrative reforms and also the foundation of efforts to transform the government functions. The various groups of respondents in this survey have paid great attention. For instance, in response to the question “Which of the following policies are most popular with enterprises? Please state your reason” 283 respondents or 56.71% of the sample selected the option “Apart from clear rules and regulations in the areas of law and administrative regulations or from the State Council, other evaluations shall all be canceled.” 217 respondents or 43.49% of the sample selected the option “Reducing the number of administrative review and approval items required for production and business activities/delegating such items to lower authorities.” 108 persons or 21.64% of the sample selected the option “Reducing the number of administrative review and approval items for qualification” while 100 persons (20.045% of the sample) selected the option “Reducing the number of investment approval items, and delegating the power to lower authorities.” This indicates that the majority of those surveyed recognize that in the area of governmententerprise relations the government needs to grant enterprises more freedom and

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eliminate unnecessary administrative procedures for certification, inspection, and approval. In terms of the reasons stated, the majority of respondents focused on the matters of “Repeated inspection, low productivity and excessive interference with enterprises,” “Excessive burden on enterprises,” “Cost- and time-consuming with little impact,” “Creating trouble for those at the primary level, with perfunctory efforts made, the pursuit of personal interests, the show of power and prestige, and a lack of understanding of the primary authorities,” “Too many restrictions, the breeding of corruption, with the loss of vitality and proactiveness on the part of the enterprise,” “Such measures can help to inject vitality into enterprises and realize true autonomy,” and “Reduce resource waste and help improve social morality,” etc. This indicates that even the majority of public servants are quite clear about the fundamental roots of the problem. 4.

The public do not hope that the government will engage in a fight for interests with the public and that it will establish a service-first orientation

The majority of the public hope that the government will be able to transform its functions and address issues such as competing with the people for interests and over-interference in the economy through substantive reforms, thus becoming a true service-oriented government that is held in check by the law. This has also been confirmed by the results of our survey. For instance, in the response to the question “Which of the following policies have been most popular with the public? Please state your reason” the option that was most selected was “The enhancement of governance in accordance with the law,” with as many as 203 respondents or 40.68% of the sample selecting this option. In order of popularity with respondents, the other options were: “The reduction of responsibility overlap and fragmentation between government agencies” (189 persons, 37.86% of the sample); “The reform of the industry and commerce registration system” (140 persons, 28.05%); “The enhancement of the building of basic systems” (89 persons, 17.83%); “The reform of the system of social organization management” (77 persons, 15.43%); and “Improvements and strengthening of the system of macro-control” (36 persons, 7.21%). As for the reasons offered, the majority of respondents were of the opinion that “There is a need to strengthen the foundation and to govern in accordance with the law,” “Governance in accordance with the law is the basis of enhancing government credibility,” “Responsibilities overlap and are fragmented across government agencies, which means that public servants can shirk their responsibilities as a result,” “There are too many agencies involved when dealing with the government and there is little efficiency,” “People should be encouraged toward entrepreneurship, while social order should be established with more standards,” “Top-level design should be prioritized, and political reform is the top priority,” and “Public welfare and building of basic systems should be enhanced." This indicates that the public is not very satisfied with many services that the government is providing for the people.

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5.3 Respondents’ Opinions on the Handling of the Relationships Between the Government and the Market and Between the Government and Society Through Delegating Power to Lower Levels and Transforming Government Functions The current round of administrative reforms is centered on the following: granting autonomy to the market by the government, delegating the power from the central government to the private sector and local governments, and transforming the government functions. We have tried to understand the attitudes of Party and government officials, enterprise leaders and primary-level personnel toward the relationships between the government and the market and between the government and society, toward the government functions at present, toward the government’s administration in the areas of the economy and society and government services through a number of questions in the questionnaire. 1.

There is a need to reduce government power as well as over-interference by the government. 325 persons or 65.13% of the sample expressed agreement with the statement “Delegating power to lower levels is a highlight of the current round of efforts to transform the government functions and is of great concern to the society.” The respondents were also of the opinion that currently there is too much power concentrated at various levels of the Chinese government, excessive control, and a lack of flexibility. Thus, there is a need to advance this reform with determination in order to grant autonomy to the market and to society. In this way, the fundamental role of the market in resource allocation can be fully unleashed alongside the potential of social organizations in social service. At the same time, many of those surveyed were also highly dissatisfied with issues such as too much interference and overlap of authority in governance. For instance, 287 respondents of 57.52% of the sample selected the option “Currently, the problem of too much government interference and overlap is still rather salient.” The respondents also believed that the core of the effort to streamline administration and delegate power to lower levels lies in proper handling of the relationships between the government and the market, between the government and society, and between the central government and local authorities in order to ensure that all parties involved are motivated and thus unleash the full potential of the economy and of society. Of course, many respondents also offered suggestions on how an ideal balance can be achieved. 56.51% of those surveyed believed that “The delegation of power does not mean that governance is relaxed; in sectors or industries, where the national interest and the interests of the public are involved there is still a need for stronger macro-control and oversight. The key is to place authority at the right level and to ensure that governance and administration are performed well.” In addition, around 10% of those surveyed were skeptical about the possibility of achieving an ideal balance in the effort to delegate power. They expressed concern that

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“Social order and governance may become chaotic following the delegation of power, and may easily lead to various local authorities doing their own thing." Thus, they suggest that “The corresponding parties must ensure that mechanisms are well-designed so that governance does not end up on the extreme other end of the spectrum." One important item in the current round of administrative reforms and transformation of the functions of the government is to grant autonomy to the market by the government. The central authorities’ decision to reform the system of enterprise registration is underpinned by the desire to lower the market entry barriers and thus encourage entrepreneurship. The majority of respondents rated this reform positively. For instance, in response to the question “One key highlight of the current round of reforms is changing the system of enterprise registration. In your opinion, what are the consequences of lowering entry barriers in terms of enterprise registration,” 42.28% of respondents selected the option “There will be a far-reaching impact in terms of encouraging entrepreneurship,” while 50.3% of respondents selected the statement “This will stimulate the market and provide guarantees for the autonomous development of enterprises.” Together, the two groups of respondents add up to 92.58% of the sample. In addition, 17.84% of respondents selected the option “Great challenges have been brought to government administration,” while 7.6% of respondents thought that “The move may give rise to issues of market order.” This indicates that a minority of respondents were still concerned about the potential effects of this reform. Such concern should be taken seriously by the corresponding agencies. Administrative measures should also be updated accordingly so that the removal of requirements for registered capital and the relaxation of administration in this area do not lead to disorder. There is still quite a bit of work to do to ensure that oversight is maintained and that systems and mechanisms are ready for such a change. Compared to the granting of autonomy to the market by the government, measures designed to delegate more power to lower levels have drawn comparatively greater concern on the part of respondents. For example, in response to the question “Once social organizations are fully developed the government will remove a large number of services out of hands and instead purchase services from social organizations. What do you think about the prospects of this reform,” only 128 persons or 25.65% of the sample selected the “Positively” option, while 31.46% of respondents responded with “It will be very difficult, as the government may not be willing to transfer certain functions to social organizations.” 34.87% of respondents believed that “The actual purchasing of services may lead to corruption,” while 6.8% of respondents simply responded with “Negatively” and believed that the government is simply “making a show of things again” with this reform. This indicates that as social organizations are still relatively new in China and standards have not really been applied for them, there is still a fair bit of concern with regard to these organizations. The various parties concerned should take into serious consideration of how to promote the swift development of these social organizations while ensuring that their quality be improved at the same time.

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Related to concerns about government procurement of services from the social organizations are concerns voiced by a number of respondents about the “two-track mechanism” reforms for social organizations in the current round of administrative reforms. For instance, in response to the question “There has been a major breakthrough in the current round of administrative reforms in terms of the administration of social organizations. The approval of government supervisory departments is not longer required for the establishment of industry associations, chambers of commerce, science- and technology-related organizations, private charity organizations and community service organizations. In your opinion, what impact would the abolishment of the ‘two-track system’ of administration have on the development of social organizations” only 35.07% of respondents were of the opinion that “Such a move would provide dramatic impetus to the overall development of social organizations” while 28.46% of respondents believed that “Government interference in the activities of social organizations will still occur in other forms.” 20% of respondents believed that “The autonomy of social organizations may not be guaranteed,” and 17.43% of respondents thought that the current reform “May cause disorderly development and chaos on the part of social organizations.” The survey results enumerated above show that although government procurement of services from the social organizations is a good idea there are still a number of obstacles and issues to tackle before it can be realized. 2.

Thorough and fundamental reform of the system of administrative review and approval. The bold reform of unreasonable aspects of the system of administrative review and approval is an important breakthrough for the current round of administrative reform and is also critical to the success of this round of reforms. The importance of this reform, as well as the challenges posed by this reform, are relatively well-recognized by the respondents on this survey. For instance, 50% of respondents were in favor of the statement “Some people have said that if the power to conduct administrative review and approval is not placed in the hands of the right actors, the streamlined institutions will once again become bloated over time.”

52.9% of respondents selected the statement “The delegation of power in administrative reviews and approvals must be scientifically assessed and procedures must be conducted in accordance with the law. There must not be frequent changes, and any moves must be made after careful consideration.” 41.1% of respondents believed that “Institutional responsibilities, functions, and systems must be clearly defined for post-streamlining operations, with the power being regulated and restrained by systems.” This indicates that the majority of respondents support the central government’s determined efforts to reform the system of administrative review and approval. As for whether the results of the current round of administrative reforms will meet expectations, the majority of respondents believed that the crux of the matter lies in how determined the central government is. For example, 56.91% of those surveyed believed that “As long as the central government implements the reforms properly and seriously, the expected results can certainly be achieved.” Of course, there is also a significant group of respondents who have expressed skepticism. For example,

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17.03% of respondents were of the opinion that the reform “may have a short-term effect but they were not hopeful about the long term.” 10.62% of respondents believed that “based on the history of several rounds of reforms following the founding of the People’s Republic of China it would appear that it may be challenging to achieve the expected results.” 13.62% of respondents believed that “they were unable to make judgments at present.” Together, these three groups add up to 31.27% of the sample. As for obstacles to reforms of the system of administrative reform and approval respondents also gave clear responses. In response to the question “What is the greatest challenge to implementing reform of the system of administrative review and approval,” 58.92% of respondents stated “entrenched agency interests” while 21.04% of respondents stated “While the higher-ups have their vision, those at the lower levels have their own ideas.” 19.04% of respondents believed that “The administrative review and approval process is the easiest way to complete power-for-money deals” while 15.83% of respondents believed that “The main challenge comes from various central government agencies.” 10.22% of respondents believed that “Local governments are not faithfully implementing the central government’s policy of the reform of the system of administrative review and approval.” Based on the aforementioned responses, we see clearly that entrenched agency interests are undoubtedly the greatest obstacle to the reform of the system of administrative review and approval. In severe cases, agency interests are tied up with the issue of corruption or facilitate the phenomenon of rent-seeking by those holding power. From another perspective, this proves the reform of the system of administrative review and approval is an urgent and important task. A number of respondents gave us important recommendations to ensure the smooth implementation of the current round of reforms with regard to the system of administrative review and approval. For instance, 70.54% of respondents felt that “The establishment, abolishment and delegation to lower authorities of administrative review and approval processes should be regulated through legal measures in order to ensure that existing and new processes are well-regulated and have a scientific basis.” 17.84% of respondents believed that “Various State Council commissions and ministries and governments of various levels should establish inspection teams to conduct regular monitoring and tracking of the progress in terms of the ‘cleaning up’ of administrative review and approval processes by various agencies.” 14.83% of respondents were of the opinion that “The State Council and various local governments can establish ‘Administrative Power Review Committees’ that would study whether various agencies are excessively interfere with specific review and approval processes.” These recommendations have a certain value to them and represent a certain level of wisdom. 3.

Promoting financial equality between governments of various levels with reform of the system of transfer payments for special items. Transfer payments from the state treasury have always been a key factor impacting the relationship between the central and local governments. Following the implementation of the system of revenue-sharing in China in 1994 the system of transfer payments has also emerged and been refined. However, there are still

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a number of issues to date. One key problem is that local governments receive too low a proportion of routine transfer payments and too high a proportion of transfer payments for special items.1 This has led to the phenomenon of local officials lobbying central officials for more payments which has prevailed for years, a phenomenon that has bred unhealthy and even corrupt behavior. As such in the current round of administrative reforms one key item on the agenda is to reform the system of transfer payments for special items while delegating the central government’s powers to local authorities. Most of those surveyed responded cautiously and optimistically about this reform. For instance, when responding to the question “In your opinion, would current efforts to reduce special-item transfer payments from the central government help restrain the unhealthy phenomenon of lobbying by local officials?” only 4.8% of respondents said “Yes,” while 48.9% of respondents selected the “There would be some degree of impact” option. Together, the two groups of respondents add up to over 50% of the sample. On the other hand, 14.02% of the sample responded with “It would be very tough,” and 18.64% of the sample responded with “Not sure, it would depend on whether the reform is faithfully implemented.” 10.02% of the sample believed that “One should not expect too much.” This indicates that there is a fair degree of concern about this particular reform. There is a fair bit of challenge to restructuring the financial relationship between the central and local governments, including in the area of special transfer payments.

5.4 General Opinions About the Current Round of Institutional Adjustments Made by the State Council The optimization of the government’s structure is a key institutional basis for the establishment of a service-oriented government. It is also a premise to prevent overlap in responsibilities between agencies. One key characteristic of the current round of efforts by the State Council to reform its institutions and to transform the functions of the government is the move to temper efforts to make institutional adjustments and to emphasize the transformation of the government functions instead. Institutional consolidation would make organization structures at State Council agencies more reasonable and scientific. In general, the responses of survey respondents with regard to the current round of institutional adjustments mainly concentrate on three areas: First, with the “reform to establish greater government departments,” it does not mean that the fewer the departments or agencies that exist, the better. In response to the question “What are your general opinions about the ‘reform to establish greater government departments’” the answer that was most selected was “The 1 Author’s

note: Data shows that as of 2012 routine transfer payments of China made up 51.5% of all transfer payments, while special-item payments amounted to 48.5% of the total. The former is based on indicators like the economic aggregate and the local population, while with the latter payments for as many as 280 special items were made by various central government agencies to local authorities.

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key is not in minimizing the number of agency, but in clarifying responsibilities, powers and duties” (58.52% of the sample). A good number of respondents (46.09% of the sample) opted for the answer “The overlap of responsibilities between agencies, the disconnection between power and responsibilities, and jostling for power while shirking responsibilities continue to be significant issues, and administrative effectiveness remains low.” The numbers of respondents who had opted for the remaining three options was more or less equal. The three options are: “China is a vast country with a large population. Government administration cannot be conducted simply by copying the ‘large department’ model of Western countries” (chosen by 39.08% of respondents); “Institutional structures are improper, oversight mechanisms for administrative power are inadequate, and corruption is worsening by the day” (32.04% of the sample); and “To ensure the steady advancement of the reforms to establish greater government departments and to avoid having to retrace one’s steps we can first run pilots in certain areas and then extend the reform to a wider area or even nationwide” (26.85% of the sample). Thus, it is not easy to create strong, stable, and effective government organization structures by learning from international best practices and considering at the same time the specific circumstances of China. Second, respondents’ ratings of the establishment of the State Food and Drug Administration were the highest. In response to the question “In your opinion, which reforms made by the State Council in its current round of ‘reform to establish larger departments’ have been most popular,” the most popular selection made by respondents was “The establishment of the State Food and Drug Administration” (47.49% of the sample). The remaining options, in order of popularity, are: “The rebuilding of the State Oceanic Administration” (43.48% of the sample); “The abolishment of the Ministry of Railways and the establishment of China Railway Corporation, separating government administration from the management of enterprises in the area of railway transport” (41.48%); “The rebuilding of the National Energy Administration” (21.64%); “The establishment of the National Health and Family Planning Commission” (15.63%); and “The establishment of the State Administration of Press, Publication, Radio, Film and Television” (14.43%). This indicates that public servants, enterprise personnel and the general public alike are most concerned with the issue of food and drug safety, the issue that is closest to the public. Thus, reforms in this area have been rated most highly. To a certain extent, these results are also a reflection of public expectations. Third, respondents expect the most of efforts to build and improve the system of public services. The building and enhancement of a system of public services is a necessity for a service-oriented government. It is also something that is deeply desired by the people. Currently, there are some signs of inequality in China. Fundamentally, these have to do with the inadequacy of public goods provided by the government and inadequacies in the existing system of public services. In general, the respondents expressed high levels of concern at this issue. For example, in response to the statement “Next, reforms should aim to step up the establishment of a socialist system of public services in tandem with efforts to improve the socialist market and economic system,” 59.32% of respondents said that they “Strongly agree, and there is a strong

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need to work on achieving equal access to basic public services and expanding the coverage of public services,” and 33.67% of respondents selected the answer “Agree, but there will be certain difficulties in the course of implementation, such as lack of funding in some places.” Together, the two groups add up to 92.99% of the sample, fully reflecting the public’s expectations and hopes for efforts to improve public services provided by the government.

5.5 Respondents’ Opinions on Efforts to Change the Way the Government Works and Governs Efforts to enhance government reform have occupied a key position within the whole reform of the administrative system. In the past, a number of significant issues with administrative reform in China have to do with the fact that government reform has lagged behind. Thus, many people have observed that while efforts of reform in areas related to the public and society (such as the reduction of staff for higher efficiency and laying off and reassigning redundant workers) have been relatively quick, reforms related to the government have met with more resistance. Examples include efforts to restrict spending on official overseas trips, vehicles for official use, and official hospitality, and to enhance the openness and transparency of the government. In order to understand respondents’ opinions, we have approached the matter from multiple angles in the survey. 1.

2.

There was a fair bit of concern among respondents about whether the eight-point decision on improving Party and government conduct can be sustained. For example, in response to the question “The eight-point decision by the central authorities are beginning to take effect; are you confident that such effects can be sustained,” 31.86% of respondents chose the option “I am full of confidence since the central government officials are taking the lead and playing an exemplary role,” while 28.46% of respondents selected the option “I am quite confident, and there is already a fair bit of deterrence in society.” Together, the two groups add up to 60.32% of the sample. However, 26.65% of respondents chose the option “Implementation of the eight-point decision is irregular at the local level in many places, showing a strong influence of formalism” while 28.46% of respondents chose the option “I worry that over time the eight-point decision will pass by like a breeze." Together, the two groups add up to 55.11% of the sample. This indicates that while on one hand many respondents recognized the value of the eight-point decision and the implementation of these decisions, concerns about the issue have yet to be allayed. This state of ambivalence betrays the complexity of the problem, and points to the possibility of a long-drawn-out process of reform. Respondents did not rate efforts to enhance the transparency and openness of governance highly, but had very high expectations of the building of an asset reporting and disclosure system for officials. For example, in

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response to the question “What do you think are the main problems in efforts to enhance open governance” the top choice made by respondents was “Information is not available or made open in a timely manner” (47.29% of the sample). The remaining choices, in order of popularity, are: “Government agencies are too subjective, and too arbitrary when it comes to disclosure” (44.49% of the sample); “There are relatively few channels for public participation, and low participation levels” (42.28%); “Information disclosure channels are not open” (28.46%); and “There are too few items that can be filed or managed online” (24.05%). This tells us that officials—including public servants—as well as enterprise personnel and the public are not so satisfied when it comes to the issue of open governance. In response to the question “In your opinion, how much influence would an asset disclosure mechanism for officials have in terms of combating corruption” 52.1% of respondents selected the options “The impact would be tremendous with corruption being fought at its very core” and “The impact would be great, and there will be positive effects in terms of reducing corruption.” This indicates that the majority of respondents recognize the value of the system of asset reporting and disclosure for officials in terms of its anti-corruption potential. However, due to the complexity and sensitivity of the matter, 34.47% of respondents also went for the option “It’s hard to say, and it really depends on the ancillary measures taken and the determination and efforts of officials at the highest level,” while 15.63% of respondents believed that “There is not much use, and many officials are still playing ‘hide-and-seek’ with disciplinary agencies since there are no centralized national databases for property and financial assets, etc.” In another aspect, such data indicates that there is a need to establish a series of ancillary measures and reforms in order to have an effective system of asset reporting and disclosure for officials. The questionnaire included a question designed to help us further understand respondents’ attitudes toward basic governance systems that have been mooted by the central authorities, such as the establishment of a registry system for real-estate holdings. In response to the question “The current round of reforms is aimed at establishing mechanisms for a registry system for real-estate holdings and national credit ratings systems for citizens and organizations/institutions; what kind of impact on governance do you think the establishment of such basic systems have” 70.34% of respondents chose the options “These would greatly enhance the governance and service capabilities and levels” and “Governance and government services will be improved as a result.” 23.25% of respondents went for the option “These will serve as important means for the investigation of corrupt officials, the curbing of ‘gray income’, and the curbing of illegal behavior by corporate entities.” Only 13.63% of respondents selected the option “The government will not end up spending vast sums of money with few substantive outcomes in return.” This indicates that the majority of those surveyed are not only supportive of efforts to establish the aforementioned basic governance systems but also have fairly high expectations on these measures.

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Tremendous amount of concern about the government’s credibility levels. The government’s credibility issue is a fundamental one. As General Secretary Xi Jinping has put it, the opinion of the people determines the survival of those in power. In order to understand the true opinions of those surveyed, we designed the following question: “What is the current state of the government’s credibility in the eyes of the public? Rate it on a 100-point scale.” Only 3.61% of respondents believed that the Chinese government enjoys high credibility (90– 100 points), while 14.43% thought that the government was “Fairly credible”) (score of 80–90 points). Together, the two groups only add up to 18.04% of the sample. On the other hand, 32.87% of respondents believed that the government’s credibility levels were “So-so” (i.e., 70–80 points), while 29.26% of respondents believed that the government’s credibility levels were “Low, and the people’s trust in the government are being eroded further” (60–69 points). 12.83% of respondents thought that the government’s credibility levels were “Low, with much anger among the people,” scoring credibility at 59 points or below. The latter two groups of respondents add up to 49.7% or nearly half of the sample. One respondent noted in the “Comments” section that “The government does not really have much credibility. It is seriously cut off from the public and from on-the-ground practice. In some places, the people cannot even enter the offices of the township government. The key is to resolve the credibility issue with governments at the primary levels.” Other respondents even wrote: “Not sure what score to give, as certain primary-level governments have zero credibility” and “The more local the authorities, the more the people are being lied to.”

These data results are extremely thought-provoking. This is because the majority of those surveyed are Party/government officials and leaders at enterprise or public institutions. That even key members within the system express such concern about the credibility of the Chinese government speaks volumes about how challenging the problem is. If we still do not take strident measures to improve governance and limit the exercise of power, we will see the unthinkable consequences of a further slide in the government’s credibility. This is an issue that calls for high levels of attention from us.

5.6 Expectations of Future Administrative Reforms and Policy Suggestions To tap on the wisdom and intelligence of our respondents and to mobilize social participation, at the end of the questionnaire, we asked respondents about their expectations for future administrative reforms and their suggestions for these reforms. The major important suggestions include: “A strong oversight system should be established in order to vigorously manage the problem of corruption”; “The central authorities must advance, in a determined manner, plans that have been verified

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by experts and deemed practicable, and not give up half-way”; “Administration should be streamlined, and more power be delegated to lower-level governments, with governance conducted in accordance with the law”; “Reform dividends should be unleashed with the greatest amount of courage possible through more work in establishing the rule of law, more education, and the building of a system of trust”; “Reforms of the administrative system should be designed by committee members who are not in the profession to prevent the entrenchment of agency and professional interests”; “Governance in accordance with the law, human-centered operations, respect for property rights”; “Make laws and systems more practicable”; “Pay more attention to internal Party-building, to the top-level design of administrative reforms, and to primary-level surveys, and advance administrative reforms in a steady manner while placing social stability and harmonious development in first place”; “Ministries and commissions where power is highly concentrated, like the National Development and Reform Commission, should not be neglected in the ‘reform to establish greater government departments’”; “In the internet age, there should be an emphasis on scientific guidance, IT management, and hardware/software development for IT application during the administrative reforms”; “Consolidation of responsibilities, delegation of power, focusing on key areas, complete coverage, and innovation should be foregrounded in the course of administrative reforms”; “Build complete systems for the corresponding areas and assess review and approval items through scientific means”; “Further work on improving the legal system and governance in accordance with the law”; and “Reform the system of distribution and increase investment in public services.”

Part II

Social and Economic Transformation in China and Reforms of the Administrative System

Chapter 6

Economic Transformation and Government Reforms in Post-crisis China

In China, administrative reforms are not conducted in isolation but always closed linked to social and economic development. The issue of promoting the transformation of the economy by means of administrative reform has always been a keenlywatched matter. In particular, after the unfolding of the US financial crisis in 2008, just how to accelerate the transformation of the Chinese economy has become an important strategic question. In other words, as the world gradually enters the post-crisis age various nations appear to be taking their lessons from their respective experiences of the crisis. Although China had successfully countered the financial crisis, she is also facing the same issues. There are still lessons to be learned and examined. It is important that we learn from these experiences and lessons correctly so that we can step on the gas with the transformation of China’s economy and with further reforms. In this chapter, we look at the lessons we can learn from the so-called Three Strengths and Three Weaknesses, at the dual-engine strategy of economic development, and at using county-level reforms as an entry-point into government reform.

6.1 Lessons That can be Drawn from the “Three Strengths and Three Weaknesses” September 15, 2008, saw the collapse of Lehman Brothers on Wall Street. At that time, two things were being said around the world, that Wall Street’s financial tsunami had rocked the foundation of US national strength, and that Wall Street had held the US hostage while the USA had held the whole world hostage. Although there were no issues with China’s financial system, the economic crisis caused by the collapse of the US financial system had a direct impact on China’s real economy. In the face of a dramatic dip in external demand and sluggish exports, the risks of the low-cost export strategy and consequent over-reliance on exports that have developed since China’s implementation of reform and opening up were exposed overnight with the © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_6

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crisis. The swift decline of the economy also exposed problems on the systemic and institutional levels in China’s economy and society. The Chinese government adopted decisive measures following the eruption of the US financial crisis. In addition to adopting proactive financial policies and relaxing her currency policies, China also quickly put together a RMB4-trillion bailout package. With more than a year’s development the Chinese economy has not taken on either an “L-shape,” “W-shape,” or “U-shape” like some experts at home and abroad said it would. Instead, the Chinese economy has taken on a “V-shape” and has become the first to recover from the financial crisis. In terms of the state of the Chinese economy in 2009, we can see clear signs of recovery: GDP growth reached 6.1% in in Q1, 7.9% in Q2, 8.9% in Q3, and 10.6% in Q4, with GDP growth for the year at 8.7%. The economic aggregates stand at RMB33.5353 trillion or USD4.909 trillion. This figure is a mere USD100 billion lower than Japan’s USD5 trillion and places China in third place in the world.1 The government revenue increased by 11.7% to reach RMB6.8477 trillion. In 2009, the global economy shrank by 0.8%, and the advanced economies all fell into recession.2 The achievements made by China have once again drawn the world’s attention. However, while fully recognizing China’s tremendous achievements in the face of the financial crisis we should also be clear about the issues that have been exposed in the process. In other words, there is still room for reflection in terms of our bailout measures. In general, “Three Strengths and Three Weaknesses” have emerged in terms of China’s policy orientation and practice as she sought to combat the effects of the financial crisis. The first strength is that China was able to maintain strong growth momentum for her economy with the measures taken. On the other hand, one weakness is that her ability to adjust the structure of the economy was comparatively weak and there were a number of challenges as a result. The government mainly focused on maintaining steady economic growth. Its moves to rejuvenate industry were clearly a move away from free-market practices. Second, obvious structural issues still exist. While efforts to promote economic growth through investment have yielded significant results, domestic demand starts slowly and thus is too weak to promote economic growth through consumption. The impact of consumption on the economy takes time to emerge compared to investment. This involves the reform of the entire country’s income distribution policies, the improvement of social security mechanisms, and even adjustments to the distribution of interests across the country. All these take time to achieve.

1 According

to IMF data released on October 2009, China’s GDP for 2009 reached USD4.76 trillion, while the GDP of the USA was USD14.27 trillion, Japan’s USD5.05 trillion and Germany’s, USD3.24 trillion. China’s GDP ranked third after Japan. 2 In 2009, the US economy shrank by 2.5%, while the EU economy shrank by 4%. The Eurozone economy also shrank by 3.9%, while the Japanese economy shrank by 5.3%. The German and UK economies shrank by 4.8%, and the French economy shrank by 2.3% while the Russian economy shrank by 9%. The Brazilian economy shrank by 0.4%, while the Indian economy grew by 5.6%. Source: IMF World Economic Outlook, October 2009.

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Third, while the state-owned sector of the economy performed noticeably well during the financial crisis, the private sector rendered poor performance. In particular, small- and medium-sized enterprises continue to find themselves in difficulty. Over the course of responses to the financial crisis, we saw the “advancement of the state-owned sector and the regress of the private sector.” In particular, in the last few years state-owned enterprises have streamed into the real estate business, with one enterprise after another making the news for audacious acquisitions. This is a development that has drawn widespread attention. In a related vein, the phenomenon of the “advancement of the state-owned sector and the regress of the private sector” in 2009 can also been seen in changes to the make-up of bank deposits across China. In 2009, savings deposits nationwide totaled RMB61.2 trillion, with personal savings deposits standing at RMB26.4 trillion and enterprise savings deposits at RMB34.8 trillion. The quantum of enterprise savings deposits far exceeded that by individuals. Of the newly increased RMB13.1 trillion in savings deposits in 2009, RMB4.2 trillion was from individuals while RMB8 trillion came from enterprises. We can infer four key problems from the “Three Strengths and Three Weaknesses.” First, subconsciously, the government has yet to budge from its traditional mindset when it comes to promoting economic growth. To take the year 2009 as an example: that year, only four provinces (autonomous region) across the country saw economic growth at levels below 9%. They were Shanxi (6%), Xinjiang (8%), Shanghai (8.2%), and Zhejiang (8.9%). On the other hand, the economy of Inner Mongolia grew as much as 17% while that of Tianjin grew by 16.5%. Thus, those concerned have been skeptical about national GDP figures. During the annual session of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) in 2009, one member of the NPC discovered through detailed calculations that GDP figures nationwide of the year had been overreported by RMB2.8 trillion. According to his calculations, total investment in fixed assets in China in 2009 stood at around RMB22.5 trillion while total consumption was around RMB12.5 trillion. These two items together add up to around RMB35 trillion. Plus the national trade surplus of around USD190 billion or RMB1.3 trillion in 2009, China’s GDP of the year should add up to RMB36.3 trillion instead. This indicates that there are some issues with our data. Second, the RMB4-trillion bailout package did not transform China’s model of economic growth into one that is driven by domestic demand. This process at the very least will be a long one. We can analyze weak domestic demand from three angles: first, the changes in the contributions to economic growth by consumption, investment, and net exports (see Table 6.1). Since the beginning of reform and opening-up of China, consumption’s share of GDP growth has been on a steady decline. Although in 2009 there was an uptick in this figure, it had been made possible in a very unique policy environment. Consumption continues to play second fiddle to investment in terms of its contribution to economic growth. In 2009, consumption accounted for 4.6% points of GDP growth, investment 8.0% points, and net exports, − 3.9% points (see Table 6.2).

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Table 6.1 Changes in contributions to GDP growth by consumption, investment, and net exports since the beginning of reform and opening-up of China (unit: %)

Table 6.2 Share of contribution to GDP growth by consumption, investment, and net exports in 2009 (unit: %)

Consumption

Investment

1978–1980

66.2

36.0

− 3.3

1981–1985

77.4

36.3

− 13.7

1986–1990

46.5

20.9

32.7

1991–1995

54.4

47.2

0.5

1996–2000

58.8

25.1

16.1

2001–2005

41.2

51.1

7.7

2006–2008

41.7

42.3

16.1

Consumption

Investment

Jan–Mar 2009

70.5

32.8

Jan–Jun 2009

53.5

87.3

Jan–Sep 2009

51.9

94.8

Jan–Dec 2009

52.5

92.3

Net exports

Net exports

− 44.8

Second, the disposable income of urban residents and net income of rural residents as a proportion of GDP has also been on the decline. In 1990, the disposable income of urban residents and net income of rural residents accounted for 55.36% of GDP. By 2009, the figure had been reduced to 42%. This indicates that there are clearly problematic areas with the first round of income distribution by China. Further, the proportion of the government spending on the so-called four pillars of the people’s livelihoods, that is, education, health care, social security, and employment, continues to be below 30% over an extended period of time, the lower end of the spectrum globally. On the other hand, together the four items can account for more than 60% of total state expenditure in developed nations. This indicates that the second round of income distribution in China has not been effective either. Third, the bailout policy may have caused disruptions to market reforms in certain ways. For instance, while the industry rejuvenation plan put in place in response to the financial crisis halted further industry decline to some extent, the excessive use of administrative means have led some to question if market reforms would be affected by such a heavy government hand. Such concerns are actually not without merit. Fourth, bailout measures may serve to reinforce industry monopolies. Statistics show that in 2008 those employed in monopolized industries nationwide only accounted for 8% of the nation’s labor force (including 220 million migrant workers). However, the wages and benefits received by these individuals accounted for 50% of what was received by the nation’s labor force, thereby causing tremendous industry inequality. To a certain extent this has reinforced industry monopolies and made reforms of such monopolies even more challenging. At the same time, the scale of social justice and fairness has been further tilted in some ways, creating an even graver social issue.

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6.2 The Dual-Engine Strategy of Economic Development The future economic prospects of China, the world’s largest emerging economy, are undoubtedly bright. However, after the financial crisis, major changes in China’s economic development strategies may be afoot. The integration of the global economy began to occur since China’s implementation of reform and opening up. Global capital flowed into China and injected tremendous vitality into the Chinese economy thanks to cheap and abundant resources and labor in China. However, the entry of global capital into China was actually also a strategic adjustment for Western economies. One key aspect of this adjustment is the shift of resource-intensive and highly-polluting production to developing nations. China had taken on the outdated production facilities from the Western nations as she welcomed foreign capital. This was because China had no other choice at that time but to speed up the pace of development with the aid of global capital in order to resolve a number of issues, including those of basic survival. In this respect, China was a passive actor in the development of her path of economic growth driven by low-cost production. The coastal areas in the east were the first to implement the reform and opening up policy and the “step-by-step” strategy of development. This was a necessary choice in what was a passive journey toward the development of an export-oriented economy. We should say that 30 years of the globalization of economy and our tremendous pool of cheap labor have brought us massive dividends. China’s processing industries saw a meteoric rise on the global scene. However, we have also paid a heavy price with our resources and environment. Another price we have paid comes in the form of social security for over 200 million migrant workers. China has traded high investment, high levels of resource consumption, and high levels of environmental pollution for an average annual economic growth rate of 9.7% over the last 30 years. That the Chinese model of economic development was not sustainable was exposed during the financial crisis. First of all, from the global perspective, it is impossible for China, as a large economy to simply develop at the lower end of the global industry chain. In the future, we must have a place at the higher end of the global industry chain. This is a necessary choice for a major player that is seeking to become stronger. There is a saying around the world: third-class enterprises sell products; second-class enterprises, patents; and first-class enterprises, benchmarks. We have very few first-class enterprises or even second-class enterprises in our midst. The majority of Chinese enterprises sell products, and many of these enterprises perform manufacturing using the patents and brands of others. As such, we only end up earning a little from processing and assembly. Therefore, we will not be able to reach or hold a position at the higher end of global industry if we do not establish an innovation-driven nation, make breakthroughs in advanced technologies, or cultivate large numbers of innovation talent. Second, changes in consumption behaviors in developed countries and the exacerbation of trade conflicts have also forced us to make changes to our low-cost-exports strategy. US savings rates were extremely low at the start of the financial crisis and

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rose to 7% in the short span of more than a year. Today, the USA and European nations have proposed that general consumer products should not be allowed to circulate globally, and that each nation would seek to produce such goods needed domestically. This will undoubtedly have a significant impact on China, for which daily consumer goods occupy an important position. Although decisive measures taken in response to the 2009 financial crisis realized economic growth of 8.7%, imports and exports declined by as much as 44%. The decline in exports and changes in the consumer environment have made our low-cost-exports strategy hardly sustainable. In the future, we will still need to vigorously increase our exports. However, we should not underestimate the challenges that will come with this task. Based on the analysis above, we are of the opinion that the economic strategy of having the eastern coastal regions drive growth in the inland regions would need to be overhauled. The aim of any such overhaul would be to realize a “dual-engine,” “point-and-surface” strategy of economic development that can be implemented on all fronts. The first “engine” or “points” in this strategy would be the regional “economic circles” that have formed around large- and medium-sized cities following thirty years of reform and opening-up. These would form the first growth pole for the Chinese economy and would determine the trajectory of Chinese economic development as well as the place of the Chinese economy in the global economic landscape. They include: the Yangtze River Delta Economic Zone, the Pearl River Delta Economic Zone, the Beijing-Tianjin-Bohai Economic Zone, the economic zone on the west coast of the Taiwan Straits, the Beibu Gulf Economic Zone, the ChengduChongqing Economic Zone, the Wuhan and Changsha Economic zones in central China, the Guanzhong Economic Zone as well as the Northeast China Economic Zone. The second “engine” or “surface” in this strategy refers to the economic structure comprising more than 2300 counties and county-level cities nationwide. Providing more autonomy to county-level authorities and strengthening the county economies can form another growth pole for the Chinese economy in the future. Once China establishes a key position for county economy in the future, enhances its infrastructure-building and investment efforts in this area (including for highquality education, healthcare resources) for counties and the countryside, and further improves its system of social security, there will be much high-quality impetus created for the further growth of the Chinese economy. The “point-and-surface” “dual-engine” strategy of economic growth is a comprehensive one that can reshape China’s developmental strategy of integrating industrialization, urbanization, and the integration of urban and rural areas in the future. This developmental strategy will in turn realize three key goals: First, it will change on the fundamental level the export-oriented model of economic development which had been established from the early days of reform and opening-up into a model that would be led by domestic demand and an aggressive expansion of exports. Second, it will realize industry transformation as China seeks to occupy a position on the higher end of the global industry chain.

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Third, it will dismantle what is the urban–rural social structure, achieving sustainable development through the fundamental change of China’s economic model and thereby free China from the long-term obstacle placed on it by such a binary structure. These three key goals are consistent with what the central authorities have recently proposed, that is to “regard the transformation of growth model as a revolution,” to shift future economic growth toward the triumvirate of consumption, investment, and exports, and toward growth driven by primary, secondary, and tertiary industries (instead of just secondary industries). They are also in line with other moves that have been proposed by the central authorities: adjusting the pattern of income distribution, accelerating urbanization, adjusting regional structures and spatial structure of land development and industrial structures (i.e., stepping up development of strategic emerging industries and the service industries). This strategic transformation of the Chinese economy in the future will surely have a deep impact on the process of Chinese modernization in the future.

6.3 Start from County-Level Reform for Government Reform Deep reforms are needed for the transformation of the Chinese economy and development model. Most importantly, administrative reforms centered on the government must be carried out with unflinching determination. This is because the Chinese government is not merely a strong government. The actions and behavior of the government—such as the planning of development strategies and the establishment of macro-level policies—have a strong leading effect on social and economic development. At the same time, the government’s role in maintaining market and social order is also needed in order to unleash the full potential of market and social forces. Only this way can we truly create a synergy between the government and the market, between the government and society, and thus speed up the course of China’s modernization. When we look at the administrative reform, we see that the following four areas relate most closely to efforts to transform China’s economic and developmental models: the first is to speed up the transformation of the government functions in order to promote the transformation of China’s growth model; the second is to speed up reforms of province-controlled counties and to accelerate the integration of urban and rural areas in the process of industrialization and urbanization, streamline governance hierarchies, and realize over time unified policy goals and institutional arrangements for urban and rural areas, thus integrating the urban and rural structures; third is to speed up efforts to promote equal access to basic public services and enhance the government’s public services capabilities in order to resolve basic issues of livelihood including those affecting migrant workers and rural residents; and fourth is to intensify efforts into government reform to resolve certain deeply-embedded issues that have drawn widespread attention, such as corruption, the abuse of power, the

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excessive cost of administration, and special privileges in order to enhance the credibility of the government. Of the four types of reforms stated above, in our opinion the option with the greatest strategic significance would be to conduct reforms at the county level, the most representative level in China’s governance structure. The county is an important part of China’s vertical power structure for a few reasons. First of all, the county economy will certainly become an important growth pole for the Chinese economy in the future. Currently, there are a total of 2862 county-level administrative units across China, including 1636 counties and 374 county-level cities3 which add up to 2010. If we are to say that the 852 cities and municipally-controlled units across China are to be the “points” of China’s future “point-and-surface” strategy of development, then these 2010 counties and countylevel cities will serve as the growth pole that is the “surface.” If we can achieve leapfrog development and advancement with county economies it would be entirely possible for China to maintain high rates of growth for another two decades. Second, the county is a bridgehead for the advancement of the integration of urban and rural areas in China. We should have already seen that the county not only shoulders the task of economic development but also a key link and bridgehead for the integration of urban and rural areas. It is the most important vehicle for urbanization and the most cost-effective and practicable space for the transfer of excess labor from the rural area. China cannot possibly be home to nothing but international metropolises. The true future for urbanization in China will be in the form of the Chinese landscape being dotted by small- and medium-sized cities and smaller towns. Only in this way will spaces like these be able to better absorb excess labor from the rural area. In this sense, the modernization of the counties will have a deep impact not only on the integration of urban and rural areas in China, but also on whether we will be able to fundamentally remove the obstacles of the urban–rural structure which has been holding back China’s development for a long time. Thirdly, the county can possibly become a breakthrough for reforms of China’s political system. Reforms of China’s public governance structure and political system are urgently needed. Public calls for such reforms have grown louder over time. If reforms are to be implemented fully from the top down or from the bottom up it would be quite challenging at present. With the former, there are just too many layers to work through at present, while with the latter it is hard to fully bring the role of reform into full play. Looking at the current state of China’s public management and political ecology the best choice may be to make a breakthrough from the medium level, i.e., from the county. On one hand, the county is the most basic unit of China’s five levels of government, with the provincial authorities above (especially after the implementation of the municipal-controlled county system) and over 40,000 3 As

of December 31, 2004, at county level and above there are a total of 23 provinces, five autonomous regions, four municipalities directly under the central government, and two special administrative regions across the country; 50 regions (prefectures, leagues); 661 cities, including four municipalities; 283 prefecture-level cities; 374 county-level cities; 1636 counties (autonomous counties, banners, autonomous banners, special regions, and forest districts; and 852 city-managed districts. In total, there are 34 at the provincial level, 333 at the local level, and 2862 at the county level.

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77

townships below. Whether the structure of governance is reasonable and effective at this level determines how decisions of the central authorities are implemented and also has a deep impact on the people’s awareness of state power. Hence, the optimization of governance structure at the county level is especially important. On the other hand, following the implementation of reforms of province-controlled counties, in the future with focus of the public administration shifted closer to the lower level, the central and provincial authorities will certainly delegate more power to the county. The county government will also certainly bear more responsibilities in terms of social management and public services. Under such conditions, if we do not strengthen oversight over county level the power of the government, it may become even more unbridled as a result. Thus, to make breakthroughs at the county level in the reforms of China’s governance structure and administrative mechanisms may be the most meaningful strategic measure at present. In fact, Shunde District in Foshan, Guangdong Province, has already achieved breakthroughs in terms of reforms of the county-level governance structure. In our opinion, we can draw lessons from Shunde District in order for us to establish a complete new model of governance for Chinese counties. Shunde District’s experiments can be summarized using three points. First, the District established a unified organizational structure for both Party and government. In line with the thought behind the “reforms of greater government departments,” Shunde District consolidated 41 Party and government agencies into 16 (six at the Party level and 10 at the government level). This process of consolidation revamped a situation of institutional redundancy and overlapping job responsibilities. The six Party agencies were integrated with government agencies with similar functions.4 Only 10 government agencies were left by the end of the reorganization. They include: the Development and Reform Bureau, the Finance Bureau, the Education Bureau, and the Market Safety Bureau. Second, a power structure where decision-making, implementation and oversight branches are mutually held in check was established. A unified decision-making mechanism which unifies the Party, government, people’s congress, and the People’s Political Consultative Conference was established by Shunde District. Apart from leaders from the Party Committee and from government, the decision-making system also included key leaders from the people’s congress and the People’s Political Consultative Conference in order to minimize the chance of major errors in decision-making. Apart from the disciplinary, inspection and audit personnel who exercise their oversight powers independently, the other agencies mainly implement decisions that have been made by the District government. The key leaders of the 16 agencies are all District-level leaders, which means that decisions made by the District can be quickly implemented. Third, Shunde District also 4 Shunde

District merged the District Party Committee Office with the District Government Office, the Inspection Commission of the CPC District Committee with the government’s audit bureau, the Organization Department of the CPC District Committee with the government’s Human Resources and Social Security Bureau, the Publicity Department of the CPC District Committee with the government’s sports, culture, and tourism agencies, the Social Work Department of the CPC District Committee with the government’s ethnic and religious affairs agency, and the Political and Legal Affairs Commission of the CPC District Committee with the government’s Justice Bureau.

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established an efficient and cost-effective model of Party and government operations. The District did away with the traditional model where agencies were managed by deputy district heads who were in turn assisted by a deputy secretary-general. This institutional streamlining also reduced a number of longstanding management problems such as the shirking of responsibility and prevarication, thereby making Party and government operations more efficient while lowering administrative costs at the same time. We can imagine that if the more than 2000 counties across China all adopt the Shunde model there will be a profound impact on social and economic development on the county level. Of course, we should say that Shunde District’s integrated governance structure only helped with the improvement of the county governance structure. The impact of such a reform may be even greater if implemented together with reforms for direct elections for Party and government leaders at the county level. In line with the political development blueprint proposed at the 17th National Congress of the Central Committee of CPC, China will include the implementation of democratic elections, decision-making, administration and oversight in the agenda in the future, ensure the people’s right to stay informed about, participate in, express views on, and oversee Party and government operations, and enable them to conduct self-management, self-restraint, self-education and self-service at the community level. In particular, democratic elections are the most important. The implementation of democratic elections requires actual actions, and not theory. For example, the government should be able to identify the posts that are suitable for direct elections and those that are not. Otherwise, it will remain only empty talk, and would not be able to resolve the problems in China’s democratic and political development. In my opinion, from the perspective of current issues in China’s democratic development it is not enough to have direct elections only at the village or township level. We should make counties that have an important impact on China’s political and economic development the pilot zones and starting points for direct elections. This way, we may be able to fundamentally transform the political ecology of the county. This will yield even greater results if implemented together with the Shunde model of consolidating Party and government agencies. One line of thought that we can opt for is that Party secretaries at the county level be no longer concurrently appointed as heads of the county people’s congress. Instead, the position should be filled by someone who is democratically elected by the county people’s congress for stronger oversight. On the other hand, the positions of the county Party secretary and county head may be filled by the same person, who however should be directly elected by Party representatives and the people’s congress. The positions should not be simply filled by the higher authorities. For the former, qualified county Party secretary candidates, including those recommended by higher Party authorities and jointly by Party members, are nominated to the county people’s congress in order of votes received in a direct election (multiple candidates may be nominated). For the latter, qualified candidates for the positions of county Party secretary and county Party head run for direction election for county head (the county people’s congress also has the right to jointly nominate candidates with Party membership for the county head post). Finally, the candidate who receives the most

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votes is elected the county head and is naturally the county Party secretary at the same time. This approach can help to exercise the two oversight functions of the Party and at the same time enhance oversight of key county leaders. More importantly, as the Party secretary and county heads are elected directly by Party members and people’s congress members these key leaders will pay more attention to the interests of Party members and the general public instead of merely answering to higher authorities. Such a reform may fundamentally transform the political ecology of the county and even lead to a bright new path forward for China’s administrative reforms.

Chapter 7

Challenges in Public Governance in China and Economic Transformation

For China, the year 2008 was an extraordinary one on all counts. This was the year China had hosted what has been called a “perfect Olympic Games,” and after that, grappled with the global financial crisis that was sparked in the USA At this point in time just how China—the world’s largest developing nation—would develop in the future is a matter of interest for the entire world. In my opinion, this sort of interest is a reflection of China’s influence and also indicates that China continues to face a number of stiff challenges even as she has had tremendous developmental opportunities to draw on. From the governance perspective, proper handling of the development opportunities that have come by after the Olympic Games era and a clear recognition of the various kinds of challenges that lie ahead are both highly important for the establishment of counter strategies on the macro-level, and so that China will be able to seize the initiative in future developments. In this chapter, we look at the rare development opportunities that the Olympic Games have provided to China, the challenges China faces in the post-Olympics era, and governance counter strategies for the transformation of the economy.

7.1 The Rare Development Opportunities Provided to China by the Olympic Games The success of the 2008 Beijing Olympics has undoubtedly had an important impact on the future development of China. The opportunities generated fall into at least three areas. First of all, the success of the Olympic Games has helped the world to better understand China and dispelled many misunderstandings at the same time. Furthermore, there are the direct economic benefits brought on by the Games. One highly-debated question is whether there would be a so-called post-Olympics slump, i.e., economic © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_7

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decline or even recession, in the post-Olympics period. Overseas experts have boldly predicted that it would be difficult for China to escape a post-Olympics economic decline. However, there are more who believe that this phenomenon would not occur in China. On one hand, China’s economy is large enough, and the proportion of investments made to total fixed assets investment, low. Thus, even if issues occur with the Chinese economy, they may not be directly linked to the Games. Conversely, the opportunities brought to China by the Olympic Games are unprecedented. Experts have calculated that the 2008 Beijing Olympics would generate USD2 billion in direct economic benefits. More importantly, as a developing nation, China shall more consider the mid-to-long-term impact of the Olympics on economic development and on the quality of economic development. According to forecasts made by British sports economics professor Chris Gratton, the 2008 Beijing Olympics would bring at least USD6 billion in “post-Games benefits,” while the Information Center of the General Administration of Sport of China has calculated using professional methods and come to the conclusion that between 2003 and 2010 the Beijing Olympics would have a total economic impact of USD71.706 billion. Although these numbers may not be converted into direct economic benefits for China, the economic impact of the Games on China should not be underestimated. Secondly, the tremendous goodwill accumulated with the Olympic Games has won the people’s support for future governance by the Chinese government and has provided important opportunities. For the Chinese public, the holding of the Olympic Games in China was a fulfillment of a deep pool of hopes. Not only did the Chinese gain the sense that they were henceforth able to “stand tall” in the world they were also able to showcase the hospitality, friendliness, and perseverance of the new-generation Chinese public through the Games. Hence, both the preparation for the Olympic Games and the holding of the Games itself attracted broad-based support and enthusiastic response from the public. This is clearly shown in the various conflicts centered on the Olympics in the first half of 2008 and from the cooperation shown by the Chinese people during the Games period. It would be precious wealth and a rare opportunity for the Chinese government to transform the tremendous amount of goodwill generated by the Games into further fuel for modernization. Thirdly, looking at China’s current development circumstances we see that there is still room for even faster development in the Chinese economy. The successful hosting of the Olympic Games has undoubtedly boosted such development. We should have seen that after three decades of reform and opening-up, in general China’s reforms have come to a strategic crossroad. There are still salient inadequacies to be addressed despite high rates of growth in the last thirty years. For instance, the economic growth relies on investment and causes excessive resources and damage to the environment. Such high rates of growth have after all exerted a profound impact on China. The objective background to this is: in the late 1970s as the economic globalization developed at a quicker pace, China also attracted large amounts of foreign capital thanks to her massive market and abundant cheap labor and resources. This made up for the global strategic opportunity in the global economy which China had missed out after the 1950s and helped China to accrue much important experience. At the critical historical moment, if we make the right choice the Chinese economy will

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continue its potential for faster growth while developing a certain degree of competitiveness. In this vein, we say that the successful hosting of the Olympic Games has undoubtedly brought on a rare opportunity for the future development of the Chinese economy. On one hand, the Chinese economy has seen further unleashing of its internal potential, and the improvement of the overall quality of industries; on the other hand, China has opened herself up to the world at an even higher level and has played an even bigger role on the international stage.

7.2 Challenges Faced by China in the Post-Olympics Era We should, while recognizing the development opportunity that the Olympic Games has brought to China, also clearly see that in the post-Olympics era there are a number of grave challenges to be tackled in terms of reform and development in China. Although some of these challenges are not directly related to the Games decision-makers should also pay close attention to these issues. 1. Economically, the greatest risk at present is the ever-growing possibility of stagflation. The key expressions of this risk are: first, the Chinese economy is highly integrated with the global economy, which means that it is increasingly impacted by the world economy. In certain ways, it is impossible for China to stay well clear of issues happening around the world. The global economy continues to have great impact on China, and sources of uncertainty, such as the depreciation of the US dollar, the rise of the Renminbi, severe Chinese foreign-currency reserve losses, have mounted. Second, in a world where the global economy has visibly declined, where the value of the Renminbi has risen and where oil prices are high, Chinese exports have also declined. A good number of enterprises, especially foreign-trade enterprises, have closed down in the face of tight monetary policy, fewer orders, and rising costs and withdrawal of foreign enterprises. Third, the stock market has also taken a beating, and the real-estate market is in peril. Fluctuations in the stock and real-estate markets have exacerbated financial risks. Fourth, although the Consumer Price Index (CPI) for residents has declined for four months in a row to dip below the 5% mark in August 2008 the Producer Price Index (PPI) has continued to rise. If we are to deal with energy and grain prices, this may lead to a rise in commodity prices. This indicates that the fundamentals are still weak. 2. Socially: currently the most significant problem is the overlapping of general social conflict with movements for Xinjiang and Tibet independence. This has created an even more complex environment. With the holding of the Olympic Games, the separatist forces of the Xinjiang and Tibet “independence movements” have become more prominent. These two movements had created a host of extremist incidents during both the Olympic torch relay and the Games time. These separatist forces are expected to continue to resist the government and create trouble

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after the Olympic Games. Against such a background, if traditional social issues and conflicts are not effectively resolved and continue to escalate they may become direct threats to the continuity and stability of the modernization process and also have a negative impact on social and political order. Thus, just how to maintain social and political stability and maintain the continuity and stability of modernization will become a chief issue that we have to face. 3. Politically, the greatest challenge in the post-Olympics era is just how to reduce the gap between reality and the expectations of the public with regard to democratic/political development and reforms of the political system so that there can be substantive advancement with said reforms. In the preparations of the Games and during the Games time, there were intense debates between China and the West about matters such as human rights and the freedom of speech. These were also the key issues that a minority used to politicize the Games. In order to express our sincerity and standpoint, the Chinese government took a series of measures such as opening up more room for public discussion and the lifting of controls. During the Games time, the Chinese government even established three locations for the legal expression of political opinions by means or demonstration or protest. These efforts were widely recognized internationally. With the ending of the Games, whether China will see substantive reform and progress in terms of her political system is a question that will continue to concern global society. More importantly, the Chinese public also has a strong desire for the further implementation of reforms of the political system and for the further development of democratic politics. In terms of the actual trajectory of reforms in China, we have plenty of historical evidence to tell us that while many of China’s problems seem to fall into the economic or social field, they are actually fundamentally political issues. If we are unable to achieve substantive advancement with reforms in this area, it will be difficult to solve many issues in Chinese society. Thus, we say that one of our major challenges lies in pushing forward reforms of the political system and development of democratic politics.

7.3 Measures for Issues Concerning Governance in Economic Transformation Based on the analysis above, I think that first of all decision-makers have to have a general understanding of major issues. For instance, to what extent would the current global economic cycle affect China? Would stagflation in the Chinese economy emerge due to various international and domestic factors? What are the main challenges to the current efforts to keep commodity prices from rising too fast while maintaining economic growth? What is the key to achieving breakthroughs with reforms in China in the future? How do we win wide public support for new reforms? These are not only the core questions in governance that have to be answered in post-Olympics China but are also severe tests of the government’s ability to create effective public policy and select the right strategies. In general, I believe that governance strategies

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in the post-Olympics era should be in line with the following: “Guarding against stagflation, maintaining growth, benefiting the people, and reverting power to the people.”

7.3.1 Guarding Against Stagflation Stagflation is the gravest economic phenomenon that a modern economy can see in the course of its development. Stagflation is defined as the simultaneous occurrence of economic stagnation and inflation. Once a country is mired in stagflation, governance becomes highly challenging. Over time, stagflation may also lead to the eruption of other social problems. The USA experienced a decade of stagflation in the 1970s due to the oil crisis, while the period of stagflation that began in the late 1980s in Japan lasted even longer and caused even more damage. Fundamentally, stagflation is the result of long-term development with inflation in an economy. In my opinion, in order for us to minimize the risk of stagflation we should adopt measures in the following three areas: First, on the value level, we must make efforts to identify and analyze the sources of possible stagflation in the Chinese economy. For example, we should seek to understand whether the risk of stagflation mainly comes from the impact of occurrences in global society or from issues in our domestic economic structure or systems and institutions, and whether in the last few years, we have seen any errors in terms of policy on the macro-level or whether our measures have been effective, etc. Only when we have a better understanding of the fundamental issues can we make the right decisions. Second, we should consider the pros and cons of various options and adopt decisive measures in response to any impact from the global economy. For instance, there is the issue of how to balance the impact of the appreciating Renminbi and the depreciating US dollar on the Chinese economy. As for changes in exchange rates, in particular, the linking of the Chinese Renminbi to the US dollar and the consequences of the depreciation of the dollar and the appreciation of the Renminbi, we would need to understand whether such occurrences are a natural part of changes in the global economy or something more sinister. Misjudgments with these issues may lead to errors in action. In my opinion, to understand why the risk of stagflation in the Chinese economy is high, we will have to conduct a general and comprehensive analysis to unearth the reasons. In recent years, the Chinese economy has been affected severely by developments in the global economy. In particular, since 2005 the Chinese economy has been under greater pressure with the continuous fall of the US dollar, the rise of the Renminbi against the dollar, and the dramatic increase in global oil prices. Furthermore, the holding of the Olympic Games, the weakening of the US dollar and the rise of the Renminbi against the dollar have almost inevitably led to an influx of hot money into the Chinese real-estate and stock markets, causing upheavals in the process. Objectively speaking, these developments have created more uncertainty

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and made macroeconomic control even more challenging. I have talked about this matter on several occasions. In the first half of 2008, disputes erupted between China and a small number of Western countries. Although there is certain difference in values in these disputes, something substantial seems to be related to the economic and monetary competition undergirding these disputes. On one hand, the fall of the US dollar has shrunk China’s foreign-currency reserves, while on the other hand the decline in exports by or shutdown of Chinese enterprises that were no longer able to bear the cost of a rising Renminbi and oil prices have provided Western enterprises with opportunities. This is no conspiracy theory but a reflection of the cruel realities of competition in international society. In addition, the entry of China into the World Trade Organization (WTO) in 2001 has also had a deep impact on the Chinese economy. If we say that prior to this China was but a minor participant in global competition, then with her entry into the WTO China was pushed into the very frontline of the battlefield that is the global economy. Thereafter, China began to experience trade disputes and had to deal with issues (which may be non-issues in the first place) in areas such as product quality, resources, and the environment. It was as if China had become a target for suspicion. China had been invariably sucked into the global economy. Under such uncertainty, if we are unable to resolve internal issues, especially long-standing structural and institutional/systemic issues, there will be even more uncertainty for the Chinese economy as well as greater risk of stagflation. Thirdly, in macroeconomic terms, we have to keep commodity prices under control by deploying currency, monetary, and necessary intervention policies in tandem and make greater use of the power of the market. However, we have to make sure that such efforts do not have a major impact on economic development. Although this objective is a tough one to achieve, we must put in the efforts required. Specifically speaking, in this respect the policy tools that we can use include: more controls over hot money; controls over currency circulation to minimize excessive liquidity; the bold implementation of tax reduction policies to reduce the burden on enterprises and other social entities; the introduction of measures to resolve the issue of barriers for small- and medium-sized enterprises in financing area and allowing private funding channels to operate, thus preventing or alleviating the closure of smalland medium-sized enterprises and subsequent developments like unemployment.

7.3.2 Maintaining Economic Growth For a large country with a population of 1.3 billion, it is important that we maintain the current rate of economic growth. A prominent example is that between 1996 and 2003 the Chinese economy grew rapidly with little inflation, paving the way for China’s swift rise. Since 2004, although the Chinese economy has continued to grow strongly, rising inflation rates and certain macroeconomic policy malfunctions have gradually pushed the Chinese economy toward difficult circumstances. Thus, scholars believe that the future risks of a slowdown in the Chinese economy are

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far greater than the risk of inflation. Overall, the Chinese economy has entered the high-cost era. These judgments are not without merit. In the event that economic development decelerates quickly it will further exacerbate the employment situation and flagging consumption, and may even trigger other social issues in its wake. Furthermore, without high economic growth we will not be able to resolve certain issues that are deeply embedded in the economic structure. In this sense, maintaining high levels of economic growth and guarding against stagflation are two sides of the same coin, and the two are closely related. When we look at the domestic and external environments at present, macroeconomic measures designed to maintain economic growth should be implemented while taking into consideration the following three areas: First, we must prioritize the implementation of the Scientific Outlook on Development, establish a philosophy and strategy centered on sustainable development, and ensure that resource conservation and environmental protection are implemented through every aspect of economic development. We need to point out here that our recommendation to establish a philosophy and strategy centered on sustainable development is certainly not a refutation of thought that is centered on the building of the economy. It is a strategy that calls for continued economic building with sustainable development as the focus in the current stage. The two are consistent with each other at the core. A commitment to sustainable development is an even better expression of the characteristics of the times that are centered on the building of the economy. The relationship between the two is inclusive and continuous rather than mutually exclusive and substitutable. Otherwise, it is very likely that we will end up repeating the same mistakes of yore while working to maintain economic growth and continuing to use the crude methods of development that have been used before. It is imperative that we avoid this scenario. Second, we must make use of multiple means to stimulate domestic demand as part of committed efforts to boost domestic demand for economic growth. There are two reasons for this. On one hand, the Chinese economy has been already highly integrated with the global economy and any impact or influence from the global economy would be unavoidable. There are a number of uncertainties that we have no control over. On the other hand, our over-reliance on investment and exports as drivers of economic growth in the past has led to many problems. If we are unable to make significant changes to the structure of social distribution and resolve existing issues between the state, enterprises, and individuals, and if in particular we are unable to significantly raise the incomes of ordinary people, then we will have very little ground on which to stimulate domestic demand for economic development. In this respect, we must plan for the future and not be distracted by short-term gains or losses. Thirdly, we should make use of the economic adjustment period to optimize the structure of the economy and resolve structural and institutional/systemic issues that have been plaguing us for the long term. That is to say, while working to maintain economic growth we must adopt expedient measures while also paying attention to the deep-seated issues such as structural and institutional/systemic issues, optimizing the structure of the economy, and raising the standard of industry. From

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the development perspective, China must succeed in this area. If we say that in the past 30 years we have earned some breathing room through more crude methods of economic growth thanks to the opportunities provided by globalization and China’s competitive advantage in cheap labor, then as global economic competition becomes more intense and as the Chinese economy becomes highly integrated with the global economy this room has become smaller and smaller. We must work even harder to optimize the structure of our economy and raise the standard of industry in order to raise China’s overall competitiveness on the global scene.

7.3.3 Augmenting People’s Share of National Wealth How benefits and costs are shared between the government and the citizens is a key, and unavoidable issue in governance. One important measure for the prevention of stagflation and maintaining economic growth is the determined implementation of the strategy of “augmenting people’s share of national wealth.” This actually comprises two interrelated issues. One is how to adopt the effective measures to resolve the issue of contestation between the people and the government and monopolies. The second issue is identifying the right means to allow the people to benefit from economic growth. The key to resolving the issue of contestation between the people and the government and monopolies is to establish more stringent controls in terms of the government’s behavior. We should have seen that the issue of contestation between the people and the government and monopolies has stood out over the years and has become a key factor affecting the healthy development of both society and the economy. There will be severe consequences if we do not take strong measures in this area. That recent decisive moves by the central authorities to cancel management fees for the self-employed and market management fees have gained such public acclaim also proves the gravity of this issue. Measures that can be taken in this area include: strong management measures for various fees imposed by the government and a commitment to canceling unreasonable fees for certain items; the full implementation of the Anti-Monopoly Law, regulating the behavior of major SOEs, particularly SOEs that hold a monopolistic position; and bold reduction of the government’s administrative expenses and the enhancement of the oversight on the government’s finances by the people’s congress. Currently, three key issues must be tackled to expand people’s share of the benefits produced by economic development. First, the burden must be lifted off enterprises (especially small- and medium-sized enterprises) and individuals by reducing taxes and various expenses on a major scale in order to stimulate the economy. That is to say, the purpose of reducing taxes is to reduce the burden on enterprises and individuals. All government-agency currency from enterprises and residents can be considered when planning for such reductions. Thus, tax and fee reduction must be taken into account in plans to reduce the burden on enterprises and individuals. There must also be even more vigorous efforts to eliminate fees that are unreasonable.

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Second, in terms of gains distribution there should be an effort to adjust the proportion of total gains between the state, enterprises, and individuals. More specifically, moves should be made to address the issue of the state receiving an overly high proportion of such gains. In recent years, resident consumer spending in China has fallen to as low as 37% of GDP while the global average is around 60%. The emergence of this phenomenon tells us that we have structural flaws in the way we distribute gains from economic development. When making changes in this area we should make sure that low-income groups and disadvantaged communities (particularly those living in rural areas) can benefit more and establish corresponding policies. Third, we must work vigorously to develop the private economy in order to change the current situation where the development of the private economy has taken a reversal. For instance, the majority of privately-owned gas stations have closed down because of lack of access to gas as a result of monopoly by SOEs. The gas station example is but a microcosm of the broader situation in this area. This is a major issue that deserves the undivided attention of decision-makers. Based on prior experiences in economic development worldwide, if private enterprises do not thrive it would be difficult to establish lasting national brands; and from China’s experiences since the beginning of reform and opening-up, we also see that China’s economy would not have achieved the scale and state it has today without the rise of the private economy. However, currently private enterprises face way too many restrictions. In many industries, the participation of private enterprises is not allowed, and private enterprises still face a number of difficulties when it comes to loans and financing. Each time “economic adjustments” are changed those who are most affected are not the monopolistic SOEs but private enterprises. In fact, each time these “adjustments” are made, scores of private enterprises go bankrupt. We can imagine that Mittal Steel and Tata Motors from India have been able to acquire famed US company International Steel Group and Ford’s luxury car brands Jaguar and Land Rover because of the strength of these private enterprises. Such strength is in turn due to their market positions and broad scope of business. In India, private enterprises are allowed to participate in industries such as steelmaking, automobile manufacture, real estate, oil and petrochemicals, telecommunications, and finance. In China, however, these areas are essentially areas that state capital seeks to monopolize. Another issue is that China’s SOEs have faced much suspicion and difficulties when trying to acquire assets overseas. We should consider whether, apart from prejudice, our systems and mechanisms are also an issue in these instances. Therefore, just how to stay focused on a consensus that we have already reached; i.e., the state economy should retreat from competitive areas as much as possible to give private enterprises more space is perhaps an issue we must consider seriously on the strategic level. In my opinion, there appears to be some kind of misunderstanding in this area by linking the proportion of the overall economy that the state economy occupies with the social and political system or with the economic security of the country. In fact, at the very core this issue is perhaps like our past understanding of the planned and market economies and is thus worth a relook.

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7.3.4 Reverting Power to the People Political development in the post-Olympics era and the impact on the whole of society and the economy is an issue that we have to look at. It is especially important given the fact that China is a distinctive political entity. That the concept of “Liberating thought, reverting power to the people” proposed by Zhang Chunxian, Secretary of the Hunan Provincial Party Committee, recently has drawn such strong reactions from the public also illustrates this point. In my opinion, the key to tackling political challenges in the post-Olympics age is to have the courage to return power to the people and press forward with the development of democratic politics and reforms of political bodies in China with determination. First, we have to establish the returning of power to the people as a key measure that would guarantee the leading position of the people in the nation and realize the principle introduced at the 17th CPC National Congress that “Democracy is the life of socialism.” Reverting power to the people is in fact reverting power to the masses. Doing so can ensure the leading position of the people as the masters of the country. Fundamentally, “reverting power to the people” is about “reverting power to the polity.” This will be achieved by establishing the authority of the Constitution, by reaffirming the fundamental position of civil rights, and by ensuring the judicial independence in order to vigorously carry forward the democratic socialism by means of the modern representative democracy and the people’s congress. In the postOlympics age, as society’s expectations with regard to issues such as the development of democratic politics and reform of the political system continue to rise only bold reforms in this area can help us to alleviate pressures that are coming from both outside and within China. Second, in terms of specific measures we have to first work with the so-called four powers and rights to return power to the people. That is, we have to abolish privileges, promote the power of the people, keep the power of the government in check, and protect private rights. The abolishment of privileges pertains to the resolute abolishment of rights that are clearly unreasonable or of keen concern to the people. Examples of actions that can be taken in this area include regulating the benefits that Party and government leaders are eligible for, establishing a system of asset disclosure for officials, and the implementation of reforms of the official-car system. The promotion of the people’s rights pertains to the serious implementation of the demands of the principles “Democracy is the life of socialism” and the “Three Fours” mooted at the 17th CPC National Congress. The first set of “Four” here is: democratic elections, decision-making, administration, and oversight. For example, we will have to move past mere sloganeering to issues of actual practice, such as determining the scope of democratic elections, the specific operations, and the procedures of such elections. It would be difficult for democratic elections to truly represent the will of the people if we do not have demonstrations, operations or procedures in place. The second set of “Four” to be implemented involves people’s right to stay informed about, participate in, express views on, and oversee Party and government operations.

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Similarly, while the guarantees for these four rights have been mooted at the 17th CPC National Congress we would also need specific approaches and measures such as regulations on information disclosure by the government. The people will be dissatisfied if we are to remain at the conceptual level and are unable to deliver on the slogan. The third set of “Four” to be realized involves “self-management, selfservice, self-education and self-restraint” at the primary level. This means that we must implement community autonomy at the primary level. Without a doubt, these objectives mooted at the 17th CPC National Congress are lofty and substantive in content. They are a reflection of the times, and the need to promote the people’s rights. The critical issue is how to realize these objectives. To apply effective checks on the power of the government, we must first conduct bold exploration to find systems and mechanisms that would truly serve as controls over the power of the government. This is the challenge that we are facing, a challenge that must be resolved. To a certain degree, just how effective this sort of system is in China is very much determined by whether we are able to find effective mechanisms and system designs within such an architecture which would help check exercise of the power of the government. The protection of private property rights means that we must do this in accordance with corresponding legal provisions in the Constitution and implementing Constitution to ensure that private property rights are not violated.

Chapter 8

Reforms in the Income Distribution System and Dismantling Entrenched Interests

It is especially important that in efforts to transform the economy we make changes to the overall distribution of interests, particularly to the system of income distribution. Any adjustments made to the existing distribution setup by those who have established the system of distribution or who are in control of such a system is a test of both the government’s wisdom and of the public’s trust in the government. In this chapter, we look at the challenges China faces with her reform process, the key to reform the existing system of income distribution, why it is critical to eliminate “gray power” to achieve market fairness, and why eliminating the government’s special economic benefits should be a reform priority.

8.1 The Challenges that China Faces with Her Reform Process 8.1.1 Reforms Have Stalled and the Government Has Come Under the Spotlight The terms “dilemma” or “stalemate” can be used to describe the current state of reforms in China. This is because of the following five reasons: first, reforms of the system of income distribution have stalled, and even today reform programs have yet to be officially tabled due to obstruction by those with vested interests. Second, planned reforms of monopolistic industries have also not moved forward as the social consequences of monopolistic practices can be difficult to deal with and reactions from various segments of society have been strong. Third, the state has not retreated from areas of economic life to make room for private enterprises. Private enterprises continue to find themselves in difficult straits, and we are continuing to see the closure of a stream of small- and medium-sized enterprises. Fourth, reforms of the taxation © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_8

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system have not truly taken place and financial relationships between the central government and local authorities are tense. Land and financial policies on the local level have remained unchanged, and this is why the number of mass incidents that have arisen as a result has not declined. Fifth, government reforms have also been challenging. We have seen some progress with measures designed to reform spending by public officials, to make budgets more transparent and open, and to institute a system of asset disclosure by officials but there has also been tremendous amounts of resistance put up along the way. In my opinion, together the aforementioned five issues are a reflection of a stalemate in the reform process. The consequences of such a stalemate are severe. As reforms cannot advance further the fact that the government is vying with the people for benefits from economic development remains unchanged. Further, the phenomenon of public officials leveraging on the power of the government for private gain has also not been eradicated. Conflicts between officials and the people, between labor and capital, and between the rich and the poor have already become three key sources of conflict in Chinese society.

8.1.2 Social Risks in China Tending to Escalate in the Future If the analysis above is the basis for our future judgment of how future developments will play out (even if there is no substantive progress on the reform front), then we can make further observations on possible future developments in the area of the economy, society, and politics. In fact, if we look closer, we will see that such risks may actually escalate further. In terms of economy, there are two key areas we should look at: firstly, due to changes in the external environment any future slowdown in the Chinese economy and rise in commodity prices will lead to greater risk of economic stagflation. If we do not tackle the problems brought on by a slowing economy and rising prices well, we may see stagflation emerging. This is something we should be highly vigilant against. Second, the existing thought that structural adjustments and transformation of growth model are needed to ensure continued growth and employment may be greatly affected in the future. If such a situation really occurs in the future, it will have a major negative impact on the long-term development of the Chinese government. This is also something we need to guard against. In terms of social risks, there are also two key areas we should be looking at: first, as the people become more aware of the possibility of demanding for their rights and fair share of economic gains and as urbanization continues apace, the possibility of mass incidents may also grow greater. The mass incident in Wukan, Guangdong, has given us good lessons in terms on how to handle similar mass incidents. However, we must pay even greater attention to how we can prevent residents in other regions from copying the Wukan example. Second, as community autonomy becomes widely implemented there are a number of challenges and risks to surmount before we can

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achieve a good balance between government management and the self-management, self-restraint, self-education, and self-service of community autonomy. There are also two areas of attention when it comes to political risks. First, this year will see the holding of the 18th CPC National Congress as well as the onceevery-decade changing of the government leadership. To a certain degree, this has provided a tremendous opportunity for a small number of Western nations hoping to take China hostage: the process of the transfer of power in China may cause a power vacuum. Thus, these nations are applying even greater pressure on China at this point in time. Second, just how to align the official system of values with the public’s pursuit of democracy and freedom is another challenge. Analysis of the current state of the moral characteristics of Chinese shows that there are still significant differences between the state and the people in this respect. This is because for the majority of the populace moral standards and norms are not a mere theoretical issue but something which they experience on the ground from day to day. If the official system of values cannot provide for the thoughts of the people then it would not be recognized by them. This will clearly be detrimental to efforts to tackle issues of belief.

8.1.3 Determined Action and Choice of Right Measures by Higher-Ups Critical to Breaking the Reform Stalemate First of all, the determination of the higher-level leaders is needed to break the reform stalemate. We have already formulated a number of reform programs which need to be reviewed comprehensively. We must avoid reforms that lead to the contestation for benefits with the people, such as land acquisition and forced eviction, to the establishment of monopolies in industry, and to the advancement of the state in the economy at the expense of private actors. We must think out of the box when it comes to reforms in areas that involve the practical interests of the people. Where adjustments are needed they should be made decisively, and reforms that lead to the contestation for benefits with the people should be transformed into reforms that benefit the people and which facilitate the strategy of making the people richer. Second, we must have the courage to go up against vested interests and eradicate as many obstacles to reform that are put up by vested interests as possible. We must work to prevent the entrenchment of vested interests by means of harnessing existing systems and institutions. Third, we must select a good breaching point for reforms. Considering the current realities of reform in China, we can choose from three breaching points: the first is reform of the ruling Party. This will mainly have to do with kickstarting democracy within the Party by conducting competitive elections so as to advance reform of the system of personnel selection and appointment. In terms of the practical issues that we will have to deal with, this is the most critical and also salient issue. Many issues that we are facing are actually related to this one issue, and we need to resolve it as

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soon as possible. For example, the 14 current members of the Politburo of the Central Committee of the Communist Party of Vietnam have been elected from a slate of 21 candidates. Even the General Secretary of the Party was elected in a contest in with another candidate. We must seek to do away with the past practice of having elections only in name. It is actually a sad thing if we do not even dare to take a step in this direction when conducting government reforms. Although top-level design has yet to be present in China, we are already seeing developments in this area at the lower levels. In many locales, Party and government institutions are conducting bold experiments in terms of competitive elections for Party and government officials, even for the position for Party secretary at the level of the prefecture-level city in some places. The second point of entry would be reform of the government first by reducing government interference in the market and in society and by limiting the government’s powers to intervene in the market. Efforts should also be made to improve the government’s structure in order to contain departmental interests right at the source. The third point of entry would be to promote major reforms in the structure of the people’s congress, way of formation, and the operating mechanism of the people’s congress, etc., so as to enhance the powers and authority of the people’s congress.

8.2 Breaking Vested Interests Being the Key to Reforming the System of Income Distribution Various signs tell us that China’s system of income distribution has already run into problems. If we do not make bold changes, it would be very hard to break the current stalemate. The obstacles put up to efforts to dismantle vested interests are the key to resolving the issue.

8.2.1 Exacerbation of the “Four Gaps” Reflecting Distortions in the System of Income Distribution When we look at the realities of Chinese society at present we see that there are three conflicts holding back social and economic development and posing threats to the harmony of Chinese society. They are: conflicts between the government and the people, between labor and capital, and between the rich and the poor. These three major conflicts appear to be related to the existing system of distribution. The basis for this statement is that the “four gaps” in society have been exacerbated in the last three decades of reform and opening-up. These gaps are: the gaps between urban and rural income, between the rich and the poor, between industries, and between various regions.

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In terms of the income gap, while in 1978 the ratio of rural to urban income was 1: 2.22, thirty years later it has grown to 1: 3.33. Although the situation has improved in the last few years, the ratio still stands at 1: 3.23. In terms of the gap between industries, prior to the beginning of reform and opening-up of China the gap was very small to the point of being negligible. Of course, that was in the days when egalitarianism was applied. Currently, however, the gap between industries nationwide has grown to 1: 4.7. If we look at specific high-income enterprises, the ratio is even higher. For example, it has been said that the enterprise with the highest average income in 2010 is said to be PetroChina, where the average annual income was as high as RMB380,000. In terms of the gap between various regions, although this has been a long-standing phenomenon in China, undoubtedly since the beginning of opening-up and reform of China this sort of gap has also been dramatically widened. This is due to the strategy of focusing on development in the coastal regions in the east in the hope of extending such development to inland regions subsequently. Although we have later on been made aware of this issue and have taken moves to develop the central and western regions ahead of schedule, we can imagine that it would be rather challenging to reduce the interregional gap within a short period of time. As for the gap between the rich and the poor, it is perhaps the most sensitive social issue and also the issue that society finds the greatest fault with. Some say that China’s current Gini coefficient stands at 0.48 while others claim that it has already crossed the 0.5 mark. However, an indisputable fact is that while the opening-up and reform of China’s economy has indeed enabled a number of people to become billionaires, wealth has also been largely accumulated by the government, investors, and monopolists. The accumulation of a large amount of wealth by a minority group has created a dramatic gap between the rich and the ordinary people. To some extent, the exacerbation of the “four gaps” is a reflection of the distortions in China’s current system of income distribution. We know that under market economy conditions, although the income levels of the majority of people are determined by the market’s supply-and-demand mechanism, this does not mean that the government cannot play a role. In fact, in contemporary society, the government has always played an important role in regulating the distribution of wealth in society. To a certain degree, the authority of the government lies in its ability to regulate income distribution in society. This is done through a number of ways such as the establishment of public policy, and through taxation, interest rates, and social security. If a clear polarization emerges in a country it means that there are problems with the country’s system of income distribution or that there are distortions in the system. It is also a symptom of poor governance. Thus, one key condition for a continued and stable state is a strong and continued emphasis on reforms in the area of income distribution. It is also a fundamental issue that all countries in the world shall pay great attention to, and something that we should not neglect.

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8.2.2 Obstacles Put up to Efforts to Dismantle Vested Interests Being the Greatest Challenge to Reforms of the System of Income Distribution In recent years, there have been endless calls for the reform of the system of income distribution. Although the relevant parties have also made a number of efforts in this area in general, little has been achieved in the face of high levels of resistance. There are many reasons for this, but in my opinion the most critical reason would be resistance put up by vested interests. I believe that we should perform a close theoretical analysis and discuss what vested interests are, and the current state of vested interests in China. In my opinion, vested interest groups are those who have made use of power or monopoly to gain tremendous amounts of benefits in economic activity and who have consequently formed a clearly-defined and comparatively stable group aggregation effect as a result. There are four key characteristics to vested interest groups: first, they possess sufficient power resources. That is to say, vested interests are commonly closely related to the power of the government and typically, significant power and influence. Second, vested interest groups also possess sufficient monopolistic power. Although some vested interest groups are not in direct possession of great administrative powers, they rely on their power resources to monopolize the market or society. Third, vested interest groups have the ability to influence, or even determine, the making of public policy. Some vested interest groups have very strong influence over the making of public policy due to their positions in certain fields. As a result, the process or outcome of policy-making in these instances becomes more beneficial to the interests of these groups. Fourth, vested interest groups create benefit relationships and over time, clearly-delineated groups that work together for group benefit. We should say that most vested interest groups are not formed overnight but emerge slowly over time after much concerted effort. Once a vested interest group is formed, it is capable of working continuously to derive gain for itself. In real life, there are four signs of vested interest groups. The first is the overlap of power, capital, and resources. In other words, some vested interest groups possess power, resources, and even capital. Here, power is especially important as with sufficient power of the government one would be able to obtain even more resources and capital. Thus, the power of the government has become the key culprit in the emergence and existence of vested interest groups in China. Second is the de facto monopolization of certain key areas in the national economy. In China, this sort of monopolization occurs primarily with SOEs. Industries that have been monopolized by SOEs, in particular, the central government-owned enterprises, include oil and petrochemical, finance, securities, insurance, electricity, telecommunications, railway, civil aviation, tobacco, and other industries. In a dramatic contrast to ordinary enterprises, these SOEs essentially control their respective industries and obtain monopolistic interests with the aid of the government. This is an issue that has long been criticized in various segments of society. Third: these vested interest groups are able to directly influence or even manipulate the outcomes of public policy. Because

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vested interest groups are in possession of an agglomeration of power, resources, and capital, they are able to influence the outcomes of public policy so that these outcomes are more beneficial to their interests. Fourth: vested interest groups are diametrically opposed to the general public in terms of psychology and attitudes toward the matter of interests. We can say for certain that the aforementioned three key conflicts in contemporary Chinese society, i.e., conflicts between the government and the people, between labor and capital, and between the rich and the poor are all on some level expressions of the diametrically-opposed attitudes of vested interest groups and the general public. One issue we would need to examine seriously is: are vested interest groups already present in Chinese society today? This is a key issue that we must confront. In my opinion, we have described vested interest groups in theoretical terms earlier on in this chapter in order to provide an analytic framework or logic for the assessment of the current state of vested interest groups in reality. In line with this framework and logic, I believe that currently we are seeing the primitive forms of three types of vested interest groups in Chinese society: the first is the power-driven vested interest group best represented by government officials, the second is the monopoly-driven vested interest group best represented by SOEs, and the third is the real-estate-andresource-driven vested interest group best represented by the real estate and resource industries. Correspondingly, three types of tycoons have emerged around the power of the government in Chinese society: official-tycoons, monopolistic “elite” tycoons, and real-estate and resource-type tycoons. We have learned certain things about the first type of tycoons, i.e., official-tycoons, in the growing efforts to combat corruption in the last few years. One example of such a tycoon is former Hangzhou deputy mayor Xu Maiyong, who was accused of gaining RMB216 million through corrupt means. Elite monopolistic tycoons are typically members of the senior management at SOEs with annual salaries of RMB1 million or even more. Real-estate and resource-type tycoons are well-known to everyone. Over the years, the China’s richest men ranking on Hurun.com have been populated mostly by real-estate tycoons. A number of tycoons with fortunes valued in the hundreds of millions have appeared in resourcerich regions like Shanxi, Inner Mongolia and Shaanxi, and almost every case in this instance is related to local resources. Both the three major vested interest groups and the three types of tycoons have generated so much negative impact that the whole of society has been plunged into a state of anxiety. These two groups have also almost plunged reforms of the system of income distribution into difficulty. As the number of problems in the area of income distribution grows, and as these problems remain unsolved, those with vested interests have ended up using their power or influence to reinforce or even entrench their interests in the name of reform. As a result, disadvantaged groups in society have been placed in a highly unfavorable position within the entire distribution landscape, with their ability to contest for resources diminished or even eliminated altogether. Some in society have said frankly that our biggest problem at present is that public policy has become unfair in some aspects, with the co-existence between “elitefication” and “fragmentation at the lower levels.” The “elite-fication” of the upper echelons and the fragmentation of the lower levels, both of which are happening at the

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same time, are polarizing society. This so-called elite-fication of the upper echelons refers to what the central authorities call collusion between officialdom and business people. The two are a perfect match with the former in possession of power and the latter, money. Over these years, the central authorities have arrested over eighty senior officials at the provincial level for corruption, and collusion between officialdom and business was found in just about every case. As for the “fragmentation at the lower levels,” it refers to the situation where an ordinary citizen or rural resident does not have an organization to appeal on his or her behalf after his or her interests have been harmed. In such cases, the individual has no choice but to fight on his or her own power, in many cases against the local government where they are unlikely to gain redress. Thus, we have seen a large number of people bypassing local authorities to appeal to higher or even central authorities. When certain issues are not resolved in a timely manner, more extreme methods would be adopted, eventually leading to a large number of mass incidents. Thus, on a certain level the high prevalence of mass incidents is a reflection of issues of fairness and justice in social and public policy. It is a reflection of the basic structure of income distribution in society and is also at the same time a specific expression of conflict between the government and the people, between labor and capital, and between the rich and the poor within a specific environment. We need leaders at various levels to fully understand this point.

8.2.3 Dismantling of Vested Interest Groups Must Begin with Reforms of the Power of the Government As we come to realize that vested interest groups are the biggest obstacle to further reform China’s system of income distribution, we must analyze the issue further: how is it that vested interest groups have been able to develop and gain such a position in China so quickly? In other words, under what conditions do vested interest groups form in China? In my opinion, although the answer to this question is complex, there are chiefly five reasons: First: the context of reform and opening-up of China and attendant reforms led to a policy environment where certain regions and certain members of society were able to become rich first. China’s development model also prioritized the goal of “making the state wealthy.” We know that since the beginning of reform and opening-up of China, there have been two trends in terms of the system of income distribution: first, there was the “priority on making the state wealthy,” and second was the policy to allow certain regions and individuals to become wealthy first in order to drive subsequent common prosperity. In these 30 years, we should say that the “priority on making the state wealthy” has been fairly well-realized. However, the goal of common prosperity ideally driven by the development and wealth of certain regions and individuals has not been so well-fulfilled. Furthermore, between fairness and efficiency we have paid more attention to the latter and thus neglected the issue of fairness in society. Objectively speaking, this sort of atmosphere and policy environment has provided

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fertile ground for the formation of vested interest groups and the widening of the income gap. Second: the development of the market economy has provided much room for rent-seeking as the power of the governments have not been effectively checked. While we have paid much attention to the oversight of the power of the government in both theory and practice, oddly enough, the more entrenched the market economy, the more helpless we are when it comes to oversight of the power of the government, and even the abuse of the power of the government is becoming more prevalent. On some level, such prevalence has created positive conditions for the formation of vested interest groups that are mainly characterized by the corruption of power. Third: moral inadequacies on the part of certain officials have led to the “poisoning” of society. Because the oversight of the power of the government has been a weakness of ours for a long time, even with long periods of effort the problem has remained a serious one. This thus amplifies the risk of moral attitudes among officials being corrupted. The current moral inadequacies in Chinese society and certain tears in the fabric of society are very much related to the unbridled actions, the lack of respect for the power of the government, and the poisoning of society on the part of a minority of officials. This is also a key reason for the formation of vested interest groups driven by real estate and other resources. Fourth: the grave erosion of the government’s position as fair and just authority in the making of public policy, and widespread phenomenon of entrenched departmental interests. In terms of governance in China, apart from rent-seeking by those in possession of power, another major worry is that of the issue of fairness and justice in public policy. In this key area, the grave erosion of the government’s position as fair and just authority in public policy-making has led to dissatisfaction among the public. The vacuum left behind by such erosion has been filled by creeping departmental interests and the government being held hostage by departments. This is why some have remarked that some policy-making processes have, in essence, become a process of haggling for gains among departments. Very often, the result is that departmental interests are maintained while the public’s interests are harmed. That reform of industries that have been monopolized has been so difficult is also related to this issue. Fifth: SOE reforms and restructuring and the opening up of resources have led to the loss of vast amounts of state assets. It is necessary that we introduce market mechanisms for pushing forward SOE reforms and for utilizing state resources in face of state-owned behemoths. The problem is that the significant loss of state assets as a result of this reform and restructuring process has provided many former SOE managers with tremendous opportunities to monopolize state assets. Furthermore, with rent-seeking present in terms of the development and use of state assets, large amounts of assets that should belong to the state have been transferred into private hands, leading to a grave depletion of state assets. In this sense, the formation and existence of vested interest groups backed by the power of the government, monopolistic interest groups and real-estate-and-other-resources interest groups are all related to the failure to keep the power of the government in check and to the flaws in our system design.

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Based on the analysis above, we believe that in order to deepen reforms of the system of income distribution and dismantle vested interest groups, we must start from the reform of the power of the government. First, decisive action is needed to sever the systemic links that exist between government officials and business activity. This can take place in mainly four areas: the first is to reduce unnecessary government intervention in the market and in society and to reduce the scope of the administrative review and approval process. Issues that can be resolved by the market should not require the institution of administrative review and approval processes. Second: efforts should be made to strictly regulate officials’ enforcement behavior. First of all, governance in accordance with the law should be conducted with checks on the behavior of the government and its officials. All officials must understand that the powers of the government are strictly regulated by the law and that the government’s authority does not exist without grounding in the law. The powers of the government and its officials stand in contrast to the powers of the people: the law circumscribes the citizen’s actions (by laying out what he cannot do) but for the government, it lays out what the government can do. The government may not perform what has not been stipulated by law. Third: we must establish a set of stringent professional standards for officials and strictly implement these standards. Various kinds of regulations and standards for officials’ behavior must be set down clearly in documentation and then elevated to the level of law. Professional guidelines for civil servants should then serve as supplement to the Civil Servants Law. For instance, active civil servants should be forbidden from holding any commercial interest on the side, and from receiving any sort of economic benefit for a job position (such as speaking fees and appearance fees) apart from the salary and benefits stipulated by the state. As for gifts received, there should be strict limits on the maximum value allowable for gifts, and civil servants should be required to turn over gifts that exceed the maximum value allowable or face disciplinary proceedings for corruption. Strict guidelines should also be established for official spending, and to regulate the business activity of the children and spouses of key officials (especially elected officials). Second, efforts should be made to kickstart reforms of industries that are monopolized by SOEs and to change the remuneration structure for members of the senior management at SOEs. The idea is to eliminate opportunities for SOEs to serve as a “natural” source of economic benefits for Party and government officials. We must realize the basic principle that has already been formed earlier on, that SOEs should gradually exit from competitive industries. In terms of the long-term development of China’s market economy, the earlier and more proactive our reforms in this area, the better it would be. Otherwise, as SOEs continue to expand, existing issues (including the problem of monopolization) would be further exacerbated. At the same time, we have to reform key monopolized industries (with SOEs as the prime examples of monopolists in these instances), particularly industries where administrative monopolies are in place, in order to provide society with an external environment for fair competition. When implementing reforms with SOEs, there must be a review of the current system of remuneration for senior managers at SOEs and a complete revamp of a structure that allows Party and government officials to receive high salaries when

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they take up new positions at SOEs. The basic principle here is: officials who are able to move between the government and SOEs may not receive high salaries at SOEs. They may, however, depending on the specific nature of their jobs, receive a salary that is two or three times that of their government pay. Nevertheless, their salary must not be so high as to reach the million-yuan mark. For positions such as those of general manager and deputy manager at SOEs one possibility would be to implement a professional manager system as well as open recruitment for these positions. Those appointed to these positions are entitled to high salaries but may never be appointed as officials with government agencies. Their salaries must also be pegged to the performance of the SOE in question. Third would be to implement a strict system of asset reporting and disclosure for officials with amnesty granted for previous crimes committed. The system of asset reporting and disclosure for officials has already become one of the most attentiongrabbing government-related issues for the public. While in these few years we have achieved some progress with the system of asset reporting and disclosure for officials, as a general system of disclosure has yet to be established, the issue is at the center of a fair bit of attention. Furthermore, the exposure of corrupt officials owning dozens of housing properties and with fortunes of tens of millions of yuan has also led to a misconception among the public that all Chinese officials are similarly endowed. Thus, it is particularly urgent that we establish the system of asset reporting and disclosure for officials, especially for certain key positions. Given that to kickstart this system would take quite a bit of effort, we can consider allowing officials to turn their unexplained or excess assets to the state without the threat of disciplinary action before making their disclosures public. This would serve to establish a “clean slate” upon which officials may make a fresh start. This would take the psychological burden off the majority of officials and facilitate the establishment and operation of this system. Fourth is to widely implement competitive elections for official positions so as to give Party members and citizens the right to select more of their desired representatives for Party and government positions. Severing the links between Party/government officials and commercial interests means that many systems and mechanisms will need to be rebuilt from scratch. One particularly important task among these would be the wide implementation of competitive elections for Party and government positions. With the principle of the Party supervising the officials, this reform can be first implemented within the Party and then extended to the people’s congress at various levels. Socialist Vietnam is already ahead of us in this respect. Vietnam’s fourteen Politburo members have been elected from a candidate pool of twenty-one. While Vietnam does not have a Politburo Standing Committee, it has four Party and government leaders at the helm. They are the General Secretary, the President, the head of the National Assembly, and the Prime Minister. Those holding these top four positions have also been elected in races involving one other opponent. Although China does not necessarily have to adopt Vietnam’s approach, we should see that in this area we still have plenty of room for reform and that the people have very high expectations in this regard as well. As long as our higher-ups pay attention to reforms in this area, we will be able to boost morale in society and help people

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glimpse hope. We may also be able to tackle on a fundamental level phenomenon like collusion between officialdom and business people and the abuse of the power of the government, dramatically reduce the cost of oversight, eliminate the systemic grounds for the formation of vested interest groups, and thus create a brand new landscape for the further socialist and democratic development.

8.3 Gray Power Must Be Dismantled in Order to Ensure Market Fairness Since the stipulation of the goal of establishing a socialist market economy at the 14th CPC National Congress in 1992, China has made tremendous achievements in her market reforms, and in this vein China’s market economy system has also been built up over time. This is something that we must first recognize. However, we should also recognize that a series of worrying issues has also emerged in the course of market reform and the building of the market economy system. Some scholars have termed the economy as a market economy for the powerful, meaning that an over-emphasis on the “Chinese characteristics” of our market economy has led to the market players going astray in some cases. This is something that we need to pay high levels of attention to. In particular, the emergence and formation of “areas of gray power” centered on gray power have already brought on severe consequences for the development of our economy and society.

8.3.1 Reflecting on the “Three Grays” Phenomenon Gray power exists in China’s market economy alongside “gray capital” and “gray profit.” Let us first lay out these concepts in theoretical terms. The term “gray power” refers to the use of the influence and exercise of the power of the government through one’s children, spouse, family members or friends to obtain or resell scarce resources or to conduct capital operations or unfair trades, etc., in the market or in secret in order to obtain tremendous gains. At the heart of gray power is the use of power influence. The term “area of gray power” refers to the power network that works to seize economic and social interests through illegitimate means centering on monopolies and supervision in the market process. The term “gray capital” refers to the use rights to scarce resources, or operation rights to capital, obtained with the aid of power influence. Gray capital is a form of capital domination that originates from the power of the government. The term “gray profit” refers to the tremendous gains obtained through the exercise of gray power and the operation of gray capital. This sort of gray profit allows one to achieve stratospheric amounts of profit in the shortest span of time with nary any effort made.

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Now that we have covered concepts like gray power, areas of gray power, gray capital and gray profit, there are still three key issues that we need to discuss. First: the key characteristics of gray power. The gray power that has been formed in China’s distinctive institutional environment has four key characteristics. First, such gray power is dependent on the power of the government. The higher the position of the individual holding the power of the government, the greater his or her power influence and thus the greater the potential of the gray power that can be formed. For instance, the chains of interest formed by means of power between the time Bo Xilai became mayor of Dalian and his time as Secretary of the Chongqing Party Committee brought forth colossal gains for his family members and also became a key way for certain business persons to obtain such gains. Second: the exercise of gray power can be performed by the power-holder of his/her subordinates and accomplices. More often, this is done by his/her spouse, children, or other family members through indirect means. Third, gray power “hunts” in a wide range of “hunting grounds,” from SOEs to foreign-enterprises and private enterprises. Fourth: there is only one consequence of gray power, that is harm to the interests of the state and the people as tremendous amounts of gains are made by those in possession of power and their accomplices. Thus, it is clear that together gray power and gray capital form an area of gray power where gray power is the origin of gray capital and gray profits. Gray power makes the operation of gray capital possible and thus generates large amounts of gray profit. Second: where areas of gray power can be found. Gray power is prevalent throughout the economy and society, across all industries. However, it is chiefly concentrated between the three major vested interest groups. That is, the powerdriven vested interest group best represented by government officials, the second is the monopoly-driven vested interest group best represented by SOEs, and the third is the real-estate-and-resource-driven vested interest group best represented by the real estate and resource industries. It would be very difficult to remove the root of areas of gray power if we cannot fundamentally eradicate vested interest groups. Third: why areas of gray power have formed. The emergence of areas of gray power in the course of China’s market reforms is rooted in a complex web of social and economic issues. In summary, there are five main issues: the first is excessive market oversight and the lack of coherence between major policies in different areas. There is often a lack of coherence and uniformity between policies for the stateowned economy and the private economy, for SOEs and private enterprises, and between rural and urban areas. Furthermore, excessive levels of social and economic oversight by the government and overly-high barriers of market entry have also provided fertile ground for the development of areas of gray power. Second is that there has been a widespread phenomenon of rent-seeking by those in power in the course of the restructuring of SOEs. There is also the loss of state capital caused by this phenomenon. Third is the lack of rigorous constraints placed on the business activity of officials and their spouses and offspring. Although we have already introduced regulations centered on the engagement in business activity by officials and their spouses and children, these regulations are in place in name only and have not been effectively implemented. Fourth is that there are only reporting mechanisms

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and not public disclosure mechanisms in place for the family assets of officials holding key powers. This means that there is no public oversight, leading to large numbers of officials fleeing overseas and transferring vast amounts of wealth to foreign jurisdictions through their spouses and children. This causes tremendous losses to the state. According to an article published on June 6, 2012, in China Economic Weekly, between 2000 and 2011 a total of 18,487 individuals who had committed on-the-job crimes were arrested and a total of RMB54.19 billion worth of illicitly-obtained gains were recovered from these individuals. This figure speaks to the gravity of the issue from another perspective.

8.3.2 The Adverse Effects of Gray Power Gray power and areas of gray power are a “mutant” created in the course of the building-up of China’s market economy and development. It is also a tumor on the body of China’s market economy. We must not underestimate its power and the dangers that it poses. First, gray power and areas of gray power have a direct impact on the market’s fundamental role in resource allocation. We know that the existence of gray power, gray capital and gray profits distort the market’s ability to allocate resources to a certain extent. Processes and the entire landscape are also distorted. This has an impact on the market’s role in resource allocation. The spread of the phenomenon wherein resources are instead allocated by power may lead to changes in market economics, providing possibilities for the emergence of the power economy and the official-driven economy. Second: the continued unbridled existence of gray power poses a direct threat to market fairness and justice. The market economy is, by right, where fair competition exists, where all players participating in market competition abide by the basic rules of the market economy and place checks on their respective behaviors. A strict legal framework regulates the activity of all participants. The emergence of gray power and areas of gray power has disrupted the market principle of fair competition and provided vast room in the market for rent-seeking by those in possession of power and the trade of power for money. Currently, issues of unfairness and lack of justice are rife as the Chinese market economy continues to develop, and the majority of these issues are related to the rampant existence of gray power. Third: the emergence of areas of gray power is inhibiting the formation and development of a true market economy in China. We should see that the market economy in China has already been established, but it needs improvements. In order to make these improvements, we must effectively curb the disruptions and damage caused to the market economy by gray power and gray capital. Otherwise, we will not be able to build a healthy market economy. In this sense, just how to realign the market economy that has been distorted onto the path of healthy development and to eliminate the basis for the existence for gray power and gray capital together constitute a key task for the road ahead.

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Fourth: gray power has distorted the country’s interest patterns, as well as exacerbated conflicts between the government and the people, between labor and capital, and between the rich and the poor. Currently, the most salient conflicts in Chinese society are conflicts between the government and the people, between labor and capital, and between the rich and the poor. The root cause of all these is in the severely unfair distribution of income. Gray power has played a major role in this process. Thus, keeping gray power in check is a key part of reforms of the system of income distribution and changes to the country’s interest pattern. Fifth: the welfare of the people is currently being swallowed up by gray power. Not only is this being exacerbated with China’s “four gaps” (i.e., between urban and rural areas, between the rich and the poor, between industries, and between regions) in the course of market reforms, the prevalence of gray power is also sending society’s wealth into the hands of a few at an even faster pace. As early as in 2009 the Ministry of Finance had released a set of statistics about property income which showed that 10% of China’s families were in possession of 45% of all urban wealth while 10% of the households with minimum income accounted for only 1.4% of all resident wealth. This phenomenon indicates that the wealth accumulation effect has become increasingly acute in Chinese society. Gray power has undoubtedly facilitated this development.

8.3.3 Dismantling Gray Power Through Reforms Excising the tumor of gray power on the body of China’s market economy is an important reform task under China’s new set of historical conditions. It is no exaggeration to say that social and economic risks in China will continue to grow if future reforms cannot effectively eliminate gray power and limit the power of the government to certain arenas. Hence, we must pay high levels of attention to dealing with the spread and prevalence of gray power. First: we must re-evaluate and redefine the concepts of state capital and SOEs. The key here is to ensure that state capital land SOEs are not conflated in discussions. The correct understanding and positioning should be: state capital has an important role to play in certain areas. However, this does not mean that SOEs must necessarily monopolize certain industries; more importantly, SOEs must not be protected by means of monopoly and thus underline the principles of fairness and justice in the market economy. The establishment of SOEs funded solely by state capital must be reviewed and approved by state authorities. This way, we will be able to effectively curb the formation of gray power at the source and thus resolve the problem at a fundamental level. Second, we must establish a variety of laws and regulations pertaining to fair competition in the market to ensure fairness and justice for various market participants. We have a very long way to go in this regard. The most important thing here is to make sure that all participants in market competition are protected fairly and justly by the law and that the power of the government is not just to coerce

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players. At the same time, we must ensure that state intervention in the form of business activity in the market is performed cautiously and strictly regulated by the law. We must work to ensure that as little gray power and as few areas of gray power are formed as possible. Third, we must apply strict control over the engagement in business dealings by Party and state officials. We should, in line with international best practice, establish a strict institutional and systemic framework to regulate the professional behavior of Party and government officials. Currently, although China has already established the corresponding systems and regulations in this area—including regulations on officials engaging in business activity after leaving the public service—these systems and regulations have not been truly implemented and existed more or less only in name. Fourth, we must apply the necessary checks on the business behavior of the spouses and children of key Party and government officials. In particular, we must sever the commercial relationships between these children/spouses and state capital/SOEs in order to fundamentally eradicate the basis for areas of gray power. Within international best practice, there are strict restrictions on the business behavior of the spouses and children of certain officials. This is especially so when the official is in office. A major difference between China and the West is that we do not make a distinction between political executives and official executives. In China, political executives with tremendous amounts of power are appointed for life while in the West this type of official is typically appointed, and steps down, with the commencement and ending of the government’s term. Therefore, it is possible for a Chinese official to cultivate an expansive power network as he or she works up from, say, the level of township leader to county, provincial, ministry or commission, and even national leader. Once a leader’s ideological line of defense falls, he or she can become a key vehicle for gray power, creating turbulence in the market and causing harm to society. Thus, how to prevent the formation of gray power at the source and to prevent its expansion has become an issue that we should regard seriously when working to combat corruption. Fifth, reform of the ways SOEs are managed internally. New management structures and frameworks should be established in accordance with the need to curb areas of gray power. The key changes that can be made in this area include: abolishing the administrative hierarchy that is in place at SOEs; and building state capital operations and SOE management teams that would work together with Party and government officials. Efforts should be made to minimize the movement of leaders between Party/government institutions and SOEs, with the exception of the rare cases where Party/government officials are needed to sit on the Board of Supervisors at an SOE. Those returning to government after a stint at an SOE should also be barred from receiving high salaries; the individual’s remuneration package should be capped at three times the remuneration for public servants of the same grade.

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8.4 Giving Priority to Dismantling the Government’s Special Economic Interests The transformation of China’s economic development model was a constant theme throughout the 12th Five-Year Plan. However, in the my opinion, to a very large extent the transformation of China’s economy is determined by the transformation of the Chinese government, which is in turn determined in large part by whether the government’s special interests can be eliminated.

8.4.1 The Government’s Interests Must not Be Allowed to Evolve into Specific Economic Interests According to Douglass North, the state plays two mutually incompatible roles. In one, it facilitates the maximization of social welfare; in the other, it pursues the maximization of its own interests. These two roles are sometimes at odds with each other, in what is commonly known as the North paradox. North categorizes states into three categories based on different permutations of the state’s two roles: “neutral” states, contract states, and predatory states. In his opinion, the first two types of states maximize social welfare and are able to provide effective property rights system arrangements and balance the interests of various interest groups. States of this type place their focus on the first role, while states that place their own interests first and foremost are predatory states. States of this sort seek first and foremost to maximize the interests of rulers and are not interested in providing effective property rights system arrangements. Further, states of this type tilt toward the interests of rulers when dealing with various vested interest groups. In my opinion, North’s theory is worth our reflection. Here, the government represents the state, and the government is in pursuit of interests. There are three points that I believe we should consider. First, if the government does have its own interests, what may these interests be? Second, should the government have special interests of its own? Third, would it be possible for the government to pursue the maximization of its own special interests? I believe that we need to answer these three questions with logic. There are four points to my analysis: the first is that the government has its own interests, which are the interests of the state. Second, when the government’s interests are consistent with those of the state’s, these interests will also be generally consistent with the interests of the people. Third, if the government turns its interests into special interests and in particular delves into the pursuit of economic interests, it would harm the public interest. Fourth, if the government evolves special interests into a vested interest group then it would have gone the wrong way. It would be extremely wrong for the government to turn its interests into special interests, particularly if it delves into the pursuit of economic interests. What we

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should object to is the government’s special interests, especially its economic interests. There are three reasons for this. First, such interests are not in line with the source of the government’s power; second, they are not in line with the basic principle that “sovereignty lies with the people”; and third, to admit that the government’s special interests can be maximized is to desecrate the public interest. This involves how we understand the nature of government. The actions of the government should be related to the public: representing the public interest, the exercise of the power of the government, the management of public affairs, the provision of public services, maintaining public order, and the bearing of public responsibilities. What this effectively means is that the government, the market and society have a complementary relationship. The government is the most important organization among public agencies, and the issues that the market cannot resolve are tackled by public agencies. These public agencies, which together make up the state, cannot operate with the aim of making profit. Society bears the burden in areas where both the government and the market malfunction. Government malfunction does exist. While the government tackles the problems of the majority, it cannot possibly offer tailor-made services for every individual. Take for instance education: currently we are able to provide only nine years of compulsory education. However, there is strong demand for differentiation in society. For example, some people want their children to go to elite schools. The stronger such a demand for differentiation, the more advanced society may be. However, in real life, special government interests are also a common phenomenon. The government is the implementor of the state interest as well as the representative of the people’s interests at the same time. Although fundamentally the state interest is consistent with the people’s interests, clear conflicts often emerge in real life. For instance, currently in China there is the problem of “rich state, poor people.” This is a reflection of conflicts between the state interest and the people’s interests in the area of distribution. Therefore, we have to look at where the state’s interest is aligned with the people’s interests and also where the two are in conflict and pay especial attention to the latter. Another example is the relationship between the expenses needed to maintain the state interest and the people’s welfare. There are data showing that the numbers of personnel employed to maintain social stability in China currently have risen significantly, thus raising the costs of such maintenance. The cost of governance has remained high. According to numbers from a government report made by Premier Wen Jiabao this year, in 2010 China’s public security expenses amounted to a total of RMB640 billion while military expenditure for the year stood at RMB600 billion. Although only a small part of this RMB640 billion spent on public security was spent on maintaining social stability that expenses in this area have risen dramatically is probably an indisputable fact. Clearly, the greater the state’s expenses in this area, the more likely that the people’s welfare will be affected. For another example, the proportion of the four major livelihood expenses (health care, education, social security, and employment) within a state’s expenditure can also tell us about the reality in this area. In developed countries, these four expenses typically make up at least 50% of the state’s budget. However, in 2009 these four expenses only made

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up 28.8% of China’s budget, far below global average standards. Clearly, there are instances in real life where the state’s interest and the people’s interests are not aligned. This is an issue that requires our careful study and handling. The national interest provides the government with tremendous institutional and policy room for the pursuit of its own special interests. The government can seek to maximize its own special interest in the name of maintaining the national interest, which becomes the excuse for inflicting harm on the people’s interests. Thus, whether the government’s actions are proper and if the policies that it makes are fair and just become important indicators for the people’s assessment of the government. They are also key indicators for assessing whether a government is, in fact, pursuing its own special interests. In the case of the Chinese government, the phenomenon of “interest inflation” has indeed occurred with a small number of local governments. First, the government’s heavy hand in economic life means that it is easy for the government to engage in competition with the people for economic gains. This heavy hand can be in the following forms: the government taking the lead in attracting new investment, the establishment of SOEs, direct investment, the use of capital mechanisms for urban development, and land acquisition and sales. Today, the government is finding it increasingly difficult to acquire land in the city periphery as rural residents are all aware that land prices would appreciate. This sort of urban development approach is, in fact, a “double deprivation” inflicted on rural residents. On one hand, the rural area provides the cities with an endless stream of cheap labor. However, migrant workers do not enjoy even basic social security in the cities. However, urbanization in China has become “concentric expansion,” and local governments have monopolized the gains from increasing land values. The exclusion of rural residents in this respect is a second deprivation for these residents. The contestation between the government and people for economic gains is also expressed in the government’s excessive number of SOEs and the high pay given to officials holding positions in SOEs. SOEs should retreat from competitive areas and focus on public areas that the market cannot provide for. We shall dismantle the system of high pay for senior managers at SOEs. The basic principle here would be that officials who are rotated between SOEs and Party/government agencies are not eligible for high pay. However, due to the nature of their jobs the pay for these senior managers may be slightly higher than what they would receive in government. The compensation package for the general manager is pegged to the enterprise’s performance (and thus the GM is eligible for high pay). However, this must be a professional manager who has been openly recruited, and this individual may not return to Party/government agencies thereafter. Because of the clear contestation between the government and the people for economic gains, the government has also been encouraged to strengthen its internal special interests by using its powers for its own or individual interests. Second is the persistent problem of government privileges. We have established a massive bureaucratic system that is being supported by privileges. This is something that is rarely seen in the rest of the world. Take for instance official cars, in many countries around the world very few officials in office have the right to an official

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car, let alone retired leaders. Although there have been quite a few expressions of skepticism about the “three public expenses” (vehicle purchase and maintenance, overseas trips and official receptions), this issue remains a long-standing one that is yet to be tackled. Third is the over-emphasis on the government’s own interests by the government, leading to the erosion of its public nature. Reforms of the distribution system have barely moved forward since the proposal of such reforms in 2006 due to excessive interference by strong interest groups. If we say that in the past the debate was between the reformists and the conservatives in China, to date the conflict has to a large extent turned into a contest for interests. Some have said that massive interest groups formed from the overlapping of power, resources, and capital in China are currently swallowing up the welfare of the people. To take monopolized industries as an example: in 2008, those employed in such monopolies only made up 8% of the workforce in 2008 but took home half of all wages and benefits paid to workers. This has led to severe unfairness across industries. The inflation of the government’s special interests has led to severe monopolization and disruption of market rules. It has also led to doubt about the fairness and justice of public policies made and decline of the government’s credibility. Today, nearly 100,000 mass incidents occur in China each year. We should say that there is a direct link between many mass incidents and poor governance or even harm done to the people’s interests by the government, and this is something that we should be alert to.

8.4.2 Key to Deepening Reforms of the Administrative System Being the Suppression of Government Privileges First, we have to eradicate the thinking that the government can have special interests, and that such interests can be legitimized through law. This is perhaps the most important point. Many of our government officials fail to see the complexity of the link between the national interest and the people’s interests and tend to simplify this link. Further, they either consciously or subconsciously seek to protect their own special economic interests or even seek to legitimize them in law. Second, we have to define the boundaries between the government, the market, and society and strictly restrict government action to the public arena. Fundamentally speaking, only when the government does not act indiscriminately or overreach, can the government’s actions with respect to special economic rights be considered as effectively curbed. Thirdly, to accelerate the pace of government reforms in line with the aforementioned thinking, including reforms of the administrative review and approval system, eradicating hotbeds of corruption, instituting an asset disclosure system for officials, lowering the costs of governance, and abolishing unreasonable privileges. Globally, there are very few countries in the world where the review and approval process

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have such a wide scope with so few standardized procedures in place and with so much official discretion in the process. China’s system of administrative review and approval has in fact turned into another “mutant child” of the transition from a centrally-planned economy to a market economy, a mutant child that is now “eating people.” Many of our officials have been defeated by this “mutant child.” Data shows that since the 16th CPC National Congress, an average of eight corrupt officials at the provincial level have been arrested in China each year. This figure reached an astounding twenty in 2009. This indicates that corruption continues to grow and has not been effectively curbed. To a certain extent, corruption in China is a systemic and institutional issue. Corruption had also been rife in Hong Kong prior to 1974, when the government set up the Independent Commission Against Corruption (ICAC) that was completely autonomously and answered only to the Governor of Hong Kong. The ICAC had very high standards for its staff, who had to have perfectly unblemished records. In the last few years, Hong Kong has consistently ranked among the top few jurisdictions in the world in terms of clean governance. Once again, this proves what Deng Xiaoping had said, good systems can keep bad behavior in check, and poor systems can lead good persons down the wrong path. Thus, we must boldly implement the competitive leader election reform. We must also implement substantive reform measures in terms of the asset reporting and disclosure system for officials and instituting greater accountability for officials. In essence, the people of China will only be confident in the reform process, and future reforms will only enter a new level if true progress is made at the political level.

Chapter 9

The Dual Problem of Social Transformation and Political Reform

Social transformation has been just as profound and unrelenting as economic transformation during the past thirty years. Accompanying this transformation is the difficult situation that China must change its traditional development model after thirty years of high economic growth. On a certain level, the impetus for this change is embedded in the 12th Five-Year Plan and the consensus that science has to be the basis of future development. This chapter will attempt to describe the historical significance of the 12th Five-Year Plan, the dual problem of social transformation and political reform, and the need for another round of emancipation of the mind.

9.1 The Historical Significance of the 12th Five-Year Plan 9.1.1 The 12th Five-Year Plan Signals Important Changes in Chinese Development The 12th Five-Year Plan is an important turning point in the reform and opening up. The tell-tale signs are the following: taking the pursuit of development in a scientific way as the underlying guideline and accelerating the change of the growth model as a major task; shifting the focus from quantity to the quality of economic growth; shifting the priority from enriching the nation to enriching the people. All of these things have historical significance. The 12th Five-Year Plan slows down economic growth from the current 10% or 11% to 7% for the next five years. The implication is that quality will take precedence over quantity and that the economic structure has to undergo strategic adjustment. In my opinion, this change signifies the end of the traditional development model and the new focus on stimulating domestic consumption and enriching the people. It signifies an important change in thinking. © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_9

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9.1.2 “Four Unsustainables” Will Force China to Change Its Development Model China’s development model has proven to be unsustainable; the financial crisis has exposed many problems in China’s economic development. We would have continued our policy of high economic growth had the financial crisis not happened. But the latter did happen, and it exposed many problems in our development model, especially in the systems and mechanisms. I summarized four major problems concerning this. First, producing and exporting low-cost products, which was the strategy at the beginning of the reform and opening up, is no longer sustainable. We all recognize that China has relied too much on export since 1978, but China was forced to do so; it wasn’t a matter of choice. We can imagine what the conditions were like in 1978, when Deng Xiaoping opened China’s door to the outside world. Globalization was in its incipient stage, and China became inundated with international capital seeking supersized profit. Why did foreign funds pile into China? In retrospect, there are two reasons: cheap resources and cheap labor. These two factors startled foreign investors. Preferential treatment by local governments helped a great deal too. But, looking back, we should put a pair of quotation marks around the term “international capital,” since it came in the form of backward production capacity which was inefficient and harmful to the environment. China’s economy had been on the verge of collapse at the time; the country had no choice but to accept this foreign production capacity which destroyed the environment, eroded social security for hundreds of millions of farmers, and depleted resources. In exchange for this environmental and social cost, China became a competitive exporter of low-cost goods. It exported such huge quantities of cheap goods to the developed countries that prices dropped worldwide. A mug that used to cost USD4 in the USA could now cost only USD2. The people of developed countries have benefited enormously from the inexpensive products but left the environmental problems for China to solve. When the financial crisis struck, the orders for Chinese goods disappeared overnight. There was no problem with China’s financial system, but the financial crisis caused the demand for Chinese products to drop, affecting China’s real economy and exposed a host of problems in China’s economic system. China will continue to expand export in the future, but what is certain is that trade will never grow in double digits as it did for the past twenty years. We must stimulate domestic demand to maintain economic growth. Second, the economic structure geared for low-end manufacturing has become unsustainable. China is the second largest economy in the world; it has become a manufacturing and processing center for low-end products. High-end manufacturing is monopolized by the USA, Germany, and Japan. We have no brand names or patents of our own. Most of our products are made with other nations’ technology and labeled with other nations’ brand names. We make our money by processing and assembling. What we have is extensive growth which consumes a lot of energy. There is a saying that third-rate businesses sell products; second-rate, patents; and first-rate, technology. Most of the Chinese businesses are third-rate with no patents,

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brand names, or core technology. In 2010, 90% of the clothes exported were stamped with other nations’ labels. This kind of low-end manufacturing can accumulate wealth quickly, but it is difficult to migrate toward the other end. The government threw its support behind the TD-SCDMA technology because it was the first Chinese technology for the whole world. There are three standards for 3G cell phones: European, American, and Chinese. The six biggest Chinese cell phone manufacturers consolidated into three, and the biggest is China Mobile, which uses the TD-SCDMA technology. But cell phones with TD-SCDMA technology have run into trouble, and some people believe that China Mobile would be stronger in the 4G era. When a large economy wants to become powerful, it must transform itself and develop new strategic industries which support a core technology. Third, the environmental cost has become unsustainable. China has paid dearly in terms of resources and the environment. I had mentioned this aspect before, but now I will bring in a new perspective to offer some evidence. The United Nations has developed three key dimensions for human development: life expectancy and health, education, and quality of life, which are used to measure seven billion people’s quality of life in more than 220 countries and regions. There are four indices for measuring quality of life: GDP per capita, per capita net income, potable water quality, and air quality. In other words, two of the four indices have to do with the environment. If China pollutes its air and water to achieve economic superiority, it will fail miserably in terms of quality of life. Fourth, the destabilizing effect of income disparity has become unsustainable. The income distribution mechanism has reduced the role of labor unreasonably; severe income disparity compounds the problem, and the resulting social contradictions make it impossible to have a stable and harmonious society. I will briefly cite two sets of data. In the primary income distribution, income is distributed three ways, to the people, the government, and the industries. It is normally the case that the people get 60% while the government and the industries get 40%. In 1990, the people’s income was 53.4% of China’s GDP, 6% lower than the world average of 60%. After 1990, the ratio of people’s income has declined for twenty years, and by 2009 it has dropped to 39.4% of GDP. In other words, the figures have reversed: the government and the industries took 60% of GDP while the people took less than 40%. People’s income has been squeezed tight, making it impossible to stimulate domestic consumption. If the people have low income, their purchasing power is limited. Since China needs improvement in social security, its people have to worry about their retirement, so they are afraid to spend their savings. If the primary income distribution is unreasonable, one can expect some adjustments in the secondary income distribution. There is also a world standard in secondary income distribution. We can look at government expenditures in four areas: health care, education, social security, and employment. When the ratios are high, it means the government is more successful in making adjustments during the secondary income distribution. For developed countries, the combined expenditure of these four areas is over 50% of the budget. In other words, more than half of developed countries’ national budget is spent on their people’s well-being. In 2009,

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this ratio was 28.8% in China, almost 22% lower than the developed countries. Both sets of data point to the irrationality of income distribution in China.

9.2 The Dual Problem of Social Transformation and Political Reform 9.2.1 Social Transformation and Its Influence In my view, China’s social transformation did not start with reform and opening up in 1978; the Chinese society began to transform slowly around the time of the Opium War. The pace of transformation has certainly accelerated after 1978, and the society has undergone acute turmoil, but we can trace social transformation to the time of the Opium War. If we have to define social transformation, we find that most people, including government officials, scholars, and ordinary people understand the term differently. But there are two points that should be underlined: social transformation means that a society is moving from tradition to modernity, and from agriculture toward industrialization and information. There is consensus on these two points because the path of Western social transformation is very clear; Western countries have advanced toward the information age after they became industrialized. But this is not the case with China. China is only half way into its industrialization; first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen are in the postindustrialization era while Tibet, Qinghai, and Guizhou are in the incipient stages of industrialization. In other words, China is not fully industrialized before it is pushed into the information age. One word describes the information age: digital. In China, we speak so much of the digital city, digital society, digital economy, and digital family; it seems as if we could not live without digital technology. That China is pushed into the information age without having been fully industrialized poses serious challenges to China’s social transformation. There are eighteen developed countries in the world; they all have experienced the painful process of social transformation. Four universally recognized elements characterize developed countries: high GDP per capita (generally over 20,000 USD), industrial production heavily reliant on advanced technology, world-leading technology, and good social security for the people. All the developed countries have gone through social transformation. Western scholars have written on the subject using empirical and quantitative analyses, such as Samuel Huntington’s Political Order in Changing Societies. These scholars have studied societies in the throes of social transformation and found four common patterns: first, there is a pronounced increase in social instability. Second, there are social conflicts arising from heightened pursuit of personal economic interests. Third, crime rate goes up as a result of the large numbers of migrants from villages into cities. Fourth, there is a high degree of corruption among government officials.

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These scholars have also discovered that the situation seems to improve when the majority of the families within a country have begun to modernize: social instability lessens, the pursuit of personal gain becomes less obsessive, crime rate goes down, and government officials moderate their behavior. But the conclusions that Western scholars have drawn from studying Western social transformation are not completely applicable to China. Regarding the four phenomena mentioned above, only the first two seem applicable: while the per capital income in China has exceeded USD6000 and a large number of families have taken the first steps toward modernization, there is not the slightest drop in crime rate; in fact it has increased. The officials have not moderated their behavior either; corruption continues to spread in spite of the central government’s pointed anti-corruption efforts. Why do Western theories of social transformation fail to explain what is happening in China? We need to look at the special characteristics of Chinese social transformation. There are at least three aspects: First, the mission of China’s social transformation is to change both the society and the existing economic system. The latter is something that the developed countries have not experienced. When China moved from a planned economy to a market economy, the biggest problem was that China had rushed into the market economy too fast. A boy may grow up to be a great man, but he has to start his life as a baby learning how to speak, just like any other boy. The market economy, in the same way, has to undergo stages of birth, development, and maturity. The mature Western economies have all started from an inchoate capitalism a few hundred years ago and moved forward through trials and errors, and what China lacks is precisely this history. Had the Opium War not happened, China might have followed the development of world capitalism and found its own niche in economic development. But the Opium War changed the structure of the Chinese society; it stunted the growth of a commodity economy and prevented China from developing its own capitalism. After the CPC took power in 1949 and chose the path of a planned economy, it had the unrealistic idea that it could produce anything it wanted and as much as it wanted. Then it discovered a road sign on its path: Dead End Street. The tree of planned economy had sprouted deep roots and thick branches but was unable to bear fruit. It was too late to plant another tree of market economy, so with the might of a nation, Deng Xiaoping forcibly changed the direction of economic development. It is as if he had kept the tree of planned economy by cutting away all the branches and grafting the scion of market economy to the trunk. But grafting has its price, or we would be hard-pressed to explain why the Chinese civilization of a few thousand years would be shaken to its core by the economic reform of a scant thirty years. There is an old Chinese saying that a gentleman creates wealth through proper means. People no longer think about proper means these days; they make poisonous food products and fake medicine for other people to ingest. In the traditional Chinese society, one felt duty-bound to help an old woman who fell in the street. Today, few people would come to her aid because the occasion looks too much like a scam. This indicates that people’s behavior is no longer constrained by ethical considerations; when a society lacks a sense of ethics, it may prove to be ungovernable.

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There are two forces which restrict social behavior: ethics and law. Law is effective to the extent that it is based on ethics; in other words, law is meaningless without ethics. Viewed from this angle, the most pressing problem in China is to reimpose social order. That the economic system has to change amid social transformation makes the latter that much more complicated. Second, the nine-hundred million farmers were hit with a double whammy during the process of social transformation. We all know that China’s reforms started in the countryside. All the important initiatives such as the production responsibility system, the household output quota system, township and village enterprises, and building of new rural areas were implemented in the countryside to benefit agriculture and the farmers. But these efforts have produced mixed results. First, since the beginning of the reform and opening up, 260 million laborers with at least a junior high school diploma have left and countryside and flooded into the cities; these laborers were educated in the countryside, but when they moved into the cities, they did not receive the same treatment as their urban counterparts. They took menial jobs which the city workers did not want to do and were paid half the city workers’ wages with no social security benefits. They retired to the countryside when they became old and unable to work. They gave the best years of their lives to the cities but received very little in return. Second, urbanization has encroached on the old enclosure system. At the beginning of the reform and opening up in 1978, urbanization rate was 17.8%; less than 18 of 100 Chinese people lived in the cities. The urbanization rate zoomed to 53.7% in 2013 when 700 million people lived in the cities. There are over 660 cities in China now. Urbanization has caused the cities to expand in area at an accelerated rate; for example, urban population grew 26% from 2000 to 2010, but urban areas grew 50% during the same period. This fact has a lot to do with China’s land system. According to national policy, urban land is under national ownership while rural land is under collective ownership, but the line between urban and rural land changes constantly with urbanization. During the process of urbanization, the government takes rural land and turns it into urban land by declaring that it is for public use. The government pays regular compensation to the farmers but sells the newly acquired land to the highest-bidding land developers. The government pockets all the profit at the expense of the farmers. Instances of civil disorder caused by land expropriation have increased steadily, and this is the reason that the government is pushing for land policy reform. Third, China’s social transformation has not done away with the urban–rural dichotomy but instead introduced a third element into it: migrant workers numbering in the hundreds of millions. You cannot qualify them as “rural” because they have already left the countryside. You cannot describe them as “urban” either because they do not have household registrations in the cities and seldom partake in urban life as most of them live in the periphery of the cities. These three aspects of social transformation bring forth serious consequences. First, they have brought more social conflicts to bear on the Chinese society. There were about 10,000 annual instances of civil disorder in the 1990s. That figure went up to 90,000 after 2005. The upward trend is not easing.

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Second, they have made the “four gaps” (rich–poor gap, urban–rural gap, industrial gap, and regional gap) worse. The urban–rural gap was 1: 2.22 in 1978 and expanded to 1: 3.33 in 2008, an increase of 50%. People experience the rich–poor gap more acutely. It has been said that three wealthy groups have formed during the thirty years of the reform and opening up: the official tycoons, the grassroots tycoons, and the elite tycoons. The first group has gotten the most criticisms. Another theory asserts that wealth goes to the government in the society–government dichotomy, to capital in the labor-capital dichotomy, and to the monopoly in the monopoly–non-monopoly dichotomy. Due to these factors, people have come to doubt the fairness of government policies. The government is powerful because it sets national policies. People complain that government policies have come increasingly under the influence of rich people, monopolistic enterprises, and powerful groups while people of lower social status such as farmers, the unemployed and temporary workers have less and less say in the government’s decision-making process. The upper classes have become more elite while the lower classes have become more fragmented. The upper classes are where the powerful rub shoulders with the wealthy and the intellectual elite. When the relationship between government officials and business owners becomes intertwined and intimate, we call it collusion. But whether one calls it collusion or not, there is hardly any corruption case where the offending official is not tied to the business world. The lower classes are not reticent when their interests are harmed. They take their case to the local government or go to the capital to request an audience with a senior official. If the government at different levels fails to appease them, they will take to the streets in anger such as disrupting normal traffic order and burning cars. The cause of civil disorder is often the lack of fairness in government policies. We have to be very mindful of this fact.

9.2.2 Problems with Political Reform Besides navigating the treacherous waters of social transformation, the government must face the difficult task of reforming itself. There are two major problems. First, although the government has made great achievements in reform and development, the people have become increasingly oblivious to them and harbor high expectations of the government. Second, although China wields more influence on the world stage, its intentions are misread by the West. There are complicated economic and political reasons behind this. If we look at the government, we see three key problems: structural defects, deepseated problems in management and operation, and unchecked powers. The deepseated problems manifest as weakness and slowness in providing public service, in redefining government’s role, in implementing political reform, and in too complicated administrative approval procedures. All these problems contribute to public dissatisfaction. For instance, the failure at canceling or delegating administrative approval power means that the central government has too much decision-making

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to do, resulting in “black box” operation and lenient self-policing. I view this as a “genetic abnormality” which will take a heavy toll on the country. In fact, many officials have met their Waterloo this way. An Italian reporter once asked Deng Xiaoping, “Mao Zedong had fought against so many people in his later years, was it because he wasn’t such a good person?” Deng replied, “No, it’s because our system is defective.” He went on to say that a good system prevents people from behaving badly while a bad one encourages good people to misbehave. We should ponder these words of Deng Xiaoping carefully. The CPC has made many achievements in governing the country, but people have come to question its capabilities mostly because it cannot stamp out corruption. We take Antony Leung as an example. Leung was the Financial Secretary and second-incommand of Hong Kong. He had planned to buy a family car when his wife was about to give birth to their child. Being the Financial Secretary, he knew that the price of imported cars in HK would go up soon, so he placed an order for one. When this action became known to the public, he lost his credibility. Leung made a public apology and donated the difference in price to charities, but the public remained unmoved in its displeasure. In the end, Leung quit his job and left government service altogether. Frankly speaking, this matter would not have received as much attention in China as it did in Hong Kong. There was corruption in Hong Kong before 1974. In 1974, the Independent Commission against Corruption was established. It answers only to one person, the Chief Executive (the British Governor previously), but has the power to investigate any government official. The government of Hong Kong has become one of the cleanest in the world since 1974 and ranked in the top ten among 220 countries and regions in recent years. This example should serve as food for thought.

9.3 The Need for Another Round of Emancipation of the Mind 9.3.1 A Change in the Idea of Governance Before the dual problem of social transformation and political reform can be resolved, there has to be a new concept in governance. There are three important principles in governance: first, the government is responsible for creating the environment for wealth, not for creating wealth itself. The businesses and the people are the main creators of wealth, and the government maintains social and market order necessary for creating wealth. Second, the law empowers the government to govern. The government does not have any power that the law does not authorize. The law empowers the government and the people, but in opposite ways. The law tells the people what they cannot do; for instance, they cannot kill people or commit arson. The people can do whatever the law does not mention. But the law tells the government what it can do; the government cannot do what the law does not mention. This is what

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is called the rule of law. Third, what we need to build is a service-oriented government; in other words, the government serves the people and not the government itself.

9.3.2 Emancipate the Mind to Solve the Dual Problem We need to emancipate our minds once again to solve the dual problem of social transformation and political reform. Could we have continued the revolution without the “standard of truth” discussions of 1978 (the first emancipation of the mind) which repudiated in one fell swoop the Cultural Revolution, the class struggle, and the dictatorship of the proletariat? If we had not repudiated these three things, could we have changed the course of the Party and the government and stepped onto the path of the reform and opening up? The second round of emancipation of the mind is symbolized by Deng Xiaoping’s talks on his southern inspection tour of 1992. The reform and opening up had ground to a halt after the political storm of 1989. Sensing that his idea of economic reconstruction could be abandoned, Deng Xiaoping decided not to sit and wait and went to southern China to give a series of speeches. Deng’s three dictums constitute the core of the second round of emancipation of the mind: first, China cannot deviate from its fundamental path for at least a hundred years. Second, planned economy and market economy are means of economic development separate from the political system; capitalism can have its plans while socialism can have its market. This dictum broke the mode of the old thinking which equated planned economy with socialism and the market with capitalism. Third, reform is the only way forward for China, or China will face certain death. Without the talks on the southern inspection tour in 1992, whether the reform and opening up could last until today is a big question. From the discussion above, we can see why the 17th CPC National Congress emphasized the emancipated mind. But what can we say about the emancipation of the mind this time around? Its point of incision is the implementation of Scientific Outlook on Development. But I suspect the economic term is not the only surface it will cut into, since the goal is to improve the market economy and not to subvert it. The more severe problems rest on the social, administrative, and political aspects. Two views dominate the discussion: the first is to refuse reform and keep the status quo. The second is to strike out proactively and reform at crucial points to regain the trust and support of the people. The professed goals of the 12th Five-Year Plan are the following: taking the pursuit of development in a scientific way as the underlying guideline and accelerating the change of the growth model as a major task; expanding domestic demand; bringing prosperity to the people. The strong tailwind of the reform and opening up will aid in achieving these goals. Viewed from this angle, reforms in the economic, social, taxation, and investment domains have to start with the administrative domain, and reform of any kind needs the emancipated mind to elucidate the path.

Chapter 10

Changes in Reform, Development, and Public Governance

The goal of comprehensively deepening reform was adopted during the 3rd Plenary Session of the 18th CPC Central Committee in 2013; it signaled that the economic and social transformation had reached a new stage. There is no doubt that administrative reform with public governance at its core is an important step in modernizing the national government and its ability to govern.

10.1 Challenges to Public Governance in the New Era of Reform and Development Two sentences summarize the new trend in reform and development at the 3rd Plenary Session of the 18th CPC Central Committee: our country’s development has entered a new phase, and its reform has entered a period of overcoming major difficulties and a deep-water zone. Some sixty items of future reform are all based on this prognostication of the new stage, which has three attributes in my view: first, there will be big changes to the reform and opening up. Second, traditional development has reached the end of the road. Third, the Chinese society has to face more risks.

10.1.1 Big Changes in the Reform and Opening up Three things characterize the current state of the reform and opening up: first, although the reform and opening up has made many achievements, there is more ignorance and fewer consensuses on the subject among the Chinese people. Contrary to their wholehearted support for reform 35 years ago, many people today are against reform; they include ordinary people as well as the elites. It is far more difficult to reach consensus about reform today than to implement reform 35 years ago. Second, © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_10

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the social and institutional transformation is advancing at an accelerated pace and creating many social conflicts and contradictions. There were about 10,000 instances of civil disorder annually in the 1990s. The figure has gone up to 150,000 in recent years, a 15-fold increase. Social discontent has been seething within the Chinese society. The government tried to maintain social stability by spending over RMB720 billion on public security in 2012, fifty billion more than the military expenditure. There are more than two million public security officers in China today; for every four civil servants, one is a public safety officer. In Hong Kong, the ratio is one in twenty. This shows that the cost of maintaining social stability is very high in China. In my view, maintaining social stability is a difficult subject and the problem cannot be solved by public security officers alone. Third, as China exerts more influence on the world stage, its intentions are often misread by Western countries. There are complicated political and economic reasons behind this, not the least of which is the struggle for economic advantages among the major countries. Our new leaders will face severe challenges in maintaining the achievements of the past thirty-five years and discovering new opportunities for the future. Moreover, the American pivot toward Asia has meant a worsening situation for China; our future depends on whether we can abandon old ways of thinking and devising new strategies.

10.1.2 Traditional Development Has Reached the End of the Road This fact manifests itself by the unsustainable high cost we have paid for rapid economic development. China has sustained 9.8% growth in the past thirty-five years by manufacturing low-end products. But the cost of high growth is high investment, high energy consumption, high pollution, and low efficiency. There is a saying that third-rate companies sell products; second-rate, patents; and first-rate, technology. Most of our businesses are third-rate; we have no brands, no technology of our own, and we make money by assembling components. We are at the low end of the production chain and have no say on the high end. We will not become a strong country this way. Nokia was the world’s biggest cell phone manufacturer in 2012 with a market value of USD300 billion. Microsoft bought it in 2013 for USD7 billion. The reason behind this is that Nokia could not innovate fast enough. The Chinese government has made the decision to replace backward capacity with new strategic technology and develop a green low-carbon economy; the reason is that China wants to have its own input in high-end technology. China has never mastered the core technology in the hi-tech arena. A venerable expert in the information technology field has said that he has three regrets after a sixty-year career in the electronic field: that China still does not have its own computer technology system, software system, and microelectronic technology. Due to the lack of these technologies, China has no choice but to use American technology. Russia may not have a booming computer industry like

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China’s, but it has its own computer technology which is not controlled by the Americans. We were happy when China’s Tianhe-1A became the fastest supercomputer in the world in 2010; it was 1.5 times faster than the second-place American supercomputer. Surprised by this achievement, the American Congress held a hearing to find out more about the new Chinese supercomputer. After the hearing, everyone breathed a sigh of relief: apart from the Chinese-made hard drive, all the technology in the Chinese supercomputer is American. The Internet has thirteen root servers in the world. Ten of them, including the master server, are in the USA; the Netherlands, Japan, and the UK each has one. China has none. When the American surveillance program PRISM was leaked by Edward Snowden, it sent shock waves through the highest echelon of the Chinese government, which subsequently established a national security committee to tackle unconventional security issues. I make all these points to show that we have no core technology of our own. We use other nations’ technology, so we are under other nations’ control. We cannot become a strong nation this way.

10.1.3 The Chinese Society Faces More Risks In my view, China faces four kinds of risks: economic, social, political, and credibility. First, the economic risks. The Chinese economy faces increasing downward pressure and this fact creates risks. The most recent economic data has vindicated the government’s diagnosis that there are no big problems in the Chinese economy and that we need to raise the quality and lower the speed of growth. But it is clear that there are things we have to worry about, and I will cite three: the real-estate bubble, debts of RMB20 trillion incurred by local governments, and shadow banking which is rife with liquidity and cheating. These three things are interrelated, and if one becomes a problem, the other two will fall like dominos. Even though senior officials do not see big problems in the Chinese economy, they are nevertheless nervous about the state of the economy and fear that growth rate will fall below 7%. There were many problems during the decade of Hu Jintao and Wen Jiabao’s administration, but they held the trump card of high growth up the sleeve and it solved many social problems. There could be mass unemployment if growth rate drops below 7%, and nobody wants to see that. Second, the social risks. The biggest problem here is the skewed social security system, and there are three main reasons for this: firstly, unreasonable distribution of social benefits. The “four gaps” (the rich–poor gap, urban–rural gap, industrial gap, and regional gap) have gotten worse in the past thirty-five years. We have 120 million people living in abject poverty while their wealthy compatriots cavort around the world. There are serious problems in the distribution of wealth. Secondly, unequal opportunities. The government does not ensure a level playing field for businesses or individuals. The state-own enterprises have many advantages over private ones while a person’s background plays a crucial role in future success. Children from

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wealthy families have more opportunities to grow and explore in their formative years while farmers’ children are hard-pressed to find decent jobs even if they graduate from prestigious universities. There is enough rigidity in social classes to preclude young people of lower status to move upward. This is a recipe for social unrest, if not revolution. Wang Qishan encouraged officials to read de Tocqueville’s The Old Regime and the Revolution precisely for this reason: China has to reform quickly or face social crises and even revolution. Third, the excesses of the rich and powerful have added fuel to the fire. These three things have distorted social order and become the source of social instability. Third, risks in credibility. The government made promises to the Chinese people regarding healthcare, education, social security, and social services. If we do not keep these promises, people would not be able to enjoy the fruit of the reform and opening up, and it would be hard for them to trust the government again. Soon after Xi Jinping took office, he said that corruption would cause the collapse of the Party and the fall of the state. Later he said that winning or losing public support is vital to the Party’s survival or extinction. I think his second judgment is spot on. Fourth, political risks. We need to build a system which will contain if not stamp out corruption. This is the only way that we can rebuild a consensus for reform and enable the people to trust us again. Our new leaders have provided a basis for mitigating these risks. That they have taken the helm is not enough to ensure success. They need more courage and perseverance to implement reform.

10.2 Significance of Reforming Public Governance 10.2.1 The Importance of Political Reform The 3rd Plenary Session of the 18th CPC Central Committee has set deepening the reform comprehensively as the overall goal. The premise is “to improve and develop socialism with Chinese characteristics, and to promote the modernization of the national governance system and capacity,” with “to promote the modernization of the national governance system and capacity” at the core. The overall goal signifies that the highest echelon of government is willing to think out of the box and accept the concept of modern public governance. The intent is to activate wealth-creating resources, release social vitality, and share the fruit of reform with the people. So why is it so important to reform public governance? It is because the logic of reform is changing. Our main task of the past thirty years was to reform the economic system and extend the reform to other areas; it was primarily economic reform. But we can see that Party and government organizations have become the source of social conflicts. Even though the meeting spoke plenty about economic reform, the obstacles against economic reform were in the political and not the economic domain. This is why I have said that reforming public governance has become very important, and the core of political reform lies in the Party and the government.

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Why is it so important to reform the Party and the government? There are at least three reasons. First, whether reforms can be carried out, or to which extent they can be carried out, has a lot to do with the Party and the government. Economic, political, social, cultural, environmental, and Party reforms all have to do with the Party and the government. If we take economic reform as an example, the many domains which needed reform include income distribution, state-own businesses, finance, tax, and investment. Reform which is easy to carry out has already been carried out; all the work that is left is difficult to do and involves the government. If we do not reform the government, the work will not be done. Second, the government’s ability to govern exerts direct impacts on public governance. Public governance involves many things: government organizations, the judicial system, the institutions and mechanisms, leaders’ mindset, their governance, and capabilities. The government is on the front line of public governance, whose goals are realized through the government. Public governance suffers if the government cannot solve its own problems. Third, the government has three problems which have to be solved: 1. Inappropriate structure. There are many key structural problems left unresolved, be they in the Party or in the government. 2. The people are dissatisfied with some deep-seated problems within the government, such as slowness in redefining the government’s role and reforming government, corruption as the result of the inability to devolve power, and weakness in providing social services. 3. Bad government image. The government’s actions seem always unchecked. It executes wasteful and inefficient projects which benefit itself and not the people. We can see from all this that public governance is in dire need of reform.

10.2.2 The Future of China’s Public Governance There are some tasks we need to accomplish: first, to optimize the structure of public governance. Second, to give priority to government reform such as transforming government functions and improving ways of conducting government administration. Third, to raise the level of public governance by improving the competence of the officials. Fourth, to institutionalize the rule of law and accelerate the building of a service-oriented government. There are five important topics we need to address in the next round of reform. The first important topic is to modernize the government administration by redefining the relationship between government and market and letting the market determine resource distribution. Two requirements need to be in place to achieve market determinism: to give more power to the market, and to open the market. Many questions revolve around the topic of opening the market, including establishing a comprehensive market system, eliminating political obstacles, opening up the finance and service sectors, fighting monopoly, reforming state-owned businesses, and creating a fair playing field. As for giving more power to the market, we should reduce the approval process for investment, ask fewer questions about production activities, eliminate unnecessary certification, cut administrative fees, and reform

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the business registration system. We should encourage entrepreneurship by making the market more accessible. Let people enter the market and abide by the rules; do not create obstacles to keep people away. The government must execute macro-level economic control and provide public service on the basis of market determinism. The second important topic is to ensure people’s wellbeing and uphold social fairness and justice. I feel that people have questioned social fairness and justice more and more frequently in recent years. For instance, government policies have increasingly benefitted the wealthy people while disregarding the disadvantaged groups such as the unemployed and the temporary workers. During the 3rd Plenary Session of the 18th CPC Central Committee, eighteen of the sixty reform items adopted have to do with people’s wellbeing in order to show the government’s determination to ensure the wellbeing of the people and uphold social fairness and justice. The reforms will allot a higher portion of the budget to benefit ordinary people and strengthen systemic reform which impacts people’s livelihood; the goals of the latter are very specific. For instance, one such reform reduces the administrative categories of public institutions such as hospitals, schools, and research organizations. This item alone involves 1.2 million public institutions, more than 30 million personnel, and over eight million retirees. Imagine the work necessary to carry out this reform! Another hospital reform separates pharmacies from hospitals so that the latter can no long make huge profits from selling medicine. An education reform ensures fairness by reducing the subjects of examination. Another reform standardizes rules of retirement for civil servants, enterprises, and public institutions. To close the urban–rural gap, a land reform gives farmers more power to profit from the land they own. Farmers will benefit the most from these reforms. The biggest lesson we have learned is that the farmers have been dealt with a double whammy in the past, and we do not know if this is intentional or not. Since the beginning of the reform and opening up, 260 million farmers have left the rural area. They went to the cities to work and did not receive the same treatment as the city folks. They held down jobs which nobody wanted to do and were paid half the regular wage. When they couldn’t work anymore, they returned to the rural area. They gave the best years of their lives to the cities but the cities ignored them. Moreover, urbanization has distorted the old enclosure system. From 2000 to 2010, urban population increased by 26% but urban areas rose by 50%. Why? It all has to do with the land system. Rural land is collectively owned while urban land is stateowned. The farmers receive some compensation when their land is requisitioned by the government. The government sets aside some land for public use then sells the rest to the highest-bidding developers. The government pockets the profit all by itself without sharing it with the farmers. We can all see that land requisition has become more like war. As far as I know, land reform has generated the most controversy. Some say that the farmers will be the beneficiary of the next land reform. The third important topic is to make innovations in social governance and release social vitality. I feel that we have gone in the wrong direction in many areas by viewing social governance as controlling people’s behavior. To govern is not the same as to control, and we are emphasizing the idea of governing in this round of reform. We plan to abolish the system of re-education through labor, reform the judicial system, and institute “vertical management” in provincial or lower courts. We hope to establish a

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regional court system in the future to stave off local government’s intervention in the judicial system. This will help in ensuring judicial fairness and independence. We want to devolve responsibilities to social organizations. The government has already eliminated bilateral management over professional, commercial, technical, welfare, and community service organizations. The goal of social governance is to release social vitality, not to exert control over people. The fourth important topic is to apply the rule of law to everyone with no one being above the law. The Chinese system has many advantages, one of which is the ability to pool resources and accomplish great feats. When one organization faces difficulty, others will step in to help. But the Chinese system has one major defect: its inability to rein in powerful individuals. Is it because our system lacks checks and balances? No. I can count six kinds of organizations which have regulatory duties: the discipline inspection committee, supervision department, audit department, anticorruption department, anti-greed department, and inspection department. But these organizations have zero effect when it comes to supervising senior officials of a work unit or a local government. How do we know if our oversight system is effective? We might as well ask: is there a county commission for discipline and inspection which has caught a corrupt county Party secretary? If the answer is no, our system has failed. Moreover, why does our system keep promoting corrupt officials? When an official occupies the position of city or county Party secretary, he is always without blemishes. But let him become vice chairman of a higher-level committee of CPPCC or deputy director of a higher-level people’s congress and all his misdeeds of the past come to light. It is not that our oversight system is prone to promoting corrupt officials; it is that the system is unable to detect them. When a senior city leader comes from a different province, why are the contractors of his province able to get jobs in the city he governs? If you cannot come up with a reasonable and convincing answer, it most likely means that our oversight system is failing. The government has recently established a special disciplinary committee which specifies the responsibilities of government organizations and allows the people to hold government officials accountable. The goal of ensuring that officials are honest, the government is clean, and political integrity is upheld proposed at the 18th CPC National Congress is important in that if any of the 7.08 million civil servants is corrupt, a clean government is only empty talk. It is only when each civil servant is honest do we have a clean government. We need to make innovations in our oversight system. Apart from creating an independent judicial system at the provincial level and below, we must change the system of discipline supervision and inspection so that the Party committee can no longer appoint secretary and deputy secretary of the discipline inspection commission of the same level. These two posts must be appointed by the discipline inspection commission of a higher level; they are answerable to both the Party committee at the same level and the discipline inspection commission at a higher level. This will effectively solve what Wang Qishan has called the “blackness under the lamp” problem, that is to say, the secretary of the discipline inspection commission is unable to supervise the Party secretary of the same level (be it county or municipal). This is a big deal. We also have to make sure that the inspection system covers not only the Party and government organizations but also public institutions

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and state-owned businesses. Moreover, government officials will abide by more stringent rules such as the “six don’ts” which places restrictions on office equipment and cars. The fifth important topic is to accelerate the pace of Party reform and enhance public credibility by changing the image of the Party, reducing the use of public funds for private purposes by officials, rejecting formalism, bureaucratism, hedonism and extravagance, and injecting transparency. The “eight regulations” were especially influential after adoption. Some time ago, the CPC Central Committee invited some experts to Zhongnanhai for a discussion and I was fortunate to be one of them. If you ask me, “Why are you so sanguine about current reforms when government measures and regulations of the past have been ineffective?” I will answer that this time the twenty-five members of the Politburo are leading the way. After Xi Jinping took office, he went to Shenzhen staying in business hotels and eating in cafeterias; his motorcade did not cause street closure. Xi wants to emulate Deng Xiaoping’s refusal of red-carpet treatment, and people have responded in a strong positive way. Ten years ago, I gave some simple suggestions to the government: monitor officials rigorously, treat the people well, make innovations in the government, and fend off corruption. I’m surprised that the current government has begun to do just that now. It has put in place some mechanisms for reining in the behavior of officials, such as the anti-waste measures and the “eight regulations” which have produced a lot of knee-jerk reactions from government officials. In Guangdong, four departmentlevel officials quit and left civil service completely within a month to start their own businesses. My own view is that the CPC would not be able to gain the trust of the people if it is unable to manage its 7.08 million civil servants properly. This is a painful and long process, and the people who have been eliminated are probably weaklings of the Party. I suspect the government will implement stricter rules in building a team for the future. The key question here is selecting and appointing officials. The leaders can select the people they want but we should hold them responsible for their choices. I have made many suggestions in this regard, and one of my suggestions is that one person should have the dual title of county chief and county Party secretary. To have two different people occupying two posts is a big mistake, because it generates conflicts of interests. However, a Party secretary should not be a director of the people’s congress at the same time. There is nothing wrong when a county chief is also a Party secretary, since the Party has to exert control over officials. The CPC can recommend four or five candidates for the post of Party secretary and let its members vote on them. It then asks the top three vote-getters to run for the position of county chief, and the people’s congress will vote on the three candidates. The winner is effectively both the Party secretary and county chief and answerable to both the Party and the people. The Party has acknowledged the winner’s skills while the people have given the winner their trust. We let the winner fill county posts in much the same way that a Western leader forms a cabinet. Whether the winner’s administration is a success or failure depends on the performance of the deputies that have been chosen to serve. In this way, the CPC retains its leadership, ensures the implementation of its policies, and keeps a lid on corruption. The director of people’s congress and the committee

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of discipline inspection, both independent and separate, will give assistance to the county chief and Party secretary. Now I’d like to take this suggestion of mine a step further.

10.3 Reform Needs Courage and Wisdom 10.3.1 Two Types of Resistance to Reform The current reform plan has been widely acclaimed. It was not easy to put together, and implementing it will be even more difficult. There has to be a concerted effort from top to bottom. From the government’s point of view, administrative reform rests on a lower echelon of the political system since it tries to effectuate a separation between the government and businesses, a change in the government’s role, cost reduction, and higher efficiency. But in my view, there are four factors above the political system, and they are the Constitution, the Party-government synergy, socialist democracy, and socialist legal system. These factors are at a higher level of public governance and have decisive significance. This is why there has to be a top-tobottom effort at implementing reform instead of talking only about the administrative aspect. In my opinion, resistance to public governance reform comes mainly from two sources: the vested interests and the government itself. We may call the reform of the past several decades as the First Reform and the reform that flows from the 3rd Plenary Session of the 18th CPC Central Committee as the Second Reform. I define vested interests as those entities which have profited enormously and unfairly from public authority and policies through unfair competition. Here are three key features of vested interests. Firstly, it refers to enormous profits gained through unfair means; secondly, it is gained by taking advantage of the power of the government and policies; thirdly, the interests these entities have obtained can be economic, political, and social. How do we characterize these vested interests? In 2011, I wrote an article about the manifestations of vested interests, and I raised the concept of “three grays”: gray power, gray capital, and gray profit. The group of vested interests pocketed enormous profits from the market using their authority and influence and through their children, spouses, and friends. This is corruption of the highest order. Today we can divide group of vested interests into three categories: government officials, monopolistic enterprises, and speculators in the real estate, and other resource industries. They hold vast amount of power, resources, and capital and control much of China’s wealth. These vested interests have intensified the social conflicts between the government and people, between labor and capital, and between the rich and poor. Hatred for the wealthy and disgust for the government permeate the Chinese society. The vested interests are the cause of many of the “black capital” and civil disorder incidents. Whether they can be defeated has a decisive effect on China’s future. The success of

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the Second Reform depends to a large extent on whether we can effectively control the vested interests. The senior leadership often describes the difficulties of reform with vivid imagery, for example, China’s reform has entered a deep-water zone; the easy part of the job has been done to the satisfaction of all, and what is left are tough bones that are hard to chew; we shall be eager to wade through dangerous shoals, and we must make arduous efforts. It is also said that there will never be an end to practice, to emancipation of the mind, and to reform and opening up. All this talk indicates that reform is difficult and risky. So how does the senior leadership see vested interests? Soon after the 18th CPC National Congress, Li Keqiang noted that it was an even greater challenge to fight vested interests than to transform one’s soul. On several occasions, Xi Jinping has stated the importance of greater courage and determination in breaking down the barriers which were put up by the “entrenched interests.” Although Xi did not mention “vested interests” explicitly, in my opinion, that is in effect what he means by “entrenched interests”. More recently the government has used strong words to reiterate its resolve to root out corruption, declaring its willingness to be braced for the pain, to place no limit on how far it will go to combat corruption, and to act to remove whatever undermines the Party’s purity and advanced nature, and rid ourselves of any virus that erodes the Party’s health. All these, I believe, are tacit references to vested interests, which have evidently become the greatest obstacle and risk to reforms in China. Resistance to reform can come from the government itself, not by intention but by habitual tendencies which may come from three sources: ignorance, the approval system, and departmental interests. We may view the approval system as a genetic abnormality born out of the transformation from planned economy to market economy. It is overburdened with a large number of items waiting to be approved. Li Keqiang has said that his government plans to cancel 567 items and 334 have been canceled by the end of last year. If we do not change the approval process, reform will not succeed and devolution is empty talk. But reforming the approval process faces a lot of resistance. When we speak of departmental interests, we mean that power is concentrated in departments which are differentiated by the benefits they generate. The benefits are first personalized then extended into interest groups. As far as ignorance is concerned, if the 7.08 million civil servants don’t change their mindset, their outdated modes of thinking will surely become stumbling blocks to reform. We distinguish three kinds of ignorance here: in the role the government plays, in service, and in the rule of law. Speaking of the rule of law, we all know that the law regulates the power of the government very strictly. The government does not have any power that the law does not authorize. The law empowers the government and the people in opposite ways. It tells people what they cannot do; for instance, they cannot kill people or commit arson. They can do everything that the law does not stipulate. But the law tells the government what it can do, and the government cannot do what the law does not stipulate. This is what is called the rule of law. Another way of saying this is that government actions have to be based on law.

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Xi Jinping thinks highly of the rule of law. He talked about the pre-eminence of the Constitution during the 3rd Plenary Session of the 18th CPC Central Committee. There are two reasons why Xi emphasizes the rule of law: first, it is a lesson learned from the Cultural Revolution. During his most vulnerable period, Chairman Liu Shaoqi took a copy of the Constitution to his quarters at Zhongnanhai and cried out to the point of hysteria that the Constitution was unable to guarantee his safety. He was later exiled to Kaifeng, where he died and his body jettisoned in a basement corridor. This is a tragedy of the Cultural Revolution. The second reason has to do with Bo Xilai, who fell during an anti-corruption investigation in Chongqing. I’m not saying that there is anything wrong with anti-corruption investigations, but they have to be done according to law. If you don’t, you’re apt to punish the wrong people and let the guilty ones go free. Finally, I’m reminded of something that American President George W. Bush has said. He has said that during the thousands of years of human history, our most precious accomplishment is not a dazzling scientific discovery or a tome of superlative literature, but the fact that we have tamed our rulers. We have managed to keep our rulers in a cage to prevent them from hurting people. This cage is the rule of law, and Mr. Bush joked that he was speaking to us from the cage. Without a proper understanding of the law, any government official could be an obstacle to reform.

10.3.2 Courage and Determination Under such conditions, we need courage and determination to break down the resistance to reform, but we also need consensus, the emancipated mind, and innovation. The Cultural Revolution would not have been repudiated so expeditiously without the “standard of truth” discussions spearheaded by Deng Xiaoping, and we wouldn’t be talking about reform today without his talk in his southern tour of 1992. We have reached another key moment in history today. With courage and determination we can mitigate risks, break down resistance, win the trust and support of the people, and solidify CPC’s position at the helm of the government. Conversely, if we are fearful, our glance flitting here and there and our arms paralyzed with inertia, we will lose people’s trust once again and put the CPC in danger. This is the dialectical reason of China’s reform and development under the new historical conditions.

Part III

Transformation of Government Functions and Reforms of the Administrative System in China

Chapter 11

Optimizing Government Structure with Greater Government Departments

Reforming the administrative system will change not only the economy and the society but also the government itself. This change will manifest first as a modification to the government’s role and structure. The reform to establish greater government departments was part of the administrative reform of 2008 and has had important impact on the optimization of government structure. In this chapter, we will discuss the reform to establish greater government departments in four aspects: the basic theory, the necessity, the difficulties, and the assessment of its implementation.

11.1 The System of Greater Government Departments and the Reform 11.1.1 The Basic Theory The 17th CPC National Congress Report clearly states we should “accelerate the reform of the administrative system and build a service-oriented government,” “with focus on changing functions, straightening out relations, optimizing the setup and raising efficiency, and bring about a system which matches powers with responsibilities, divides work in a rational way, fosters scientific decision-making, and ensures smooth enforcement and effective oversight”. The report also states that “we will step up our efforts to streamline government organs, explore ways to establish greater departments with integrated functions, and improve the mechanism of coordination and collaboration between government departments. We will downsize and standardize various organs for deliberation and coordination and their working offices, cut down levels of administration, minimize its costs, and address the problems of overlapping organizations and functions and conflicting policies from different departments. We will give overall consideration to © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_11

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the setup of Party committees and governments as well as that of people’s congresses and CPPCC committees, reduce the number of their leading positions, and strictly control their staffing.” The report has proposed some new ways of thinking and given some directions for administrative reform. We should pay close attention to it. What is the system of greater government departments? In my opinion, the system integrates departments with similar responsibilities in order to prevent duplication of effort and redundancy of policies. Its goal is to raise administrative efficiency and reduce administrative cost. Many countries with advanced market economies have adopted this system which can be extended to other domains such as transportation and agriculture. It has other features as well, such as the separation between policymaking and policy implementation.

11.1.2 The Advantages It is because the system of greater government departments has some obvious advantages that it is widely adopted in countries with advanced market economies. First of all, this kind of management model reduces the number of departments and organizations and cuts administrative cost. Second, it effectively eliminates duplication of government effort and overlapping of policies and management. Third, this integrated management model avoids difficulties in communication and coordination which often happen in government. To create a system of greater government departments, we have to adjust the role and jurisdiction of government organizations by combining organizations with similar responsibilities and work to form a larger organization with wider jurisdiction that is more amenable to horizontal macro-management and less prone to micro-level government intervention. The system of greater government departments delineated in the 17th CPC National Congress Report is a new measure of administrative reform which deepens the development of a market economy under a new set of historical conditions. This reform is not confined to the administrative system but also affects the CPC and the people’s congresses.

11.2 The Necessity of Introducing the System of Greater Government Departments 11.2.1 Institutional Restructuring Since the Beginning of Reform and Opening up The system of greater government departments has to do with the optimization of government structure and the well-being of the Chinese people. We had thirty years of planned economy after the founding of the People’s Republic of China. One

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pronounced feature of the planned economy was its numerous departments, each of which was a dictatorship that looked into every detail of its operation. For instance, the former Machine Building Ministry had nine departments which separately managed regular machines, electronics, weapons, and planes, making it a typical product of the planned economy. After we dismantled the planned economy and instituted the market economy, the government structure had to change. There have been many administrative reforms since 1982, and a common thread running through them is the reduction of the number of government organizations to complement the concurrent economic reform. There were one hundred departments managing specific areas of government in 1982. The reform that year canceled thirty-nine of them. During the administrative reform of 1998, the constituent departments under the State Council were cut from forty to twenty-nine; most of the departments overseeing the industries were canceled. All these administrative reforms have provided the foundation for the implementation of greater government departments. The government’s vertical structure has undergone tremendous changes since the time of the planned economy, but the horizontal structure still seems too bulky compared with the advanced market economies of the world. For instance, the State Council has twenty-eight departments today, compared with twelve in Japan, fifteen in the USA, and seventeen in the UK. Of course, the number of departments may not be a good indicator of efficiency, but there is ample evidence that people in general are aware of the problems due to duplication of government efforts. For instance, transport in China is controlled by the Civil Aviation Administration of China, the Ministry of Transportation, and the Ministry of Railways depending on whether it concerns aviation, waterways and highways, or railways. In contrast, the US Department of Transportation controls all aspects of transportation while some other countries throw in post and telecommunications as well. This is what can be called a “greater transportation department.” Another example is that the US Department of Agriculture (USDA) has the same responsibilities as China’s Ministry of Agriculture, Ministry of Water Resources, and the State Forestry Administration combined. We may call the USDA a super agricultural agency.

11.2.2 “Small Government, Big Society” is the Goal of the Government As long as we have a market economy which dictates resource distribution, the system of greater government departments is the necessary outcome. Since China has discarded the planned economy to embrace the market economy, it implies that the government is required not to interfere too much with the micro-level aspects of the economy, and this implication also leads to the system of greater government departments. Some people think that the system is a contradiction to small government. This is a misunderstanding.

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We know that “small government, big society” reflects the people’s desire to limit the size of the government so that government expenditures will not be too much but the size of the government has to do with the scope of responsibilities it is supposed to shoulder. In a modern society, the division of labor becomes more and more detailed; new domains emerge and need government supervision. For instance, the birth of the Internet has spawned e-commerce, social media, and online crime. Whether their effects are positive or negative, these new domains need regulation. If the government does not have the ability to regulate, it can hire experts to do the job. The system of greater government departments does not have exactly the same meaning as “small government, big society”; these two terms are neither equivalent nor contradictory. Small government does not imply one size fits all; it needs to have the requisite number of departments to provide management and service, in short, a rational division of labor. In contrast, the system satisfies the management requirement of the market economy and the need for reason-based departments.

11.3 Difficulties in Implementing the Reform to Establish Greater Government Departments Adopting the system of greater government departments has important consequences in how the government functions. As the analysis above has shown, the system can minimize duplication of government efforts and difficulties in communication and coordination; it harmonizes interdepartmental relations, reduces the number of government organizations, and lessens the need of coordination. It will go a long way in raising government efficiency and lowering administrative cost. But we need to consider the system of greater government departments objectively. Even though this model of government has been successful in some countries, we do not know if it would be effective in China, and we need to pay attention to the potential resistance it may face. For instance, if we give more power to a ministry, would we have difficulty reining in this power? How do other government organizations connect with the new system of greater departments without further duplication of efforts? What structural modifications have to take place before the people’s congresses can supervise these agencies effectively? Do we implement the reform all at once or gradually? What area of government should be the first to introduce the reform? These are the questions we must consider carefully. I think we need to pay attention to the following four pressing questions:

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11.3.1 How to Optimize Organizations Under the System of Greater Government Departments How do we reorganize the government’s power structure and operation methods to ensure supervision of the reform to establish greater government departments in accordance with the principle that decision-making, executive and oversight powers check each other and function in concert? During the 17th CPC National Congress, the discussion of the system of greater government departments was framed by the establishment of a sound structure of power and a mechanism for its operation in which decision-making, enforcement, and oversight powers check each other and function in coordination. This means that the system of greater government departments and the government’s decision-making, enforcement and oversight powers shall check each other and function in coordination, on the basis of which a sound structure of power and a mechanism for its operation will be established. This could create problems for structural reform in the future. There can be two models for the system of greater government departments in my view. The first one is on the level of the departments. We assign decision-making, executive, and oversight powers to various departments. The second one involves the division of organizational functions within a department and the above-mentioned powers are assigned to the organizations within a certain department. This is similar to the separation of decision-making from executive powers in some foreign governments. The executive organization can introduce market mechanisms and implement flexible management. For instance, after the Government Procurement Law of China is issued, the Ministry of Finance is in charge of making policies concerning government procurement, but does not have executive power. Instead, the executive power is given to the Government Procurement Center under the State Council. This is how decision-making and executive powers are separated. In introducing the reform mentioned above, we need to combine all the reforms of the coordinating agencies and state-run institutions, especially those with administrative functions. In other words, we need to transform coordinating agencies into decision-making organizations, and administrative institutions into executive or statutory organizations. Only by doing this, can we assure a total separation of functions and a system of checks. Regarding the supervision of greater government departments, we need to consider how to supervise them from the outside, such as the people’s congresses, the judicial system, the general public, and the media, which has been proved effective. How do we bring this into full play is a big challenge of the system of greater government departments.

11.3.2 How to Contain Departmental Interests Whether the system of greater government departments can effectively contain interests of the various departments has become a key question. A system of greater

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government departments can reduce duplication of government policies and efforts through transforming government structure. In the past there were duplicated efforts, long decision-making time, high administrative cost, and difficult coordination because there were departmental interests involved. Government power was first distributed to the various departments which became associated with the benefits they generated, and these benefits in turn attracted interested parties to give rise to interest groups. This resulted in high administrative cost, low efficiency, and the hijacking of common interests by departmental interests. Some people are concerned that dispersed departmental interests may gather to become centralized interests under the system of greater government departments. A greater department will have increased power which may prove harder to rein in. Other people feel that the National Development and Reform Commission (NDRC) fits the definition of a greater department in that it is an amalgamation of government organizations; it has become a kind of mini State Council to which many officials go to ask for funds or discuss policies. Will the system of greater government departments go the way of the NDRC? In my view, the two are not equivalent; in fact there are differences between them. The NDRC is the State Council’s main coordinating organization and its areas of responsibility are corresponding to the Ministry of Human Resources and Social Security, Ministry of Health, Ministry of Education, and so on. In reality, we need to study the ways in which the NDRC can best fulfill its functions of coordination under such a model. The NDRC does not apply the system of greater department, and we need to figure out how to reform it. For example, we put the unit in charge of economic structural reform under the NDRC in 2003. In retrospect, it was not a good idea to put policy-setting units within one department. A department may not be able to transcend its own interests, and the policy-setting units may very well come under the influence of the departmental interests and undermines the fairness of the policies it sets.

11.3.3 The System of Greater Government Departments is Related to Political Reform Implementing the system of greater government departments will ultimately involve the reform of the CPC, the people’s congresses, etc. We need to consider how the CPC’s power structure dovetails with that of the government, and this is a key question. For instance, how should the Ministry of Culture and the State Administration of Press, Publication, Radio, Film, and Television be related to the Publicity Department, the Ministry of Public Security the Ministry of State Security, and the Ministry of Justice to the Central Political and Legal Affairs Commission, and the Ministry of Human Resources to the Organization Department of the CPC Central Committee? We have combined the Central Commission for Discipline and Inspection with the Ministry of Supervision in recent years with good results. The next step is to consider the ways in which we can further integrate the functions of the Party with those of

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the government agencies. Viewed from this angle, administrative reform should be integrated with political reform, and it may be more effective to change the power structure first.

11.3.4 How to Implement the Reform to Greater Government Departments We have seen that the biggest barrier to the reform comes from the long-standing entrenched departmental interests. During this year’s Two Sessions period, some NPC representatives made the motion to combine the Ministry of Health, State Family Planning Commission, State Food and Drug Administration, and State Administration of Traditional Chinese Medicine into a “Population and Health Commission.” This plan would be difficult to carry out. But whether it is adopted or not, the motion has already embodied the idea of establishing greater departments. And how to divide the policymaking, executive, and oversight powers? We have never had this kind of experience in the past, so it becomes very important to strategize the reform. I think it would be exceedingly difficult to implement the system in one sitting, so there has to be a multi-stage process. We can start from the department that has the prominent problem of duplicated effort, affecting a large group of people, and having the most calls for reform. We can then expand from there step by step, but we need to make sure that the structure seamlessly dovetails with functions. China is a unitary state. To follow through a program of reform from top to bottom, the central government has to set the pace and take the first step. In March next year, a new administration will be formed according to the spirit of the 17th CPC National Congress, and the reform shall be started in the central government before being expanded to local governments. It will be a highlight and draw a lot of attention if it is formed by the principles of the system of greater government departments. The Central Institutional Organization Commission (CIOC) and its General Office will have a strong hand in setting the policies, but it should invite public participation and discussion. It is suggested that the CIOC set up a committee of experts to support the government’s reform to establish greater department. The CIOC should listen to the experts as well as the people in order to minimize certain leaders’ preference, improve the scientific basis, and stick to a long-term vision.

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11.4 Assessing the Implementation of the System of Greater Government Departments 11.4.1 The Implementation The concept of establishing greater government departments, which is to adjust and integrate government organizations from top to bottom, was introduced in the sixth round of administrative reform of 2008. In that year, the State Council established five greater ministries: Ministry of Industry and Information Technology, Ministry of Housing and Urban–Rural Development, Ministry of Transport, Ministry of Human Resources and Social Security, and Ministry of Environmental Protection. So we had basically completed structural integration in 2008. The reform in local governments began in 2009, and the reactions were very different. The local governments integrated resources in the five areas as the central government, serving as its local counterparts, but they did not explore other areas, and most did not have enough will to reform. In my opinion, the structural changes made by the central government did not resolve practical problems. For example, the State Post Bureau and the Civil Aviation Administration of China (CAAC) were put under the jurisdiction of the Ministry of Transport. The CAAC used to be at the ministerial level but became a deputy ministerial organization after the reform. The result is that all the positions within CAAC were downgraded as if all the officials were demoted; this created much dissatisfaction. The director of CAAC has become a Party committee member in the Ministry of Transport but he has never attended any Party meetings in recent years. The system of greater government departments does allow a certain level of creativity on the local level. Fuyang District of Hangzhou is an example. Fuyang is a county-level city which has decided to “implement the spirit, not the form” in its reform to establish larger government departments. What this means is that the city wants to change the spirit of governance and the way the government operates without eliminating any government organization. It has created special committees on top of traditional organizations, with names such as “special committee of culture” or “special committee of social security.” There are fifteen special committees which are “semi-virtual” in the sense that there is no measure or decree which authorizes their existence. A deputy mayor may moonlight as committee chairman while other officials double as committee members. All the departments have budget for headcount but not for projects. The advantage about this kind of reform on the county level is that it reduces the risks of organizational change when a higher level has not completed its own reform. The county can adopt a new reform measure which changes the way the government operates and increases financial and administrative efficiency. The provincial Party committee of Guangdong Province wanted to make Shunde District of Foshan a pilot for the reform to establish greater department. Shunde has a strong economy; its GDP is larger than that of Qinghai and Ningxia combined. There were forty Party and government organizations in Shunde. During the reform

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to establish greater department in 2009, that number was reduced to sixteen, of which six belonged to the Party committee and ten belonged to the government. The reform was composed of three elements: an organizational structure created jointly by the Party committee and the government (all the six Party organizations share resources with their governmental counterparts, including staff), a power structure with checks and balances for the decision-making (moving it up and emphasizing scientific and democratic basis), executive (moving it down and emphasizing efficiency), and oversight (moving it outside of itself and emphasizing independence) functions, and operational mechanisms shared by the Party and the government. This arrangement has minimized administrative cost and problems in communication and accountability. The reform in Shunde was unprecedented and created positive repercussions throughout China. There were difficulties of course, and how would the reform continue after the 18th CPC National Congress? Shunde convened a meeting to discuss this matter. The big problem is this: the officials who used to be department chiefs are now ranked as deputy chiefs, but you cannot treat them as anything less than department chiefs by taking their perks away. As for the officials who were deputy chiefs, Shunde asked them to sit on a “departmental executive committee” which would allow them to keep their old perks. All the salaries were unaffected, so in a way the city “bought” the reform. But Shunde is doing well economically, so it was able to do this and made a success out of it. When you combine eight departments into one, the new department will look to the higher level for direction. The problem is that the higher level hasn’t finished doing its reform, so the lower level has its hands tied behind its back. Every time a meeting is convened, the department chief on the lower level still has to coordinate with the eight departments on the higher level because integration has not been carried out there. It has become very difficult for the department chief to attend meetings. This shows that there has to be coordination at all the levels of government for the reform.

11.4.2 The Assessment How do we assess the reform to establish greater government departments? There are three aspects in our experience of the past five years that are noteworthy. First, the reform has merged government functions and responsibilities and smoothed out internal relationships. Second, the reform has reduced the number of departments and simplified governance. Third, the reform has clarified accountability. Three problems remain. First, the reform is carried out in letter but not in spirit. The goal of the system is not mere integration but the smooth functioning of the government. For example, the Ministry of Railways hasn’t been integrated into the new Ministry of Transport, it is impossible for the CAAC to function smoothly. Second, the change in government functions hasn’t been fully realized. The government still has too much power to intervene in the economy and market. The implementation of the reform hasn’t resolved this issue. Third, having divided the government into

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decision-making, executive, and oversight functions, we still have problems reining in the power of the government. The existence of the power of the government, the abuse of power, and corruption are still problems to be solved. We should not underestimate the resistance to the reform, while continue to strive for a well-structured, clean, and service-oriented government.

Chapter 12

Optimizing Government Structure with Vertical Administrative Reform

In the thirty years since the beginning of reform and opening up, we have made some headway in reforming the vertical administrative structure, but some problems remain. There are still too many levels in the structure, resulting in high administrative cost. There is a disconnection between what the local governments need to provide in terms of public services and what their capabilities allow them to do, and this in turn hampers regional development. Under the new historical conditions, how to reform vertical administrative structure becomes a pressing issue in reforming the administrative system.1 This chapter will broach four topics: reducing administrative levels, restructuring the public service system, reforming the financial system, and reforming the way leaders are elected in local governments.

12.1 Reducing Administrative Levels and Delegating Power to Lower Levels 12.1.1 Look at the Province-Controlled Counties in the Context of the Major Strategy of Urban–rural Integration in China Ever since the 3rd Plenary Session of the 16th CPC National Congress adopted the strategy of urban–rural integration and set 2020 as the year of implementation,2 this strategy has received wide attention from different quarters. Urban–rural integration 1 There are five levels in the current vertical administrative structure: central, provincial, municipal,

county, and township (towns). 2 The strategy of urban–rural integration was raised during the 3rd Plenary Session of the 16th CPC

National Congress in November, 2003. © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_12

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does not mean urbanization of the countryside, nor does it mean urbanization in the traditional sense. When the social and economic development of a country has reached a certain level, its rural and urban areas will be integrated. This is a slow process that cannot be realized in one step. According to the experience of other countries, the best timing3 for urban–rural integration is when a country’s urbanization reaches 50%. China’s urbanization rate has reached 45.8% and it is very close to the optimum time for urban–rural integration. There are three requirements to this strategy if we look at it from the structural aspect4 : First, there should not be institutional or systemic impediment to urban–rural interaction. Second, government policies should apply equally to both rural and urban areas. In other words, the policy objectives should be the consistent for both urban and rural areas. Third, the mechanisms should be the unified in both urban and rural areas. The urban–rural integration should attempt to reach three goals: First, from the political perspective, urban and rural residents should enjoy the same social status and political rights. Second, from the economic respective, productivity of the rural area should be raised so that it is on a par with the urban area. Third, the government should provide basically the same public services to the people in rural and urban areas. As for realizing urban–rural integration, there are three paths5 : Firstly, break the old urban–rural dual structure in terms of systems and policies. Secondly, devise the same kinds of plans, construction, and governance for urban and rural areas. Thirdly, the economic and social development in urban and rural areas should be harmonious, coordinated, and sustainable. An important requirement of implementing this strategy is that our assessment must be reality-based. China has made some impressive economic accomplishments during the thirty years of reform and opening up. The pace of industrialization and urbanization has accelerated, but we have not found a way for urban–rural integration; the urban–rural development has more or less been two parallel lines. Similarly, the Chinese people’s standard of living has increased vastly in the past thirty years. The population living in poverty has decreased from 250 to 17 million, but we have not found a way to close the urban–rural gap; in fact, this gap is widening. In 1978, the urban–rural income ratio was 2.22:1 in favor of the cities; now it is 3.33:1. The urban and rural have both undergone enormous changes, but the urban–rural dichotomy remains. The cities have only become much larger and that is all. There are many reasons for this. Systemically speaking, at least three stand out: First, the urban–rural dichotomy has always held enough sway to make impossible any government attempt to unify governance. Second, China implemented in 1982 a policy under which counties came under the jurisdiction of the cities, and this policy made way for the creation of prefecture-level cities. In 2002, of the 330 prefecture-level units, 275 instituted this policy, covering about one billion people. A minority of cities took unfair advantage of their political situation to suppress the 3 It

is an internationally accepted fact that a country should accelerate the pace of urban–rural integration when its urbanization rate reaches 50%. 4 The structure here is the vertical administrative structure. 5 We mean here the paths to implementing urban–rural integration.

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counties under their control and reverted to the old urban–rural dichotomy. Third, rural governance structure lacks rationality, impeding the progress of urban–rural integration. All these phenomena point to the fact that we need to reform the vertical administrative structure to accelerate the pace of urban–rural integration.

12.1.2 Accelerate Reform in Local Governments’ Vertical Administrative Structure In reforming the vertical administrative structure, it is the policy of the central government to give more power to counties, reduce administrative levels, and devolve responsibilities in a general way. The central government has taken the important step to put counties under the control of provinces. Two models exist for doing this: the Hainan model6 and the Zhejiang model.7 The counties in Hainan Province have never been under the control of the cities since the founding of the province in 1988. In 2008, Hainan simplified its government structure and devolved more than a hundred responsibilities to the cities and the counties. In Zhejiang, the provincial government manages county-level financial matters while the municipal government manages the county-level administrative matters. The reform exemplified by the Zhejiang model is to expand the counties’ power to manage their own financial matters and the province is not completely in charge of the counties’ social matters and public service. In my opinion, the Zhejiang model can be an example for many places, but as reform deepens, many places will opt for the Hainan model during the period of the 12th Five-Year Plan; that is to say, the province will take charge of the financial and administrative matters of the counties. Moreover, as modernization drives the development of the highway system and e-government, there will be more and more opportunities for the provinces to take direct control of the counties. According to our study, the vertical administrative structure of the future does not have to be a cut-and-dried issue; different kinds of governance may co-exist according to the requirements of actual conditions. For instance, the more developed regions in eastern China, in order to shrink the vertical administrative structure, may cancel the town/township-level governments once the provinces take control of the counties. As for central and western China, the town/township-level government can continue to exist, but the counties can take over the financial matters of the town/township-level government to prevent the latter from becoming a burden to the people or taking more responsibilities than it can handle. To implement this kind of reform, we make the following suggestions to the central government: First, adjust slightly but appropriately the provincial administrative system by increasing the number of municipalities directly under the central government. We 6 Hainan

Province implemented provincial governance over the counties ever since its founding in 1988; the counties were never ruled by the cities. 7 There is hybrid governance in Zhejiang Province: the cities control the counties’ administrative matters and the province controls the counties’ financial matters.

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want to make adjustments to large provinces which have unreasonable aspects to their administrative systems, but the latter have very little room to accommodate adjustments. If we promote more cities (such as Dalian, Qingdao, Xiamen, Ningbo, and Shenzhen) to the status of municipality directly under the central government, there will be more room for change on the provincial level. Based on China’s area and population, we think that the total number of provinces and municipalities directly under the central government8 should not be smaller than forty. Second, we need to specify the responsibilities of the central-, provincial-, county, and city-level government, especially in terms of social governance and public service, and establish a reasonable payment transfer system. Third, devolve power and put counties under provincial control. The government has set the county as an important administrative unit for industrialization and urbanization, but the county lacks financial and administrative power which is concentrated on the provincial and municipal levels. The county- and municipal-level governments shoulder a lot of responsibilities in terms of social governance and public service, but they do not have the financial wherewithal to fulfill their responsibilities. Devolving more power to the county will enable it to do the things it is asked to do. Fourth, the payment transfer system will be established on the provincial level. After the transfer of financial matters from the county to the province, every province has about a hundred counties under it. The counties are in different stages of development, so it is important that this payment transfer system be fair. As strong counties become stronger, they should not do so at the expense of the weaker counties. Fifth, we can consider raising the administrative status of counties or giving the title of deputy prefect to the county-level chiefs and Party secretaries and the title of deputy director to the heads of towns/townships. This will enhance stability to primary-level governance and motivate primary-level officials.

12.2 Ensure Equal Access to Basic Public Services, and Restructure the Basic Public Service System Ensuring equal access to basic public services is part of the strategy adopted by the 17th CPC National Congress9 and an important goal of the administrative reform which was discussed also in the 12th Five-Year Plan. We have to be aware that currently China applies low standards to equal access to basic public services. We have 6–7% of the world’s GDP yet we have to deliver public service to 21% of the world’s population. This is a daunting task. According to the experts, China has to invest RMB 6 trillion in public service in the next few years. To reach the standard of 8 There

are only four municipalities directly under the central government now: Beijing, Shanghai, Tianjin, and Chongqing. If we add to the list Dalian, Qingdao, Xiamen, Ningbo, and Shenzhen, the number of provincial-level administrative units would be close to 40. Currently, China does not have enough provincial-level administrative units. 9 The 17th CPC National Congress convened in 2007.

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middle-income nations, China has to invest RMB 45 trillion.10 It is clear that China does not have this kind of economic abilities, so we must begin with low standard. Public service is important to the extent that it involves people’s wellbeing. There is no doubt that public service is an important part of administrative reform as discussed during the 12th Five-Year Plan. There are six tasks that need to be done: 1. Set the goals of ensuring equal access to basic public service. There should be three main goals: ensuring equal access between urban and rural areas, between different regions, and between different social groups. We should stick to these three goals in our plans. 2. Strengthen the role of the government. The government plays an important role in ensuring equal access to basic public service. Its main responsibilities include: Firstly, ensuring fairness in policy making and implementation. This includes having the right values in setting policies, preventing departmentalization of government interests, and setting up a strategy of public service which is fair to all the people in China. Secondly, reforming and improving the public finance system. This includes changing the structure of fiscal expenditure so that more funds can be earmarked for public service, continuing the growth of government’s investment in public service, deepening financial reform below the provincial level, and improving the payment transfer system between the central and local governments. Thirdly, strengthening the government’s capacity building in public service by transforming the government functions. The administrative system has to facilitate the provision of public service; for example, accelerating the building of e-government and improving technology to deliver public service. Fourthly, establishing an evaluation system for government performance in basic public service delivery. This includes creating standards and a strict accountability system for basic public service delivery. 3. Establish a unified public service system for urban and rural areas. To ensure equal access to basic public service, the government has to incorporate the establishment of a unified urban–rural public service system in the 12th Five-Year Plan. We face some severe challenges here. Based on actual conditions, a unified public service system for urban and rural areas includes: Firstly, in the rural area, continuing reform with the focus on implementing a mechanism for funding compulsory education, promoting a new type of cooperative medical care system, implementing the subsistence allowances system, and promoting the reform of rural financial management system to ensure town/township funds are managed by the county but used in the towns/townships. Secondly, rationalizing accountability at all levels of government in terms of basic public service delivery, that is to say, the division of responsibility regarding compulsory education, basic health care, public health services, employment, and social security. Thirdly, solving the issue of delivering basic public service to migrant workers. This has to be done on the national level.11 10 This

comes from a report by the Institute of Reform and Development (Hainan). The experts believe that RMB 45 trillion is needed to ensure 1.3 billion people have equal access to public service. 11 Delivering basic public service to the migrant workers means solving their living issues once they move into the cities. This requires a large amount of government funds.

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4. Diversify participation in public service delivery. We have to realize that ensuring equal access to basic public service is a herculean task which the government cannot undertake by itself. Certainly, the government must do its part, but it also needs to mobilize social and market forces and invite them to participate. Market reforms in the past have facilitated the growth of some social organizations which are now able to participate in public service delivery.

12.3 Deepen Finance Reform to Iron Out Issues Between Central and Local Governments The 17th CPC National Congress has stated that “We will improve the public finance system as we work to ensure equal access to basic public services and establish development priority zones.”12 This means that the government has to accelerate administrative reform, transform its functions, shift its orientation from omnipotence to public service, and perform its duties of economic adjustment, market supervision, social management, and public service. The first step in this process is the creation of a public finance system which allows the government to dutifully provide public service. As its coffers have become plentiful in recent years, the central government has increased its expenditures in public health, education, and social security to improve people’s lives and coordinate economic and social development. To shore up these achievements, the government has to reform the financial system by perfecting the payment transfer system. It has to clarify the responsibilities at all levels of government in providing public service such as compulsory education, public health, and social security and environmental protection so that the financial system will allow the government at any level to have the financial means to do what it is directed to do. Regarding the payment transfer system, first of all, we have to understand the concept and how it can help in ensuring equal access to basic public service. The payment transfer system can be used mainly in a general way and occasionally for special projects to enable a local government to provide public service. Secondly, we should test vertical as well as horizontal transfers. Thirdly, we should gradually remove tax refund13 and make them part of the general payment transfer system. Fourthly, we should create standards for project-special payment transfers and limit their scope and conditions on a scientific basis. Fifthly, we should legalize the payment transfer system and specify its principles, contents, forms, budget, and supervision in legal ways. Moreover, we should increase funds for public service. Areas such as infrastructure should be open to private sector participation in order to reduce government

12 The 17th CPC National Congress convened in 2007 and adopted the policy of reforming the public finance system. 13 “Financial returns” happen when the central government returns funds to local governments according to revenue-sharing principles.

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spending, which has increasingly concentrated on education, health insurance, and social welfare.

12.4 Reforming the System of Selection and Appointment of Officials to Raise the Public Governance Capability of Local Governments The 4th Plenary Session of the 17th CPC Central Committee adopted the principle of selecting officials in a democratic, open, competitive and merits-based way.14 We can imagine that these principles not only point out the direction of our personnel reform, but also provide institutional guarantee for deepening reform of the system for the management of officials and personnel in the 12th Five-Year Plan. The central government requires widening the scope of direct election of Party leaders at the primary level. We agree that direct election should be adopted at both the town/township level and the county level. Because the county will have a special status in the administrative system of the future, perfect selection and appointment of the county-level officials will have wide repercussions in public governance. For this reason, we suggest: First, when choosing pilot sites for direct election on the town/township level, it would be good to choose several pilot counties, which shall be directly supervised by the central government. Second, we should consider making important structural adjustments to accommodate future elections of county-level leadership. We suggest that Party secretary at the county level should not be appointed as a chairperson in the people’s congress, because the county Party secretary is first-in-command of a county and cannot really fulfill the people’s congress’ supervisory functions over the government. Third, for county-level leadership, the posts of Party secretary and county chief should be occupied by the same person through direct election. The people’s congress and discipline inspection committee on the county level (which had better be vertically managed by the upper-level discipline inspection committee) should exercise supervision over the county chief and Party secretary (ideally one person). Fourth, we should elect county chief and Party secretary through the Party and the people’s congress directly. This is how it can be done: CPC members first select, through direct election, a number of qualified candidates for county Party secretary; the candidates are then presented to the people’s congress at the county level as the candidates for county chief. Of course, legally, the people’s congress at the county level can choose candidates for county chief with a quorum of more than ten people, but the candidates have to be Party members. Finally, the county chief is elected in a plenary session of the people’s congress, and whoever is elected is also the countylevel Party secretary. But be it in the Party or at the people’s congress, an election 14 The 4th Plenary Session of the 17th CPC Central Committee convened in April 2009 proposed the principle of reform in selecting and appointing officials.

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should have multiple candidates to ensure fairness. If election on the county level can be conducted in the above-mentioned manner, we can ensure that our leaders are accountable to the Party and the people and fulfill the principle of selecting officials in a democratic, open, competitive and merits-based way; it would signal a historic change in county politics.

Chapter 13

Changing the Concept of Governance

Changing the concept of governance no doubt plays an important part in government transformation. After the establishment of the People’s Republic of China in 1949, China had instituted a planned economy and a highly centralized government for a long time; we may say that the traditional way of governance is deep-seated. To some extent, without some leaders harboring new ideas of governance, it would be exceedingly difficult to transform the government. In this chapter, we discuss the strategy of enriching the people, tolerance for ideas, service-oriented government, and science-based reform.

13.1 Enriching the People as a National Strategy 13.1.1 Should Enriching the People Be Raised to the Level of a National Strategy? In the reform of the administrative system, people’s livelihood and wealth has become a popular topic of discussion. Some people have observed that Premier Wen Jiabao had repeatedly talked about people’s livelihood in his work report during the 2011 Two Sessions; in fact, this was a hot topic both inside and outside the Two Sessions. On the eve of this annual event, the China Institute for Reform and Development (CIRD) convened a press conference in Beijing attended by reporters from over forty media outlets. Chi Fulin, the director of the Institute, introduced his book Enriching the Masses First – Direction for the Second Reform. Mr. Chi feels that enriching the people represents the government’s determination to narrow the income gap and implement the important strategy of avoiding the “middle-income trap.” Experts such as Zhang Zhuoyuan of the Chinese Academy of Social Sciences and Song Xiaowu of China Society of Economic Reform have written favorable reviews of the book, and © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_13

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I have had the honor of presenting a speech entitled “Enriching the People Means Major Reform” at the conference. I am of the opinion that enriching the people should be the national strategy since it echoes the long-term policy of “enriching the country first.” China is wealthier now and it is appropriate to do some policy adjustments regarding the beneficiaries of national wealth. This kind of adjustment is good for China’s sound development and will not steer the nation off the path toward prosperity. We all know that the Chinese people’s income and standard of living have risen tremendously during the thirty years of reform and opening up. The quality of life today was impossible for people thirty years ago. I remember my colleagues’ dream at that period was to get a raise of RMB 80. Who knew that a raise today could be in five figures? But the Chinese people are by no means wealthy. China had the second largest economy in the world in 2010, but the per capita income was USD 4000, ranking the country far behind the 100th place in the world. Moreover, there is severe income disparity which puts a large percentage of Chinese people below the poverty line. According to the National Development and Reform Commission, China, today has 40 million poor and 270 million low-income people. Because of this, some people predict that the 12th Five-Year Plan, which has set enriching the people as the national strategy, would be a turning point in the Chinese history. As far as the term “enriching the people” is concerned, people have different interpretations. In my opinion, it means raising people’s income, improving their lives, protecting their interests, and elevating their sense of dignity and happiness. The government has to put all these things at the top of its agenda, making them the starting point and goal of its work. Of course, it does not mean that we should ignore enriching the nation, but that there is a proper order in wealth. We had a previous aim of making China wealthier and stronger; in fact, it was a principle at the time of the founding of the People’s Republic of China. We need to make an adjustment so that our emphasis from now on is to enrich the people. More importantly, this should not simply be an administrative policy or a temporary scheme of some kind, but a national strategy for the long term. It is only when the government can come around to this kind of thinking that it is able to carry out this new strategy in the everyday work of public governance. This will no doubt be a historic change.

13.1.2 Implementing the Strategy of Enriching the People To implement this strategy, we must first of all recognize its obstacles. China’s primary income distribution is unreasonable due to the low ratio of laborers’ earnings to total income. The investment in education, health care, and social security is inadequate in the secondary income distribution. The income gaps between the urban and rural areas, between the rich and poor, and between regions are growing. All these factors have negative effects on people’s income. Unreasonable income distribution, coupled with low general income, intensifies social conflicts, destabilizes the society, and warps the structure of economic growth by making our economy overly reliant

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on investment and export. Viewed from this angle, enriching the people has important strategic implications for the long term. The government at all levels has to insist on implementing this strategy through all the existing channels to make sure that this strategy does not degenerate into an empty slogan. The 12th Five-Year Plan has already made some strategic arrangements to ensure and improve people’s livelihood, such as allocating more funds in this area, reforming income distribution, lessening the tax burden, avoiding conflicts of interest between the government and the people, creating mechanisms for enriching the people, reducing administrative costs, encouraging the growth of the private sector, and accelerating the equal access to basic public service. We can predict that if all these arrangements of the 12th Five-Year Plan can be implemented, the strategy of enriching the people will have a better chance to succeed.

13.2 Tolerance for Ideas is the Manifestation of the Rulers’ wisdom 13.2.1 Tolerance for Ideas is an Important Condition for Social Progress People with some knowledge of history will know that during the ten years of Cultural Revolution, people made a lot of “left” deviationist mistakes and public opinion had only one voice; the lack of tolerance for ideas ossified people’s thinking and limited their imagination and creativity. There was no vitality in the society. As for the fundamental changes the Chinese society has undergone since the beginning of reform and opening up, the most important one might not be the material improvement of people’s lives but the smashing of the old ways of thinking and the budding of tolerance which befits a modern society. It is this tolerance which propelled the Chinese people to embrace the world and to integrate themselves into the world after having experienced such a historic calamity. During this process, Deng Xiaoping’s “standard of truth” discussions in 1978 and the talks during his southern inspection tour in 1992 emancipated people’s minds and ultimately made this tolerance of ideas possible. Three features characterize this tolerance of ideas: First, people’s right of speech is generally respected. The Constitution grants people the freedom of speech and freedom of association. But more importantly, the CPC and the government recognize the importance of the right of speech in public governance. The 17th CPC National Congress in 2007 adopted the democratic elections, decision-making, administration and oversight, people’s right to stay informed about, participate in, express views on, and oversee Party and government operations, and self-management, self-restraint, self-education, and self-service. These are testaments to the respect of the people’s right of speech.

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Second, social organizations have grown. These are quite unlike the national organizations under the planned economy. One of the important changes in social structure under market reform is the growth of social organizations which did away with the old “strong government, weak society” policy and injected much vitality into the market economy. It also provided the foundation for a tolerant society. Third, public participation has grown in an unprecedented way. Public participation is an important indicator of a tolerant society. Under a highly centralized planned economy with highly uncertain public rights, the flow of information between the government and the people is restricted and hampered, and public participation is practically impossible. But this situation no longer exists in the age of the Internet. It is already a reality that people have access to public information and participate in government administration online. People on the primary level can participate in public affairs in the virtual space provided by the Internet; they are influencing public governance and the policy-making process in a profound way. This has special meaning for China, which has thousands of years of feudal and autocratic traditions. The Chinese people have always believed in running the country on their own and this has been increasingly possible in the age of the Internet. Of course, we have to realize that we are still far from having a truly tolerant society. There are places where diversity of opinion is not respected. Many officials are amenable to compliments but not dissident views; others fear that public participation will bring disharmony and instability. All this shows that we have a long way to go in creating a tolerant society.

13.2.2 Tolerance for Ideas Imparts Vitality to the Society A tolerant society begins with the tolerance for ideas. It is hard to imagine a tolerant society where ideas cannot be aired publicly. For China, it is important that our leaders be tolerant, since that is how these values can be established. We should all remember Voltaire’s famous quote, “I disapprove of what you say, but will defend to the death your right to say it.” For the people, they will express their opinion only when they live in an environment where they are encouraged to do so. As for the government, it needs to accept that the people are capable of wisdom and intelligence and it is only by letting them exercise their right of speech that a tolerant society can be achieved. A tolerant society is always harmonious, even if it is not wealthy. Second, we should encourage people to criticize the government in any way they can to correct the government’s mistakes and guarantee the fairness of its policies. This is perhaps the most pressing thing, because although social conflicts manifest as conflicts of interest between different social classes or social groups, they all have to do ultimately with the lack of fairness in public policies. The most direct indicator of a tolerant society is when government officials encourage, not suppress, people’s criticisms.

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Third, we should create a kind of social mechanism which facilitates tolerance, encourages creativity in thinking, and arouses social vitality. The core of this mechanism is the rule of law out of which all the good things we have just mentioned will flow. Dissenting views should find social space to air so as to promote the development of the society in an orderly way through self-adjustment and self-regulation.

13.3 Social Management Shall Emphasize Social Service 13.3.1 Learning the True Meaning of Social Management Ever since the CPC organized a special symposium in social management for provincial-level officials in early 2010, the topic of social management has received continued wide attention. Some local governments, such as the municipal government of Beijing, have begun to set down plans for social development as part of the 12th Five-Year Plan. Objectively speaking, this reflects the fact that the social development is weak in the “four big projects,” and also signals the prominence of social management for the future. When thinking about social management, we feel that there are three important questions: First, what is the true meaning of social management, or alternatively, what are the relations between social management, social progress, and social service? Second, what are the challenges facing China’s social management right now? Third, what is the path to effective and innovative social management? We have to find answers to these questions before we can have good social management. What is social management? It is the management and service which the government provides above and beyond political, economic, and cultural matters. It is smaller in scope than social development, and we may say that it is the latter’s constituent part. Its goal is to promote social development in a harmonious and orderly way through coordinating social interests and resolving social conflicts. Its true substance is management and service for the people. Its core is serving people by subsuming management under service. Social management is one of the government’s important responsibilities. The government plays an important role but is not the only actor. As the market economy develops, individuals, and social organizations play an increasingly prominent part in social management. This is why when making plans for social management, the CPC emphasizes Party and government leadership, social coordination, and public participation. Regarding the challenges of social management, there are two aspects: the increasingly prominent social conflicts and the urgent need of restructuring social order. The reason for the former is that social interests have undergone important changes and become difficult to coordinate; the “four gaps” (urban–rural, rich-poor, between industries, and between regions) have also worsened, resulting in social disturbances which undermine social stability. The reason for the latter is that social ethics has less and less constraining effects on people’s behavior, and this in turn threatens social

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order. Norms in social behavior have not been fully established during the marketization process, leading to an abundance of food and drug safety issues. All of these points to the fact that good social management is impossible without restructuring social order. The central government has taken some important steps in meeting these challenges, including ameliorating the structure of social management, creating mechanisms which are led by the Party and government to protect people’s interests, attaching importance to services and management of migrant workers and special groups, improving primary social management and service systems to strengthen public safety, promoting the development of social organizations in a sound and orderly manner, managing the information network, and instilling social ethics. But one important consideration must run through each of these steps: the core of social management has to be the people. Social management can attain its goal only if it serves the people.

13.3.2 The Core of Social Management is to Improve Social Services First of all, in order to improve social services, we shall prevent degenerating social management into simple social control. Alternatively speaking, we have many things to attend to in social management, and we have to avoid the risk of oversimplifying it. While it is true that social management needs control and oversight, its ultimate goal is to provide services for the society, not management for management’s sake. How we manage the relationship between management and service will affect the outcome of social management. We have to learn how to subsume management under service. Second, we have to be people-oriented in social management. This is a basic concept of the Scientific Outlook on Development, since we have to be peopleoriented whether we are talking about politics, economics, or culture. Otherwise, social management will veer off course. This is because social management, performed either by the government or a social organization, has to come face to face with real people who have different interests, requests, and values. It is unlikely to be successful if it ignores these deep-seated factors. Under current conditions, to be people-oriented in social management is to safeguard the people’s basic interests, precisely because there are many elements in conflict with their interests in their everyday lives. The idea of people-oriented can only be realistic when the general public’s interests are properly safeguarded. Viewed from this angle, we see that being people-oriented is not an abstract or empty concept. Third, to give prominence to social management, we have to expand public participation by individuals and social organizations. This is in fact the natural trend of social development. Expanding public participation not only injects vitality into social service but also creates room for the government to purchase services from the public

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arena. This will result in better coordination of social interests and orderly public participation in social management, playing an important role in social management and social service.

13.4 Reform Guided by Science-Based Top-Level Design 13.4.1 Science-Based Top-Level Design Can Reduce Risk of Impasse to Reform The government first stated the importance of top-level design of reform in the 12th Five-Year Plan and emphasized that reform should be guided by top-level design. We may say that this expresses the strategic thinking of the government at the senior level. The world has witnessed China’s reform of the past thirty years. I remember reading an annual poverty alleviation report published by the World Bank. This report stated that from 1980 to 2000, the world has a net reduction of 340 million poor people while the figure is 400 million in China. This means that during the years between 1980 and 2000, some parts of the world gained more poor people while other parts had fewer, but the net reduction is 340 million people. In China, there were so many people (400 million) lifted out of poverty during those twenty years that the number eclipsed the net reduction of the world. Even though China and the World Bank have different definitions of poverty, with the World Bank using the UN definition, China’s achievement in poverty alleviation is nothing short of miraculous. But as great as this achievement is, China faces severe challenges in the logic, structure, and substance of reform. It is only through a strengthening of the top-level design that we can solve some strategic and major problems and hope for some realistic breakthroughs. Without this, reform may hit an impasse and there would be more social risks associated with reform.

13.4.2 Reform Success Depends on Science-Based Top-Level Design If we look at the trajectory of various reforms, we see that they always start with political rectification of some kind but the core is always the economy. Although reforms have involved many domains, they mainly provide support to or blaze the trail for the reform of the economic system. But things changed in 2005, when there was increasing resistance to economic reform and the deep-rooted problems became more difficult to solve. Because of this, in drafting the 11th Five-Year Plan in 2005, the government decided to make administrative reform the key to deepening

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comprehensive reform and widening China’s doors to the outside world. This implies that the logic of reforms has changed and reform of the government has become an important topic of discussion in an unprecedented way. Structurally speaking, the reforms are undoubtedly comprehensive because they involve the economic, political, social, and cultural domains. But as the reforms deepen, their structural problems become obvious, and the lopsidedness of social reform is even more acutely felt. When social development or social reform is unable to keep pace with economic reform, the latter lacks the proper social space for its implementation. How to inject more reason and balance to the structure of reforms becomes the key to their further implementation. We make the following observations about the current situation of China’s reforms: First, while China has built a socialist market economy and a legal system, the market has not been able to exert its influence on the distribution of resources which often needs government intervention. Second, while China has become the world’s second largest economy, the heavy environmental cost and the irrational economic structure have spelt doom to the traditional developmental model and a new path has to be found. Third, while many people have benefited from the reforms and seen their standard of living rise, they are also troubled by the severe income disparity and the social problems caused by the “four gaps” (urban–rural gap, richpoor gap, the gap between regions, and the gap between industries). Fourth, while the government has undergone historic reforms, corruption and abuse of power are still problems which gnaw away at the government’s credibility. All these points tell us clearly that China’s reforms have reached a critical period. We need to think clearly about how the reforms can continue, including the need to rebuild consensus on reform, work out a strategy, and prioritize the reforms. This is where top-level design comes in. Now we see that a top-level design is really a comprehensive plan for future reform; based on safeguarding the people’s interests, it also rediscovers the relations between the logic and structure of the reform under the new set of historical conditions. With this as the foundation, the government needs to make some top-level decisions about the obstacles of future reform, create a framework for removing the obstacles, and make these decisions the basis for other reforms. This will minimize resistance to reform and lower social risks, thereby ensuring the reform’s implementation. It is perhaps for this reason that the 12th Five-Year Plan emphasizes the importance of top-level design.

Chapter 14

Transparent Government Operations

Many differences separate modern governance from traditional governance, the former being characterized by the diversity of governing entities, the voice of the people, market mechanisms, and a results-based evaluation of government performance. There is another important difference, and that is the transparency of government operations. Transparency and the attendant mechanisms have always been important considerations in the thirty years of administrative reform. This chapter will discuss such topics as making government business public, participating in political discussions online, applying the rule of law to the officials, disclosing personal assets, opposing formalism, and establishing the official residence system.

14.1 Forcing Reform by Making Government Business Public 14.1.1 Making Government Business Public is a Necessity of Modern Governance The central government published Opinions on Making Government Business Public and Improving on Government Service on August 2, 2011; it was the first measure with binding effect regarding government operations since the implementation of Regulation on Government Information Disclosure in 2008. Apart from requiring government at all levels to provide quality services to the public, these opinions have two other stipulations: First, disclosure of government affairs is the rule and not the exception; the government must make timely, accurate, and comprehensive disclosure of information which pertains to public interests. Second, the government must promote transparency and make public its processes to invite scrutiny of its operations. © Springer Nature Singapore Pte Ltd. 2021 Y. WANG, A Report on China’s Administration Reform, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2693-7_14

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The government had reasons to emphasize transparency at this time. We know that the government had done many things to overcome the problems of lacking transparency since the implementation of Regulation on Government Information Disclose in May 2008. The general public could get information from many channels such as online government portals, communiques, government spokespersons, the print media, and other media outlets. These channels provided the opportunity for the public to understand and participate in government affairs. But, undeniably, there has been increasing contradiction between what the people want in terms of public disclosure and what the government provides; the contradiction manifests itself in how information is obtained and whether it is trustworthy; it has become a topic of public discussions and sometimes breaks into civil disturbance. This battle of the wills between the general public and the government has become more and more serious; it seems more pronounced in the age of the Internet. China has about 600 million netizens, exceeding other countries and regions in the world. Users of WeChat and micro-blogs total around 600 million as well, and cell phone accounts reach 1.2 billion. These numbers have been steadily increasing, and netizens will reach 700 million in a few years. Facing these huge groups of people, can the government do a good job in making its operations public? It seems that government at all levels lacks the proper mindset and tools to do so. Internationally speaking, public governance has become a universal concept. We can trace government transparency to several hundred years ago. Historical data shows that Sweden is the first country to establish government transparency; it adopted the Press Act in 1776 allowing the public to obtain and publish any government document. There are generally three ways to establish government transparency: First, to include it into the constitution, as did countries such as Sweden, the USA, Japan, and ROK. Second, to pass laws and regulations establishing it, such as the Freedom of Information Act, Government in the Sunshine Act, and Privacy Act in the USA, Free Access to Government Documents in France, Access to Information Act in Canada, Freedom of Information Act in the UK, and Freedom of Information Act in Japan. There are over forty countries with freedom of information law and scores of other countries are contemplating adopting such a law. Third, make it into an unwritten law by insisting on the principle of transparency and demanding disclosure and equal access to government information. As we can see, transparency in government affairs has become a mainstay in public governance. The Chinese people, including millions of Internet users, are requesting that the government satisfy their most basic right to know; this is not an extravagant demand. As it implements transparency, the government should not regard it as an administrative tool, but a desirable relationship between the government and the public it serves. Establishing mechanisms, processes, and accountability of transparency will force the government to reform itself. In other words, transparency is a strategy, not a tactic.

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14.1.2 Four Aspects of Government Transparency To continue this train of thought, government at all levels needs to attend to the following four pressing tasks in addition to the other tasks regarding implementation: First, specify the kind of information which cannot be disclosed and let the society have a say in this decision. It is difficult to define the exceptions to transparency: it is too easy to say that personal privacy and commercial or national secrets ought to be excluded. Departments of various regions have to set rules according to their actual conditions and make these rules public so that the people can hold the government accountable. Second, create a mechanism to handle negative comments about the government. The government tends to prevaricate when people question its performance, and this is what roils the public the most. This kind of thing often makes things worse. To avoid this problem, the government should create a mechanism for communicating negative information. It should not wait until its capability is questioned to explain itself. Whenever negative news surfaces, the government should take the bull by the horns and address it and let the people understand where the difficulty lies. This is a good way of turning passivity into proactivity and creating a good image for the government. Third, establish a mechanism to evaluate government transparency. The government should not be left to evaluate itself; the people have to get involved. This will force the government to reform itself. For example, the government can report on its own transparency at the end of March every year and the public can evaluate and grade it. This will create a healthy competition among the departments and force the government to change. Fourth, create a system of transparency accountability with the people’s participation. Public evaluation can be coupled with the government’s supervisory function to create a system of accountability to ensure implementation of government transparency.

14.2 Codification of Online Political Participation 14.2.1 Online Political Participation is a New Way of Governance On July 4, 2011, Politburo member and Party Secretary of Guangdong Wang Yang led a panel of five provincial-level Party committee members to answer questions from the audience through an online forum. The title of the forum was “How Social Development Makes Guangdong Happy.” This was the fourth time that Wang held an online political forum; the first time happened in June 2008. The topics of the other three forums were: “Emancipation of the Mind” (2008), “Plans for the Pearl River Delta” (2009), and “Guangdong, a Cultural Province” (2010).

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To have provincial Party leadership discuss development issues and answer questions through an online forum is rare in China, and it also reflects the leadership’s sincerity to the public; and this is why Wang’s forums attracted a lot of attention. I personally believe that such acts are not inauthentic shows put by the government, but the determination that the leadership of Guangdong wanted to hear the people’s opinions about what the government was doing. These online forums are truly manifestations of democracy. Moreover, three days before Wang’s online forum, the then President Hu Jintao had spoken about people’s political participation and his desire to consult the people on governance, learn about their needs, and seek their advice. President Hu’s views were consistent with the report of the 14th CPC National Congress, i.e., to uphold people’s right to stay informed about, participate in, express views on, and oversee Party and government operations. In the age of the Internet, online political forums have become the new tool for the people to participate in government operations. Even though online political participation took place locally, it would not have met with success without the central government’s approval and help. President Hu interacted with people online in August 2008, right after the earthquake of Wenchuan. This event attracted a lot of attention. There is a reason why President Hu communicated with the general public at that time: the netizens had played an important role in three big events of that year, namely the unrest in Tibet at the beginning of the year, the hindrance suffered by the Olympic torch bearer, and the Wenchuan earthquake in May. The positive role these netizens played has far exceeded the government’s expectation and imagination. When Olympic torch bearer Jin Jing’s progress was hindered in Paris, France, Chinese netizens called on the Chinese people overseas to protect her. After the Wenchuan earthquake, netizens appealed to the overseas Chinese for help. These efforts made strong impressions on the Chinese leadership who became increasingly aware of the power of the Internet. President Hu’s online communication only strengthened the netizens’ enthusiasm for participation. But that is not all. After President Hu’s online appearance, Premier Wen Jiabao followed suit by going online to listen to people’s opinions prior to the annual Two Sessions, and he did so for the next several years. Premier Wen got much feedback, for his mild manners and practicality endeared him to the netizens. We can see from all this that in the age of the Internet, it has become a routine for government officials to go online and consult the people on governance, learn about their needs, and seek their advice. The question we face now is how to codify this practice so that it is more predictable and less idiosyncratic.

14.2.2 Institutionalizing Online Political Participation We need to work on three aspects to make online political participation into a practicable tradition. First, the government and its officials need to know how the Internet works in order to eliminate unnecessary misunderstanding and prejudices. Some wonderful

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features and attributes make the Internet attractive to the users: First, its equality, openness, and borderlessness. The users are all equal regardless of wealth or status; people tend to agree with your opinion rather than your status or station in life. The Internet is an open platform on which people express their views as long as they don’t violate laws or basic ethical standards. This platform is without borders and beyond the limit of time and space. These key attributes have helped the Internet to expand exponentially. Second, its speed and magnifying power. Any small matter has the potential of going viral in a very short time. This aspect has played out enough times to have become a headache for the government. But if the officials are aware of these attributes of the Internet, they can learn to take advantage of it rather than prejudging it negatively or becoming its victim. Second, we need to set some rules for online political participation in terms of topic, format, and time. Different levels of government will have different topics of discussion. For instance, the central government’s discussions will most likely stay on the macro-level while government at lower levels will stick more to the regional or even the personal level regarding people’s lives. The rules we set should be made public so that people can prepare for the online forums which will become more efficient as a result. Of course, online political participation may have different formats; government officials can have direct conversations with the people on some forums while surveys can be taken on others. The recent online survey regarding personal income tax was a success; the key is to put these forums within the framework of an online political participation system. Third, we should promote the healthy development of the Internet and the freedom of expression through online political participation, so that people can give timely feedback to the government. Moreover, we should reward those enthusiastic participants whose valuable suggestions are adopted by the government. Their contributions should be publicized to foster a good environment for participating in political discussions and expressing opinions. Good interaction between the people and the government is very important, and the government should try not to place unwarranted restrictions on online expressions. Of course, online criminal activities should be prosecuted, but potential criminality should in no way curtail the legal rights of law-abiding netizens.

14.3 Use the Law to Regulate Government Behaviors 14.3.1 Government Officials’ Expense Accounts Should Be Regulated Only days ago, the State Council published a notice seeking public opinions on the Regulations on Administration of Government Offices, which is an attempt to rein in government behavior through prescribed thrift and transparency. This notice received wide attention and became a hot topic of the various print and social media.

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That it has received such wide attention is an indication that people have great expectations for these regulations prescribing the government’s financial affairs. Actually, the general public focuses on three major issues: “three public expenses” (vehicle purchase and maintenance, overseas trips and official receptions), government procurement, and transparency of budget. In recent years, the people have become critical of the three public expenses on vehicle purchase and maintenance, official receptions, and overseas trips. This year, the State Council ordered all the departments to publish the final tally of their expense accounts from last year and the budget for next year. But since we do not have such a line item in the government’s accounting books, there is no standard for reporting such expenses, and the public have no idea what the published figures mean. This fact speaks volumes about the society we live in. The public have been critical of the spending habits of government officials for some time now; we may even say that this topic is the most contentious in recent memory. It is hard to believe our financial system is so slow to respond to public demands. Even if we had an item for expense accounts in the accounting books, the officials could cover up these expenses by forcing state-owned enterprises or pubic institutions to absorb them, and the public would still be no wiser as a result. Through adopting the regulations and soliciting public opinions, the government wants to show its determination in reining in public officials’ personal expenses, making the latter more reasonable, thereby creating more funds for people’s livelihood such as purchasing more school buses. This is the way to let the general public share the fruits of reform.

14.3.2 Use the Law to Restrict Government Budget and Procurement We should not ignore the area of government procurement either. They are different from the expense accounts in that there are already laws and regulations concerning government procurement. Even so, these regulations and measures are unable to curb government excesses. In some parts of China, people are not happy with the large amount of money the government spends on its offices. Some government buildings look like imperial palaces even though local people live in poverty. This kind of thing harms government image and erodes people’s trust. Another related problem is that even though certain organizations share a centralized procurement department to cut cost, some of them bypass the department and make purchases on their own. The public already have the idea that government procurement means luxury goods. We can hope that the adoption of the Regulations on Administration of Government Offices will institute price standards, vehicle specifications, and extravagant office facilities to curb government spending and use taxpayers’ money in more productive ways. We will then be on the path to a clean government. As far as transparency of budget is concerned, the Regulations on Administration of Government Offices has specified that government above the county level must

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publish government officials’ expense accounts for oversight of the society, and this is no doubt an important decision. The main contention regarding expense accounts has always been that the taxpayers do not know how much of their money is spent annually by all the officials. Because such information has never been published, the people could only guess. Some people say that the expense accounts cost the country between RMB 900 billion to RMB 1 trillion a year. Our finance system has no mechanism for transparency, so even if the government feels these accusations are unjustified, it has no way of proving it. It is therefore high time to publish these figures. This year, scores of State Council departments have published their expense account figures, but the people have trouble believing them. But on the whole, this is a good start, and we are moving away from black box operations. The government is clearly feeling the pressure, and perhaps, this is the power of transparency. We should be happy that transparency of expense accounts has finally been codified, for it has far-reaching implications. We should also point out here that as far as official travel is concerned, it has become an unofficial perk for government officials. Leadership at the county level and above have ample opportunities to go on overseas visits whether there is a need or not, and officials in some organizations take turns making these trips. I remember a county-level official told me proudly that he had visited over sixty countries and regions. We have to get rid of this kind of perks to contain government overhead. We therefore suggest that in publishing information on official travel overseas, the number of trips and the proportion of travel in the budget be listed. The central government may have to adopt some measures to limit official travel to alleviate the controversy surrounding this topic.

14.4 Declaring Personal Assets of the Officials It has been thirty years since China began to implement the reform and opening up and modernization process; the achievements it has made are indisputable, but some of the difficulties it has encountered are surprisingly severe. The government sets goals and worked out measures for reform, but reform needs the support of the people to succeed. If our reform does not dare to touch the powerful interest groups, it will remain superficial at best. So in order to deepen reform, we need to have the courage to tackle some key issues regarding government officials, such as making them declare their assets and preventing them from abusing their power.

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14.4.1 Disclosing Personal Assets is a Common Practice in the World Compelling government officials to declare personal assets is a common practice in the world and an effective way of creating a clean government and reining in its power. It often manifests as part of a sunshine policy or an anti-corruption measure. The source of this practice can be traced to Sweden 230 years ago, though England created the first law requiring government officials to declare their assets in 1883. The idea is to become aware of the changes in the officials’ personal assets in order to ascertain the possible ramifications of their behavior, and this is often predicated by a public policy of transparency. The public plays an important role in overseeing the government behavior. Under a rigorous system of personal assets disclosure, once a discernible difference is found between an official’s assets and income, the official must offer an explanation. There should be consequences if no legal basis is found for an asset. Even if illegality is not established, any unexplainable asset is cause for punishment. Declaring personal assets is even more germane when an official is democratically elected since the practice serves the same function as the sword of Damocles. The experience of other countries shows that the key to personal assets disclosure is the rule of law. These countries codify this practice in the constitution or laws which are strictly enforced; the punishment for violations is often severe. The USA had a system of personal assets disclosure before the Watergate scandal; but since the system was internal to the government, its legal effect was limited. After Watergate, there was a movement to clean up the government in 1974, and the Ethics in Government Act was adopted in 1978, which was revised to the Ethics Reform Act in 1989. From then on, it has been an indisputable rule that government officials making more than $50,000 a year (including bureaucrats, senators, and judges) have to disclose assets before they take office, during their terms, and after they leave office. For instance, a federal official shall disclose the assets of himself/herself, his/her spouse and children within 30 days after he/she takes office; officials and employees on duty shall disclose the assets of himself/herself, his/her spouse and children of the previous year before May 15 every year, and submit an asset report within thirty days after he/she leaves office. The rule gives details about the ways that the assets are disclosed and investigated, the duration that the information is retained, and the punishments for denial of assets disclosure and false disclosure. Many officials have lost their jobs for not following this rule precisely. In 1989, Speaker of the House Jim Wright was forced to resign due to violations of ethics rules regarding speaking fees as well as his wife Betty’s acceptance of gifts above the legal limit. Mr. Wright became the first Speaker of the House to lose his job due to violations of assets disclosure rules.

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14.4.2 The Public Has Great Expectations About Officials’ Personal Assets Disclosure This is an important mechanism for curbing corruption, but China has yet to build it systemically. Relevant organizations’ discussions about this in the 1980s proved inconsequential. In 1994, the Standing Committee of the National People’s Congress began drafting a personal assets disclosure law. This law targets a certain social group: the Party and government leadership at all levels, but especially the senior leaders. In 1995, the Regulation on Income Reporting by Leaders above the County Level was adopted and income reporting became mandatory. In December 2000, the Central Commission for Discipline Inspection (CCDI) had decided that provincial leaders ought to declare family assets, and in 2001, CCDI and the CPC Organization Department jointly announced the Regulation on Reporting Family Assets for Provincial-Level Leadership (trial version). Relevant departments mentioned these laws and regulations in many documents after 2004, but due to questions of legality, assets-reporting was not carried out in any comprehensive way. We have seen that some parts of China have actively implemented assets disclosure in recent years and made forays into related domains regarding transparency. In 2008, the Altay region of Xinjiang Uygur Autonomous Region was the first in China to conduct the pilot program of assets disclosure starting from January 1, 2009. Some regards this move as the ice-breaking effort. Its policy has four important features: First, income reporting is expanded to assets disclosure. Second, assets disclosure is expanded from the individual to all family members. Third, assets disclosure is under public oversight. Fourth, assets disclosure has to continue three more years after an official leaves office. It is fair to say that this policy has important significance in the fight against corruption and offers a blueprint for the rest of China. The Altay region’s actions have received wide attention. The city of Cixi in Zhejiang Province started a trial run of its own assets disclosure system in January 2009 and published, internally, the assets of senior city officials. The city required over seven hundred officials above the deputy director level (including state-owned enterprises) to disclose the following information in their work units: First, the realestate property and private cars of the official, his/her spouse and children, with secondary information such as trips or education overseas and the businesses they own. Second, the official’s compliance of existing anti-corruption regulations, such as details of official or private trips abroad, expenditures of certain life events (such as marriage and funeral), gifts received, and gambling. Third, the official must answer questions in eleven areas to see if the official has used his or her position for personal gain. Fourth, any other scenario for which the official feels an explanation is needed. We await with great anticipation the result of Cixi’s trial run of its assets disclosure system. As far as the Altay region is concerned, it was reported that fifty officials’ assets were disclosed online on the first day of 2009. Public reaction was very positive.

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14.4.3 Accelerate the Pace of Government Reform and the Officials’ Assets Disclosure System In a similar vein, we have been trying to separate government administration from enterprise management and transform the government functions for twenty years. Why are these two tasks so difficult? Separating enterprises from the government has been a goal of reform since 1984 while reforming the government’s role has been a goal since 1988. These two issues still bedevil us today. If the systemic nature of these two tasks is the cause of their thorniness, there is no reason assets disclosure should be delayed as it is not complex. The fact is that when we were planning to work out a system of assets disclosure in the 1980s, corruption was not as serious a problem as it is today. If a problem is getting worse, there should be more determination to solve it. And the process of building a mature and effective system will be accelerated as well. It is not that our determination to stamp out corruption is weak; the central government has indeed strengthened its anti-corruption effort: since the 16th CPC National Congress, more than a hundred provincial-level senior officials were prosecuted for corruption, to the satisfaction of the general public. In spite of this, corruption has been spreading. One of the main reasons is that we have not been able to build an effective government oversight system of which assets disclosure is a part. It is not an easy thing to do of course, not because the conditions are not ripe, but because there are some entrenched interest groups who are against it. In other words, when reform goes against the personal interests of some officials who are also decision makers, they will try to impede it. The people are suspicious of the government’s intentions because reform was swift when it involved increasing the fees for education and health care, but slow when it involved taking away official perks or benefits. We can see from the above that the government needs to not only articulate the goals and measures for reform but also to rely on the people to push it forward. Reform cannot deepen if it dares not antagonize powerful interest groups. In other words, if we want reform to be thorough, we have to have enough courage to perfect the assets disclosure system and deal effectively with government officials’ abuse of power. This is the only way to gain people’s support and confidence and create a good image for government officials.

14.5 Eradicating Formalism In recent days, People’s Daily published a series of readers’ letters describing the formalism they saw around them. Over the course of four days, the readers told about the endless time and energy government officials have spent in building image, writing documents, and attending meetings. These letters reflect the general disgust and resignation with regard to the government’s formalist behavior, demonstrating the urgency of curbing such behavior.

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14.5.1 Do not Underestimate the Harm of Formalism Formalism is nothing new, an old problem in our country’s political life. In his Yan’an days, Chairman Mao castigated the formalism that existed within the Party and vowed to eradicate it. It is regrettable that this illness which had wreaked havoc in the past is still alive and well today. Formalism appears in many aspects of our daily lives, including the economic, political, social, and cultural domains. It expresses itself in thoughts, work, and personal styles. When it appears in thoughts, people go against the scientific spirit and ignore objective facts; they boast and equivocate, yet the practice is something else; they always go for effects rather than substance. When it appears in work, their feet are not on firm ground; they do not investigate, and always go for short-term profit instead of long-term benefit. They care for their image and nothing else. Of the over 280 prefectural cities, more than 180 have unrealistic plans suitable for a major international city. When it appears in personal styles, they mask and cheat, search everywhere for personal gains, write countless documents, and attend endless meetings; they flatter and finagle to pass inspections. Some officials use taxpayers’ money to cultivate relationships and build image. Formalism causes harm. Some people conclude that it entraps thoughts and debilitates actions; it kills motivation, forcing people to do what they do not want to do; it harms the government’s reputation by eschewing substance and objectivity. If these criticisms seem harsh, it is because formalism is truly pernicious. When the government takes the formalist stance, it is the people who suffer. Xinhua News Agency reported on the following story in 2010: an impoverished county with an annual fiscal revenue of less than RMB 30 million had decided to spend RMB six billion to build a new city. Ten years and more than a billion RMB later, the work stopped for a lack of funds. Now the new city stands like an empty shell. The reason for this catastrophe is reputedly that the county leadership catered to a superior’s hasty decision.

14.5.2 Finding the Cause of Formalism from Within the System Formalism is difficult to eradicate for a number of reasons, especially since the reform and opening up has complicated the situation. There are three main reasons: First, the officials’ egotism which compels them to go after fame and fortune. The market provides ample opportunities to get rich and many people are moved to seek short-term profits at all cost. Just as the first wave of entrepreneurs who became rich exerted strong influence on the people around them, officials on a fast track to the top hold psychological sway over their colleagues. If the latter lack equanimity, they will try whatever means at their disposal to get ahead. They become restless at work, care only for the superficial things, and concern themselves with pleasing

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their superiors rather than serving the people. In short, they become stricken with formalism. This obsession with quick success and instant benefit is the expression of extreme individualism and egotism in our era. Second, we lack an effective mechanism for evaluating government performance. We have overly emphasized economic growth and performance indices in evaluating government performance for a long time, and this has contributed to the formalist behavior. Many officials just want the appearance of results which they think will get them promoted sooner, instead of delivering practical services to the people or bringing long-term benefits. This is why we have had so many ostentatious but useless projects which harm the environment and deplete the resources. Third, we lack effective oversight on government behavior. In theory, the purpose of the government is to serve the people; but in real life, it is very difficult for the public to supervise government behavior. The people have no means of overcoming official unresponsiveness and this is a great opportunity for some officials to play the formalist game. The people hate this, but have grown to accept it.

14.5.3 Combating Formalism Has to Start from the Higher Echelons of the Government So how do we curb the spread of formalism? We have to build an effective longterm mechanism to combat it, and it has to start with the higher echelons of the government. First of all, the government’s mindset has to change. Government officials at all levels have to realize that formalism is the pursuit of appearance at the expense of substance and reflection. It contradicts with the CPC’s long-held traditions of proceeding from reality in everything we do, linking theory with practice, and seeking truth from facts. Once we see the harm of formalism, we must act to eradicate it. Moreover, government officials must adhere strictly to the terms of office and performance evaluation. Formalism has a lot to do with the flawed election system and performance evaluation. Many officials do not fulfill their terms of office and move to different positions, speeding the growth of formalism. Unreasonable performance evaluation can also compel officials to care more about appearance rather than true results. Viewed from this angle, we must further perfect the election process, term of office, and supervision of officials. Officials elected by the people’s congresses, especially the senior ones, should not change positions unless they have fulfilled their terms of office. We must consider incentives such as higher pay for proactive and hard-working officials, longer service duration, and an effective evaluation system which reduces the risk of formalism. Third, we should establish an accountability system against formalism. When an official leaves office, he or she should be evaluated against this accountability system to see if any formalist harm was done. If there was, the official should be held accountable.

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We need to establish an effective system for eradicating formalism, but fighting formalism should start from the top. Evidence shows that formalism often starts from the top and for reasons such as too many departments, ineffective evaluation, obsession with indices, and endless inspections. All these things overwhelm lowerlevel governments and help spread formalism. In that sense, eradicating formalism is not simply a task for local governments and their officials, but an effort that can only be successful if it starts from the top.

14.6 The Official Residence System 14.6.1 The Official Residence System is Practiced Worldwide After the 18th CPC National Congress, the government adopted eight unusual measures which had repercussions throughout the society. The Political Bureau of the Central Committee had convened a special meeting in June 2013 and decided to adopt some comprehensive regulations regarding government officials’ offices, living quarters, cars, secretaries, expense accounts, bodyguards, benefits, and vacations. We think that establishing an official residence system is an important step for the government. The official residence system means that a country provides housing to its important leaders during their terms of office. Some well-known examples are the White House for the American president, 10 Downing Street for the British prime minister, and the Élysée Palace for the French president. The scope and standard for official residence are different for different countries, but there are similarities as well. In the USA, the law stipulates that the government must provide official residence for democratically elected federal, state, and city officials such as the president, the vice president, governors, and mayors (of mid- to large-sized cities). The officials live in the official residence during their terms of office and leave when their terms of office end. Due to security reasons, the president, the vice president, governors, and the vice governors have to live in their respective official residences while the mayors can forgo the privilege to live in their own homes. The upkeep and maintenance of an official residence are paid by the government, and the occupant needs only to pay a symbolic annual rent of one USD. Senators and representatives on the federal and state level have stipends for housing based on the principles of respectability and comfort and the stipends are set by the finance committee of the respective legislative body. In Germany, senior officials such as the prime minister and the other ministers of the federal level can have official residences. The prime minister has to live in the official residence while the other ministers can choose to live in houses they own or rent. The government pays for the cost of the official residences, the ancillary facilities or equipment, and furniture appropriate to the financial condition of the

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country. The upkeep and maintenance of official residences are also paid by the government and strictly regulated. France’s policy on official residence is smaller in scope than Germany’s. Apart from the president who has an official residence, the ministers receive stipends for their housing. Their apartments cannot be larger than eighty square meters, and this limit can be expanded by twenty square meters with each additional child. The cost of square meterage above the legal limit must be borne by the occupant. In February 2006, when French Finance Minister Hervé Gaymard was found to be living in a 600-square-meter apartment suitable for ten people in an expensive section of Paris, he caused a huge scandal and was forced to resign. Japan is a special case. During Keizo Obuchi’s administration, all the official residences were abolished except those for the prime minister and the minister of housing. But there are two types of officials who enjoy free government housing: those ranked above cabinet ministers and those who have special work requirements. According to Japanese law, the following people can live in housing for bureaucrats: the bicameral leaders and deputy leaders of the Diet, the prime minister, the cabinet ministers, Supreme Court justices, the solicitor general, ambassadors to foreign countries, and the heads of the Bureau of Audit, the National Personnel Authority, and the National Diet Library. The government also pays for the furniture, utilities, and the maintenance of their homes. Some officials travel to distant sites during work hours in case of national emergency or for the protection of Japanese lives and property; they also enjoy government housing which is situated near their work. In ROK, there are special official residences for the president (the Blue House), the prime minister, the minister of defense, and the foreign minister. Other senior officials live in housing for bureaucrats, including state councilors, congressional representatives, heads of departments at various levels, the presidential secretary, and policy researchers. We can see from the above that practically all the developed countries have a policy of official residence. The scope of the policy may be different, but one point in common is that official residence is only valid during the term of office. Some countries give housing stipends to their officials. The official residences fall within the purview of the state and the state will rent or own the residences and pay for the ancillary facilities and equipment. Many countries have transparency laws regarding official residence and salary in order to accept public oversight and prevent officials from seeking personal gain from their housing privileges.

14.6.2 The Official Residence System Prevents Corruption Through Housing Privileges Before the reform and opening up, the government distributed benefits such as housing to the government employees according to their ranks, and even Party and national leaders were no exception. After the reform and opening up, as housing

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reform deepened, all government employees excluding Party and national leadership but including provincial and ministerial leadership participated in the commercialization of housing. After more than a decade of exploration and implementation, we have made some breakthroughs in our housing policy but also exposed some thorny issues. We will describe three of the latter here. First, government officials build housing illegally, and this has become the newest manifestation of corruption. Some officials appropriate land, purchase houses below market rates, and pilfer national resources. Some of them even build extravagant villas which scandalize the public. There are six ways in which government officials can abuse their power through housing: construct housing beyond legal limit, raise funds or borrowing money illegally, purchase houses below market rates or demand free housing, collude with colleagues to appropriate public land, mask what should be transparent, and sell public housing. There have been reports in recent years that some officials in impoverished regions have built extravagant villas. Take the case in Guangxi exposed by the People’s Daily for an example, in Liuzhou, Guangxi officials could buy houses, which were built exclusively for them in an exclusive riverfront area, at half the market rate. An official from Henan Province once lashed out at the housing corruption of government officials: “Section-level officials in a county live in houses of up to 600 square meters. This is outrageous. It is corruption in plain sight. There are many other astonishing cases of corruption involving real estate. Huang Sheng, former Vice Governor of Shandong, had forty-six houses; Xu Maiyong, former Deputy Mayor of Hangzhou, had twenty-five; sixty-seven for Luo Yinguo, former Secretary of the CPC Maoming Municipal Committee in Guangdong; eightyfour for Huang Meng, former Director of Zhejiang’s Food and Drug Administration; thirty for Tao Xiaoxing, former First Deputy Director of Shanghai’s Housing Department, and twenty-three for Yang Hongwei, former Prefect of Chuxiong Yi Autonomous Prefecture in Yunnan. All pale when compared with Liu Zhijun, former Minister of Railways, who was found to have 374 houses during his corruption trial. Second, officials can be transferred and the displacement could be a source of housing abuse. In recent years, the central government has promoted interaction between central and local governments and increased the opportunities for officials to work in different locations. Officials above the county level and those holding important posts in such areas as discipline inspection, organization, and public safety generally do not work locally, and many of them work in Beijing. Things can get out of hand when they abuse their housing privileges. A senior official may be transferred to a different location where a house is already set up for him. This house (excluding offices and guest houses) often becomes the official’s property eventually, since the official may not return the house once his term of office is up. Some provincial-level officials have many houses around the country because they have been transferred many times. After they retire, they can live in these houses or give them to their children. To illustrate this point, a 29-unit residential compound for provincial-level officials in a certain province has the following composition of households: eight for incumbent officials, or 28%; two for officials who have left their posts, or 7%; seventeen for retired officials, or 59%; and two left empty for being too large or

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too old, or 7%. This example is rather typical throughout China. This practice has become so pervasive that even town-and township-level officials expect housing when they are transferred. The situation will become worse if the government doesn’t do anything about it. Third, unbridled consumerism tempts officials to seek personal gains which hurts government reputation. The CPC’s vision, from the beginning to today, is not to seek benefits for itself but to serve the people. By giving some inordinate privileges to senior officials, the Party is giving a helping hand to the hedonism and bureaucracy which exist in its midst. The people are fed up with the ever increasing cost of running the government, and this cost is directly related to the perks retired officials enjoy as if they were still employed by the government. For this reason, we must rethink the privileges we give to senior officials, including the official residence system, to make them more reasonable.

14.6.3 Four Suggestions for Establishing the Official Residence System First, define the scope and qualifications for the official residence system clearly. Other countries’ experiences and our situation attest to the necessity of this requirement. The system does not have to be linked to the rank of the officials but should be set according to the principles of national integrity, the needs of job, the nature of the job, and clean government. For this reason, we feel official residence should be provided to the following officials: First, Party and national leaders such as the general secretary of the Central Committee of the Communist Party of China, president, premier of the State Council, chairman of the NPC Standing Committee, chairman of the Chinese People’s Political Consultative Conference (CPPCC), members of the Standing Committee of the Political Bureau of the CPC Central Committee, president of the Supreme People’s Court, and procurator-general of the Supreme People’s Procuratorate. Second, at the level of province, autonomous region, and municipality directly under the central government: Party secretary, governor (chairman of an autonomous region, mayor), director-general of the Standing Committee of the People’s Congress and CPPCC chairman, court president and chief procurator. Third, on the city and county level: Party secretary, mayor (county chief), director-general of the Standing Committee of the People’s Congress and CPPCC chairman, court president, and chief procurator. Fourth, transferred leadership: organization department head, secretary of Party commission for discipline inspection, and director of the Public Security Bureau; for officials other than transferred leadership, the regular housing reform policy applies. Party and national leaders above the ministerial level who are not covered by the housing reform policy or included in the official residence system may live in an official compound during their term of office and have to leave when their term ends. These officials include members of the Political Bureau of the Central Committee

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outside the standing committee, vice president, NPC vice chairman, deputy premier of the State Council, state councilor, and CPPCC vice chairman. There are two important considerations when drafting the official residence policy: First, the policy must apply first to officials who are assuming new posts; there should be a natural transitioning policy for officials who retire or leave their posts. Second, create a reasonable mechanism for changing posts. For instance, when a ministeriallevel official covered by the housing reform policy goes on to become a national leader, the official can keep the old housing while living in an official residence or housing compound, but has to leave when the term of office ends. We can give this official some compensation over the 220-square-meter housing which a current ministerial-level official enjoys. Reform can begin only when these two issues are resolved. Second, decide how the official residence system should work for transferred officials. The highest ranking of transferred officials is on the ministerial level. Since officials below this level are all covered by the housing reform policy, they should be able to keep their old housing when they move into an official residence regardless of whether their families are going with them. But they must vacate the official residence when their term of office ends. We have to also consider the fact that housing prices vary a great deal depending on the city. When officials move to a city with expensive housing such as Beijing, there has to be a policy allowing them to buy a suitable house in the new city after selling their old house. We can be flexible in implementing the official residence system. Considering the fact that most young transferred officials are not covered by the housing reform policy, we should give them more housing choices at their new posts: they can live in a government-provided compound or rent or buy a house at market rate with a housing stipend (vacating the house when their term of office ends). Moreover, the government should encourage retired officials to go back to their places of origin by giving them some kind of benefit package. Third, official residence or compound should be built, bought, or rented by the government and assigned and maintained according to rigorous rules. According to international standard, most official residences are provided free of charge or at a small and symbolic cost. This is indeed what our traditions seem to dictate, and the official residence or compound should be furnished and maintained according to a uniform standard. Although China has until now not had an official residence system, the government does own a fair amount of public housing. Hence, in drafting a housing policy for high-ranking officials, the government should specify the eligibility requirements, compile an inventory of existing housing supply, and conduct a thorough survey of current and retired officials’ housing situation. Making sure such preparatory work is in good order and relationships with concerned parties are handled properly is instrumental in reducing possible resistance to an official residence policy. Fourth, there should be a strict mechanism for monitoring official housing. The first task is to list the current housing condition of government officials, especially those who have been transferred many times. If there are several houses under their names, the houses must be returned or the owners must pay double the market rent and

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be reported to the discipline inspection department. The second task is to establish a housing application process and a filing system to dynamically manage official housing. A system of official housing accountability has to be established as well, including the accountable person, procedure, and scope. The third task is to open the official housing system to public scrutiny. We must make public the official housing system’s scope, beneficiaries, standards of stipends and furniture, application and approval processes, and punishment in case of violations. There must also be an unobstructed channel for reporting violations as a way to invite public scrutiny.

Chapter 15

Innovative Governance

To innovate governance is important in transforming the government. This is because innovation takes its cue from scientific methods and modern management theories, in addition to being a part of modern governance. We may say that the administrative reform of the past thirty years has been mostly about innovating governance. To some extent, it is difficult to imagine, in a country as big as China, how we could raise the capabilities of the government and maintain high economic growth and social stability for thirty-five years without the wide adoption of information technology and the Internet in public governance. In this chapter, we will discuss the role egovernment plays in innovating governance, improving IT application management and raising government capabilities.

15.1 E-government Innovates Governance Ever since the beginning of the reform and opening up, China has made ample use of information technology in changing the ways it governs the country. The 12th FiveYear Plan will be an important period for developing e-government. What will be the important trends of e-governance during this period, what factors will influence its development, and how will it raise the level of public governance? These are the questions we must consider in implementing the 12th Five-Year Plan.

15.1.1 Achievements and Issues in Developing E-government If we take 2002 as the milestone year in which State Council’s Information Technology Office was established, China’s e-government has experienced a decade

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of development. During this period, e-government has obtained the following achievements: First, we built the information infrastructure which assured the development of e-government. China has the world’s largest number of Internet users; its broadband reach is second only to the USA. There are one billion users of landlines and cell phones. In the cities, more than 60% of the families have computers. There are 216 million IP addresses, 11.9 million domain names, and 2.36 million Web portals. This kind of infrastructure has provided strong support for developing e-government. Second, e-government as an industry has had major breakthroughs and its usefulness is increasingly felt. A “golden” series of e-government systems with names such as the golden bridge, the golden card, and the golden tax were put online successfully. Third, government business including work, management, and service relies increasingly on e-government applications. Fourth, the bureaucrats’ mindset and behavior have changed as a result of e-government’s tremendous influence on the society. The government workers’ reliance on e-government systems today could hardly be imagined ten years ago. Fifth, the government’s online portals have developed rapidly, numbering over 50,000 today. Government organizations above the county level generally have portals which provide information, service, and interaction between officials and the general public. As we celebrate the achievements we have made in e-government over the past decade, we must not lose sight of the problems that still exist in many aspects of e-government. The following problems can be articulated concisely as difficulties in resource sharing, comprehensive connectivity, and coordination. First, ten years ago, e-government’s objective was to automate government business and raise efficiency; the emphasis was not on serving and supporting the people. As a result, e-government has benefited the government sector more and lacks service-oriented applications for the people. Second, networks have not been properly planned and regulated and tend to be isolated instead of connected. The government has internal and external portals and specialized networks, but they are closed to each other and each sets its own rules. There are more than eighty internal networks in the thirty-eight departments of the central ministries and commissions; even some minor sections and teams have their own networks. The external networks, which were built at a high cost, have ironically very little content. Nationally, thirty-two provincial-level organizations have external networks. Of the 333 prefecture-level cities, 283 have external networks, or 84.7%; of the 2858 county-level organizations, 1500 have external networks, or 52%. The problem here is that organizations below the city level should have external networks, but the reality is that organizations at the city and county levels have built more internal networks and paid less attention on external networks. Third, government networks lack coordination and information sharing. The central ministries and commissions’ eighty or so internal networks have an interaction rate of 0.1%, so they are basically information silos. Fourth, the government is strong on building networks but weak in promoting applications. Networks built in the past ten years have low usage rate, around 5%; most of them are idling.

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Fifth, we can hardly be optimistic about information safety. Network leak incidents account for 70% of the information exposure cases; the government workers’ improper behavior is the main cause of these incidents. Sixth, because China lacks home-made e-government applications, it relies heavily on foreign products. It is a shame that our huge market has not produced any national brand of e-government systems.

15.1.2 Trends of E-government Development Throughout the period of the 12th Five-Year Plan, the trends of e-government development can be described with the following operative words: integration, connectivity, resource sharing, restructuring, and efficiency. We will integrate the various application systems to realize interdepartmental coordination, tweak the information silos to achieve full connectivity, share the resources, standards, and capabilities of the systems, restructure the people-facing social management and public service systems, and raise the efficiency of resource usage and the quality of domestic egovernment products. There are eight aspects to e-government development in the 12th Five-Year Plan: First, deepen e-government development at lower levels of the government to promote urban–rural integration and direct management of counties by the provincial government. If the emphasis of e-government development of the past twenty years was on central, provincial, and municipal levels of government, the 12th Five-Year Plan will emphasize the counties. E-government is important to the administrative units of counties and the over 40,000 townships and towns, but information infrastructure is woefully inadequate in these areas. This is the reason that our next step is to move the core of e-government development downward so that it is centered on the counties, townships and towns, and then expand it to include the villages and communities. This is most likely the future of e-government development, and there will be new issues to consider when the counties are directly administered by the provinces. Second, e-government will play an important role in regional economic growth. There has to be horizontal connectivity among government networks within an economic region to promote economic development. The Yangtze River Delta and the Pearl River Delta, two strongest economic regions, have already started to work on their e-government connectivity. Third, developing a service-oriented government is a priority. In the future, most of the public services will be delivered by the lower-level government. Government at the levels of townships, towns, counties and cities will provide most of the public services while the central government sets the policies and provides macro-management. Government at the lower levels has much work to do and needs e-government to help with its responsibilities. Fourth, government at the lower levels needs to develop Internet-based egovernment rapidly. Jiyuan of Henan Province has a system of e-government that

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is completely based on the Internet, and this is the trend of government at the lower levels. The standard of information safety is higher as we go up the echelons of government, and this means that e-government at the lower levels costs less to build and is more easily realized. Fifth, as the system of greater government departments gains currency, there will be more coordination between the ministries and more sharing of information in terms of e-government development. We may take Shunde of Guangdong Province as an example. Shunde has been very proactive in the reform to establish larger government departments and its model has three important features: a power structure integrating Party and government organizations, a system of checks and balances between the decision-making, executive, and supervisory branches, and a cost-effective mode of operation. The original forty-one Party and government organizations were reduced to sixteen, a whopping 66% elimination rate. Of the sixteen organizations, six belong to the Party and ten belong to the government. None of the six Party organizations are independent, each being integrated with its corresponding entity on the government side. The same personnel assume similar positions in the two corresponding organizations; for instance, the Party’s Discipline Inspection Department, the Organization Department, and the Publicity Department have the same personnel as the corresponding Inspection and Audit Department, the Human Resources Department, and the Department of Sports, Culture, and Travel on the government side. The Party eliminated the United Front Work Department and created a Social Work Department which is integrated with a government’s department which manages matters regarding ethnicities, religions, and external affairs. The Party’s Politics and Law Committee is integrated with the government’s Justice Bureau. Besides the departments which have counterparts on the Party side, the government has other departments regarding development and reform, finance, education, public safety, environment, land and natural resources. This system of greater government departments will have important repercussions for current and future e-government applications. There are more than two thousand counties in China. If they all adopt the Party-government organizational integration as Shunde has done, e-government will face severe challenges. Sixth, e-government needs to propagate to meet the requirements of administrative reform. In the past decade, e-government developed more rapidly when the government made an effort to promote it; conversely, it stagnated when the government failed to make use of the mechanisms at its disposal to push it forward. Unfortunately, e-government is in a state of stagnation today. The question we have to consider is this: how do we develop e-government when the State Council has no dedicated office for information technology? The city of Beijing has a solution: it has established a Commission of Economy and Information Technology and half of the organizations below the city level have an information office to promote IT application. This is a very effective way to push forward the development of e-government. Seventh, we must strengthen the legal basis for e-government. We have the Electronic Signature Law and the Government Information Disclosure Act currently in effect, and the government is drafting an E-Government Law. As we can see,

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there is a lot more that can be done to bolster the legal basis for e-government. The Government Information Disclosure Act has not been in effect for a long time, but the people do not seem to be happy with it as it leaves much to be desired. The fact that people can go online at any time to ask questions and demand information disclosure has created many challenges for the government. Any information which does not involve state secrets should be disclosed, and what cannot be disclosed should have a reason. There is still a lot of work to be done in terms of creating a law-based system to tackle these issues. Eighth, we have to explore the ways to create a cost-effective, centralized, and efficient e-government system. This is a big issue. It will not do to simply copy another country’s e-government model; we have to create a system which meets our needs and satisfies our conditions. Many things need to be thought out, such as a good top-level design and a uniform plan. What can be shared among the various departments should be built together, and what cannot be shared will be built separately, but the final plan should be an organic combination of the two. In that sense, coordination plays a vital role in building the e-government system. We have to consider this question carefully: How do we effectuate an organic combination between information technology and government processes? Why has this goal been achieved in some places but not others? In order to build a costeffective, centralized, and efficient g-government system, we have to concentrate on three issues: First, create a uniform path which bifurcates and unifies as needed. Many departments’ online systems have become information silos; they cannot connect when connectivity is needed nor share resources when sharing is desirable; this is a big waste of taxpayers’ money. As a result, we have become aware of the importance of a top-level design. Things that need to be shared, such as network and safety platforms, databases, and exchange centers have to be built in a uniform way from the beginning so that relevant departments can connect to them from agreed-upon platforms. This will minimize waste and duplication of efforts. Second, departments should be able to connect seamlessly to the e-government system. This is a difficult task for any country in the world. Three elements are needed to achieve seamlessness: a system design created jointly by the IT personnel and the administrative staff, business logic, and an optimized work flow ensuring the various subordinate parts’ mutual connectivity in the top-level design. Third, the e-government system must be service-oriented and user-friendly. To serve the people means to be people-centered. The system must gather together all the tools and pathways for serving the people, such as networks, call centers, information pavilions, identity cards, mobile applications, and videos.

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15.2 E-government Promotes Innovative Governance The 12th Five-Year Plan is no doubt a key period for e-government development, especially in terms of avoiding risks and finding a viable path which satisfies our own conditions. We have to pay attention to the following three things:

15.2.1 We Must Insist on a Uniform Base System with Multiple Applications Which Shares Resources and Avoids Duplication of Effort and the Possibility of Fracturing Into Information Silos. This Uniformity Should be a Structural Requirement Currently, Party and government organizations all over China are racing to develop e-government and some of them have obtained good results. But due to the lack of clear policies, some organizations are creating and running their own systems. The uniformity of the e-government must be brought to bear at the local level where Party and government organizations need to consolidate their development efforts. Separate systems are costly and go against the idea of comprehensive connectivity and resource sharing. We have described Qingdao’s integrated government model above, and the city should be held up as an example for all of China. We should consider doing the following: (1) The central government must state clearly that those organizations having their own systems can keep the status quo while the rest should follow the development rules of a uniform system. (2) There should be a centralized office for e-government development. (3) The central government should promote the idea of “one system, multiple applications.” One system means the sharing of a basic network, resources, and even personnel. The idea is not to replace all the various application systems which have to do very different things, such as education and tax, but to reconfigure them to share core resources. Based on this, we suggest that when building e-government, China should follow the above idea to eradicate isolate, separate administrative fragmentation and pursue connectivity and resource-sharing.

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15.2.2 We Must Redefine Network Structures, Scopes, and Even Names to End the Current Confusing Situation and Make Future E-government Development Easier The current fragmented and confusing state of e-government is partly due to the problems in definition, scope, and name. For instance, even though only organizations above the sub-provincial level are allowed to have internal networks, many governments at the prefecture-city level, and county level have created their own internal networks. And they are not internal networks in the real sense either; some of them, including some State Council departments and commissions, have networks only for governmental affairs. The lack of precision in definition, scope, and name has brought thorny problems to users and developers. We suggest that the central government should: (1) specify the requirements of internal, external, and specialized networks and enforce them judiciously. (2) Classify all the government networks (into internal, external, and specialized networks). (3) To cut cost, forbid governments below the deputy-ministerial level to build internal networks but allow them to build specialized networks which can be connected to local-level organizations.

15.2.3 Government at All Levels, but Especially the State Council, Must March to the Drumbeat of Uniform E-government Development and End the Fragmented State of Government Networks Government portals provide a platform for serving the people and therefore should be given high priority. They have produced some good results in recent years. For instance, Zhejiang’s Provincial Web site was featured in an e-government convention. This Web site publishes information on more than five hundred kinds of licenses and permits (and applicants’ approval results), over two hundred service items and procedures, and 135 of them can be dealt with online. The Web site integrates information from thirty-nine provincial and eleven city-level organizations; it has plentiful content, myriad of functions, and a consistent style which have raised the image of the government and benefited the people. With Zhejiang as an example, the State Council should quicken its pace in building a uniform Web site to take all its networks under the same umbrella and fulfill the functions of a central government portal.

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15.2.4 We Should Create a Law-Based Environment Suitable for E-government Development In addition to effective application systems, e-government needs an optimal environment to thrive. Many participants of the e-government convention felt the need of a law-based environment. There are government networks which can provide service directly to the public, but they have to separate management from operation due to legal restrictions. This is costly to the government and brings unnecessary inconvenience to the bureaucrats. It reflects the lack of legal foundation in the e-government environment. There are laws and regulations which are hostile to e-government development and ripe for amendment. Some badly needed regulations regarding information disclosure, privacy, and safety are still on the drawing board. For these reasons, we suggest that the government regard building a law-based foundation as a priority in its e-government strategy. All the application systems would not be effective otherwise.

15.3 Perfecting IT Application Management to Raise Government Innovation Capability 15.3.1 IT Application Management is an Urgent Requirement of the Information Age In order to perfect IT application management, we have to recognize its strategic importance. The human race has entered the information age, and IT application is a sure sign of modernity. Information technology reignites industrialization and deepens globalization in developed nations and brings about urbanization, marketization, and the modernization of agriculture in developing nations. It is stated clearly in the report made at the 18th CPC National Congress that we should facilitate harmonized development of industrialization, IT application, urbanization and agricultural modernization, and promote integration of IT application and industrialization, so that when a moderately prosperous society in all respects is achieved in 2020, industrialization should be basically accomplished. IT application should be significantly expanded. It is clear that the 18th CPC National Congress has emphasized the importance of IT application. Globally speaking, IT application has seeped into the economic, political, and social realms and become the impetus for social and economic transformation, sustainable development, and national competitiveness. In the political realm, IT application has changed the traditional political ecology and promoted democratic advancement. In the economic realm, IT application has transformed the industrial landscape and created new economic patterns. In the social realm, IT application has changed social structures and people’s lifestyles. In the cultural realm, IT application

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has changed the content and transmission of culture and pushed culture to develop in a new direction. In the military realm, competitiveness implies a high degree of information gathering and management, and IT application has become key to national defense. In the scientific realm, information technology is an indicator of a nation’s standing; the nation with the most advanced information technology determines the next step of technological advancement of the world. IT application needs to be managed. It is not about managing the individual elements but about managing the relations among them. IT application is an organic whole while the Internet is a part of the infrastructure of IT application. It is only when we view the networks as tools of IT application that we can manage them most appropriately.

15.3.2 China’s IT Application Faces Challenges and Opportunities To quicken the pace of IT application is a common goal of nations. Western nations have all established a national strategy and organization for this purpose, and the head of state is often the titular head of this organization which plans, coordinates, and implements IT application. After the financial crisis of 2008, the developed nations have looked upon IT application as a means to reboot their economy; their advanced status in this realm gives them an advantage over the developing nations. Caught in this new global race in IT application, China faces challenges as well as opportunities. Since the new century began, China has developed its IT application quickly and raised its competitiveness. But it still lags far behind the developed nations, especially in terms of broadband reach and technical innovation. According to the data published by the International Telecommunication Union, China ranks seventy-nine in the Information and Communication Technology Development Index (IDI) in 2008, six places lower than the previous year and the downward trend has continued after 2008. The UN’s Department of Economic and Social Affairs ranked China fifty-seven in 2005 in the E-Government Development Index (EGDI). That was the best result for China, whose ranking dropped to sixty-five in 2008 and seventy-eight in 2012. The continued fall of China’s ranking is due to the disorderly state of IT application management and weak leadership; the large investment in this area has produced little result. China will fare worse and worse situation in IT application unless it makes some fundamental changes. The developed countries have two things we don’t have: a national information strategy and a management system that is conducive to development. There are four problems in China’s IT application: First, the managing organization lacks comprehensive authority. The fundamental problem is that there is no authoritative organization at the national level. IT application management currently falls within the purview of the Ministry of Industry and Information Technology (MIIT) which also coordinates with other departments in

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matters of information development. MIIT is a part of the Industrial Management Department under the State Council and lacks sufficient authority to plan and oversee IT application or e-government development, not even on the local level. It is not able to coordinate with relevant Party and government organizations in the realms of development and reform, technology, public safety, and finance. We may say that there is no top-level design, and this is the reason that IT application is in a state of stagnation and disorder. There are problems at the local level too. A multitude of provincial-level departments partake in IT application, even Party committees and the NPC get involved. The views of senior management are not transmitted effectively to the local government which, being uncoordinated, often reacts randomly. Second, the lack of coordination makes planning difficult. Because IT application has to be all-encompassing, coordination is exceedingly important. Right now, a national leading group for IT application is responsible for the coordination among the departments and regions; it convenes meetings only when problems come up and only with the organizations in trouble. This way of doing things presents two problems: First, the leading group can only convene a limited number of meetings (excluding the information security group) and there has been no meeting since 2008. The problems have begun to pile up. Second, there is a lack of policy coordination between important departments. The funding organization lacks efficiency, leaving the relevant departments to find solutions by themselves. Third, departments act on their own, resulting in much duplication of effort. Of all the realms of information, the one facing the most challenges is e-government which needs a large amount of funds and coordination. But because the different aspects of e-government such as planning, budget, approval, and evaluation are done by different departments without instructions from a centralized organization, there is much duplication of effort and wastefulness. In terms of network building, the utilization rate is 5–10% on average, very small compared with advanced nations. Moreover, information silos are numerous. We need to find solutions to this wastefulness and lack of coordination in e-government. Fourth, our system lacks efficiency. As we deepen the effort at promoting IT application, contradiction between central and local governments bubbles up. The lack of coordination and cohesion within the various levels of government fragments our system. The standard is higher at the top level and weaker at the local level, and these two levels of government tend to act independently. A local government typically extends its network down to the community level, adding to the risk of fragmentation of IT application. These networks lack uniformity, making e-government development costly. These problems will get worse if we don’t try to rein in the local networks.

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15.3.3 Some Suggestions for Building an IT Application Management System 15.3.3.1

Define a Comprehensive Plan

The IT application management system must be compatible with the information age and the national strategy. The system must satisfy the requirements of modernization, be equipped with an efficient top-level design, and have a coordinating mechanism at the top level. In other words, it has to be strategic, sustainable, and comprehensive and responds to the challenges of the information age. To be specific, to improve the IT application management system, we have four goals. The first is to help the implementation and supervision of the central government’s decision regarding IT application. The second is to promote the overall planning of IT application between the central and local governments. The third is to facilitate the IT application coordination and communication between the central and local governments. The fourth is to drive the integration of IT application and other areas, creating a positive interaction. Therefore, China’s IT application management system should be market-driven, with overall planning and coordination, as well as effective division of work. That is to say, the national leading group for IT application has the unified leadership at the national level, and a concerted effort should be made at the central and provincial levels to make better use of the role of the market.

15.3.3.2

Suggestions for Improving the IT Application Management System

The Central Government Must Take the Lead The central government created an leading group for IT application in 2001. Its members were senior officials of the CPC and the State Council and its leader was Premier Zhu Rongji. Premier Wen Jiabao became the leader of this group after 2003. This group is responsible for setting a national strategy, building networks, and ensuring information safety. As IT application grows more and more important, we must strengthen the leadership of this group. According to international norms, the national leading group for IT application should be headed by the president of a country. Thus, we suggest that China’s highest leader be the head of the group and the premier be the second-in-command. This will reflect the importance of IT application management. The main responsibilities of the national leading group for IT application are: making national strategies and overall planning for IT application, guiding the development of IT application, and strengthening leadership for IT application at the national level. Therefore, we recommend that under the new central leadership, we should further develop the national leading group for IT application and strengthen its leadership role.

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Create a Permanent Information Office Under the IT Application Management Team Since IT application serves the Party, the government, national defense, and society as a whole, there is a great need for a permanent office to execute the strategies and policies made by the leading group. The office needs to have the authority to manage and coordinate all fields of work regarding IT application, and create a blueprint for China’s IT application development from a strategic perspective. It may fall within the purview of both the Party Central Committee and the State Council, much like the State Commission Office for Public Sector Reform. This way, the office will have the requisite authority for overall planning and coordination. The main tasks of this national information office include: First, establish concrete goals, standards, and scope for the development strategy set by the leading group for IT application. Second, be responsible for national coordination, guiding investments, protecting infrastructure, and managing development. Third, define egovernment tasks, and plan for e-government investment and supervision. Fourth, make strategies, plans, laws and regulations, and policies for national information safety. Fifth, develop key information technologies and build an information technology system based on market forces. There are three advantages for creating such a system for IT application management: First, the national leading group for IT application (including a permanent information office and a consultative committee) will be endowed with enough authority to rectify the issue of weak leadership and satisfy the requirements of modernization. Second, the permanent information office can maximize coordination and resolve long-existing issues such as fragmented networks, especially in terms of building e-government. Third, the permanent information office can leverage on national strength and combine market forces to transform the passive state of current IT application, which helps combine the market and national will to change fundamentally the fact that we have lagged behind due to lack of core technology. Moreover, to facilitate efficient and well-designed IT application management, we suggest to establish a national information institute to support the development of IT application.

References

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