Has Fiscal Federalism Worked for Macroeconomic Purposes？ The Chinese Experience 1994-2003

China＇s central government undertook major tax regime reform in 1994 that was characterized by fiscal federalism. In hindsight, this reform might be viewed as being more emphatic towards the revenue side than the expenditure side. The reform has resulted in certain success both for revenue shifting and inflation fighting purposes. However, the reform and its subsequent follow-ups have not addressed some fundamental issues pertaining to China＇s government finance system, such as the overhauling of the function of government finance and redrawing lines between the central and regional governments with regard to their fiscal responsibilities and duties. Moreover, fiscal federalism might have actually increased fiscal burden on the economy, especially on domestic sectors of the economy. However, coupled with enhanced policy support for China＇ s external development, fiscal federalism might have helped to further accelerate resource shifts toward the external sector, thus resulting in an unprecedented rapid expansion in China＇ s exports since the mid1990s.     

Local Officials＇ Incentives and China＇s Economic Growth： Tournament Thesis Reexamined and Alternative Explanatory Framework

To explain China's dramatic economic growth, researchers have proposed a “tournament thesis.” According to this thesis, the central government's ability to set growth targets has played a crucial role in growth since political promotion is largely based on local economic growth. We use provincial officials' career mobility data to test this thesis. For both time periods (1979–1995 and 1979–2002), economic performance, measured in annual, average and relative terms, did not affect these officials' career advancement. We then sketch an alternative analytical framework to explain Chinese local officials' strong urge for developmentalism and, finally, draw policy implications from this explanatory framework.     

多层级的企业社会责任公共政策引导模式构建及对策——基于中国CSR发展指数的统计分析

企业社会责任领域中的公共政策在引导企业履行社会责任过程中的实践效果如何，是下一阶段政策发展的重要参考依据。为了更好的分析公共政策的施行在引导企业履行社会责任行为中的作用，以2009-2016年的中国企业社会责任发展指数为基础，从中央政府、地方政府和自律性组织三个层面，总结各级政府和自律性组织在政策推进过程中的引导模式，并提出相关的政策建议。     

Assessing Local Government Debt Risks in China: A Case Study of Local Government Financial Vehicles

Strong credit expansion in China after the recent global financial crisis has brought local government financial vehicles (LGFV) into the spotlight. Rapid growth of LGFV has triggered concern about local government indebtedness, banks' asset quality and, more broadly, China's medium‐term financial stability and sovereign risk. This paper constructs a unique firm‐level dataset to evaluate the country's local government debt. We find an uneven distribution of LGFV, which are concentrated in the coastal areas, and a deterioration of their debt repaying ability from 2010 to 2012. We use principal component analysis (PCA) along with multivariate discriminate analysis (MDA) to identify the credit risk of LGFV based on conventional financial variables as well as local governments' fiscal status. We also estimate the safe boundaries of debt bearing at the provincial government level. The estimations reveal more severe local government debt risks in the middle‐western provinces and higher risks associated with LGFV at the municipal and county levels. Although it is very unlikely that there will be a national debt crisis in China, the high risk of LGFV should be noted and effectively controlled by improving the fiscal transparency of local governments and reforming the fiscal system.     

Can China's Diplomatic Partnership Strategy Benefit Outward Foreign Direct Investment?

In the context of global integration, whether a diplomatic partnership strategy can promote outward foreign direct investment (OFDI) and how it works are very important issues for China. Based on a dataset featuring China's partnerships collected from the Ministry of Foreign Affairs website, we establish an empirical framework to assess the role of China's diplomatic strategy in its OFDI arising from partnerships since 1993. The results show that the establishment or upgrade of partnerships has had a positive effect on Chinese firms’ decisions on OFDI for at least the short term, especially for firms with higher demand for policy guarantees from the government, such as non‐central firms and non‐Beijing firms. The results also show that the increase in OFDI is concentrated in host countries with higher political risks, such as developing countries, neighboring countries, and Belt and Road countries, which is consistent with China's diplomatic focus. Our research proves that China's diplomatic strategy can assist firms to invest abroad.     

Corporate innovation in China and its implications

China's current economic transition policies focus on shifting from export‐driven manufacturing towards high‐end, high‐tech research and development (R&D), and domestic consumption. Since the early 2000s the government has issued a series of policies and guidelines to encourage innovation. Both in‐house R&D investment and the number of patent grants/applications have seen considerable growth in recent years. More specifically, industry‐funded R&D was responsible for more than three quarters of total in‐house R&D investment. Despite the rapid growth in R&D expenditure and the number of patents, China's corporate innovation still faces many obstacles and challenges. To further stimulate corporate innovation, the government may need to create an environment of fair competition for domestic enterprises, encourage the growth of institutional investors and their active participation in corporate governance, and improve the efficiency of financial systems. The experience of China in promoting innovation provides policy approaches and implications from which other emerging economies can learn.     

China's sovereign debt: A balance-sheet perspective

We analyze China's sovereign debt by constructing balance sheets for China's government and public sector. We find that China's government debt-to-GDP ratio is lower than that of most large developed economies. We also find the debt-to-asset ratio of China's government and public sector significantly lower than its own historical height (1998–2002). Local government debt is mainly to finance infrastructure investments. Local government debt risk is amplified by two mismatches. The first is the income-expenditure mismatch between central and local governments. The second is the maturity mismatch of short-term debt and long-term infrastructure investments. The maturity mismatch may cause short-term repayment difficulties.     

Transforming Central Bank Liabilities into Government Debt: The Case of China

Where policy has substantially increased central bank assets, the corresponding liabilities present an opportunity to increase the breadth, depth and liquidity of the government bond market. In China's case, transformed illiquid central bank liabilities could double or triple the stock of government bonds. Central bank liabilities can be transformed into government bonds either through the government's purchase of foreign exchange reserves held by the central bank or by the government overfunding its borrowing requirement and depositing the proceeds in the central bank. The overfunding approach is preferred if, for financial stability reasons, it is judged prudent to leave the central bank with sufficient resources to serve itself as lender of last resort in foreign currency to the banking system. In the case of China, public debt consolidation could also contribute to further liberalizing the Chinese banking system, wider international use of the renminbi and more balanced holdings of key currency government bonds.     

Dilemma of the Silver Standard Economies: The Case of China

Exchange rate commitments implied in the silver standard originally anchored China's monetary policy and the inflation rate in the early republican period. It was believed that China's free silver standard acted as a natural check on the excessive issuing of notes by warlords and local governments. This consensus view, however, overlooks the fact that the silver standard was inherently unstable because it left no room for monetary policy to stabilize output and inflation. This article employs a formal structural model to show that a fiat currency unlinked to fluctuations in the price of silver that allows government to implement self‐adjusting monetary policies would further stabilize China's output and inflation.     

How Has Rural Tax Reform Affected Farmers and Local Governance in China？

Using nationally representative data, the present paper examines the impact of China's ongoing rural tax reform on farmers. The difficulties in further local governance restructuring are also discussed. It is argued that the issues associated with rural taxation and local governance in China result from inherent tension between an increasingly liberalized economic system and a still centralized political system. Although rural tax reform has helped to reduce farmers' tax burdens in the short term, the establishment of an effective local governance regime requires coordinated reforms to downsize local bureaucracy by providing social security for laid-off cadres, to strengthen local accountability by granting higher local formal tax autonomy, and to promote meaningful participation by expanding local democracy.     

Rural Informal Taxation in China： Historical Evolution and an Analytic Framework

The present paper examines the historical evolution of China's rural taxation system from the pre-reform period to the late 1990s. We propose that because of information asymmetry between the upper-level and the lower-level governments, local governments had to be granted some informal tax autonomy to fulfill the upper-level policy mandates. This easily led to excessive local informal taxation on farmers. As market liberalization of the grain sector progressed, the low-cost tax instruments implemented through the traditional approach of implicit taxation gradually eroded. Local governments in agricultural regions had to resort to informal fees collected directly from individual rural households while the more industrialized regions shifted to non-agricultural taxes that are less costly in terms of tax collection. Hence, political tension between farmers and local governments in agriculture- based regions emerged and rural tax reform became necessary.     

Beyond privatization: Institutional innovation and growth in China's large state-owned enterprises

This article demonstrates that China's large state-owned enterprises (SOEs) are not stagnant fossils waiting to die. Under economic reform policies this sector has undergone large change due to enhanced enterprise autonomy, the impact of market forces, rapid growth of domestic demand for upstream products, strategic integration with the world economy and the state's policy to promote large businesses. China's large SOEs are developing new institutional forms that do not neatly fit into existing patterns. China is experimentally changing its institutions through a combination of central policy, local initiative and interaction with international investment. This presents a challenge to the “transitional orthodoxy” and to ideas concerning property rights in development economics. There is not a universal model of property rights and government action that works best in all circumstances. China's experience with the reform of large SOEs shows the diverse possibilities for effective industrial institutions.     

Biofuels and the policy implications for China

The paper explores China's biofuel policy and compares biofuel development in China and the rest of the world. It is argued that biofuel development depends on financial support, price intervention, and trade barriers, which all call for government support. China's biofuel industry is developing fast but under strict control. China should refer to other countries' experiences and make policy decisions according to national strategies and local conditions.     

FISCAL ILLUSION AT THE LOCAL SPHERE: AN EMPIRICAL TEST OF THE FLYPAPER EFFECT USING SOUTH AFRICAN MUNICIPAL DATA1

While South Africa operates a relatively decentralised governance and administrative structure, an important feature of the country's intergovernmental fiscal relations system is the gap that exists between the expenditure responsibilities of sub‐national authorities and their assigned revenue bases. The resulting vertical fiscal imbalance is mainly addressed via significant intergovernmental transfers to provinces and local governments. This factor presents strong a priori grounds for assuming that in the South African context, the heavy dependence of many local governments on intergovernmental transfers may generate fiscal illusion. Despite this, there have not been many empirical studies of fiscal illusion in South Africa's intergovernmental transfer system. This paper extends existing literature on fiscal illusion by using the fiscal year 2005/06 financial and expenditure data from 237 local government authorities in South Africa to evaluate the flypaper variant of the fiscal illusion hypothesis. Empirical results indicate that the marginal effects of municipal own‐source revenues on local expenditure exceed those of intergovernmental transfers. No statistical evidence in support of the flypaper hypothesis within the context of municipal expenditures in South Africa is found.     

Industrial policy,corporate governance,and the competitiveness of China's national champions: The case of Shanghai Baosteel Group

The paper presents an in-depth case study of the Shanghai Baosteel Group as a contribution to the overall assessment of the competitiveness and catch-up capability of the Chinese national champions after China's WTO accession. Significant competitive advantages of the firm in the domestic industry are identified, with cautionary remarks concerning the future stiff competition with the global steel giants. Through detailed examinations of the corporate governance mechanism and the industrial policy implementation in Baosteel and the whole steel sector, the paper sheds light on the institutional and policy challenges that the Chinese government has to face in building up its big businesses. It is concluded that whether Baosteel could emerge as a globally competitive steel firm depends critically upon the effectiveness of both the further reform of the state-dominated corporate governance system and the improvement of the industrial policy enforcement.     

The Reform of Intergovernmental Fiscal Relations in China*

This paper looks at the impact of China's fiscal decentralization on the central government's ability to use fiscal policy to achieve macroeconomic objectives. It is argued that, under the fiscal contract system introduced in the early 1980s. the localities effectively controlled the tax rates and tax bases. Due to the lack of fiscal resources and policy instruments, the central government found it increasingly difficult to achieve its goals of macroeconomic stabilization and regional equalization. The adoption of the tax-assignment system in the 1994 fiscal reform was an important step taken by the central government to address these difficulties. Nevertheless, a number of elements in the current tax-assignment system may work to make this system unsustainable in the long run.     

China＇s Economy in 2005： At a New Turning Point and Need to Fix Its Development Problems

I. High Growth, Higher Stakes China’s economy in 2005 experienced another year of surging growth, with its total GDP(based on recent revision) expanding at 9.9 percent to reach 18.23 tn yuan (US$2.26 tn).1 Growth in 2005 was slightly lower than the 10.1 percent in 2004; but it was nonetheless very high. Sustained high growth is accompanied by potential high risks, and it inevitably raises the issue of future sustainability of high growth. Although the Chinese economic policy-makers in 200…     

Trade-off between economic development and environmental governance in China: An analysis based on the effect of river chief system

The conflict between economic growth and environmental pollution has become a considerable bottleneck to China's future development. In the context of the promotion tournament, the Chinese Central Government incorporated the responsibility of water environment governance into the assessment and promotion system of local officials and implemented the river chief system (RCS). The RCS is an important measure to rebalance local economic development and environmental governance. However, two critical questions need to be addressed due to the path dependence of the “economic growth first” strategy and the complexity of cross-border watershed governance. Specifically, whether the RCS improved water environment as effectively as the economic responsibility system promoted economic growth, and whether local governments in China found a balance between economic development and environmental governance. This study aims to address these questions by investigating the policy impact of River Chief System (RCS). The results show that the RCS has heterogeneous effects on different pollutants, namely, an improvement in NpH value and NH₃-N but a deterioration in COD and DO. We found opposite conclusions when using provincial monitoring data in Jiangsu province, which provides empirical evidence of cosmetic pollution governance by local governments. Our conclusions imply that the implementation of the RCS is not as effective as the government claimed. Moreover, we did not observe the trade-off between economic development and environmental governance for local governments. Local economic development is still in preference to environmental governance. We recommend improving the mechanism of the long-term implementation and dynamic evaluation of the RCS, highlighting the independence of evaluation authorities, and introducing third-party evaluation and public supervision systems.     

Debates over labor reforms in Post‐Mao China (1978–1995)

Why was it that, from 1978 to 1995, the central government of the People's Republic of China did not successfully implement labor reforms? The paper explains the outcomes of China's labor reforms in a statist perspective. The hypothesis is that, despite labor reforms of 1978 to 1995, due to the limited autonomy of the central government, China has not successfully formulated and implemented employment reforms. Ideological coherence and organizational unity among the central party‐state elites are the preconditions for the autonomy, or more accurately, relative autonomy of central governments. Conflicts and debates among various factions destroy the cohesion of the central government, weakening the relative autonomy of the central government to act as a coherent entity.     

The Role of Planning in China's Market Economy

This paper addresses issues raised in ‘The Background of China's Planning Institutional Reform’ circulated in advance of the International Conference on China's Planning System Reform, held on 24–25 March 2004 in Beijing. The discussion is structured around four topics: (1) the scope of planning; (2) the administration of the planning system; (3) methods of planning; and (4) the coordination of planning with market activities. A critical issue is whether the Chinese government is doing too much or too little in planning the broad range of activities in a market economy, and various policy options are examined in relation to this issue. A central conclusion is that as China's economic and political system evolves within the framework of the Five-Year Plan, the scope of planning will naturally reduce as the market sector replaces a number of activities formerly undertaken by government.