Highlights

Redemption of Government Officials

SHENG Hong

Recently, the achievements of The Central Commission for Discipline Inspection of the Communist Party of China (often referred to in Chinese as Zhongjiwei, 中纪委) appear on the news every now and then: one or two provincial or ministerial-level government officials or senior executives of state-owned enterprises are sacked; and the probes of XU Caihou, former vice chairman of China's Central Military Commission, and SU Rong, then vice chairman of the Chinese People's Political Consultative Conference National Committee have pushed the anti-corruption movement to a new height. While celebrating the anti-corruption actions by Zhongjiwei and the courage and resolve of the leadership, we should also recognize that the big number of probed government officials shows that corruption is widespread in China.

For instance, the eight inspection points of Zhongjiwei in 2013 reported that “12,759 people were investigated, among whom there were at least 68 bureau-level officials, and 128 people were transferred to judicial organs”. We can get a sense of the scale of corruption based on these numbers, which were gained by a single round of visits. What we know is, at least, that an average of 1,595 people at every one of the eight inspection points (provincial departments, ministries, or central state-owned enterprise) were suspected of corrupt behaviors, and an average of eight bureau-level officials were among them, which is a pretty high proportion. We can, therefore, conclude that widespread corruption is not a singular phenomenon, but a systematic flaw, which indicates the flaw of the system itself.

The core of the flaw is unfettered and unchecked power. In fact, these sacked government officials did not set off to be corrupted. Except very few of them, most were specialized with technical and managerial talents as well as a certain amount of self-discipline. However, they are ordinary men, too. They are able to pass the moral tests in a common environment, but they are challenged to deal with an abnormal, or even twisted, environment where the flaws of human nature takes the upper hand as there is a lack of limits. Imagine this, when a government official finds that there is no need to publicize his income and wealth, there are no checks on his behaviors, any coverage of corruption is suppressed and blocked, and any one who tries to reveal the corruptive behaviors will be punished, then the mentality of the government official will almost definitely change. When he believes that the cost of getting punished for corruptive behaviors is infinitesimal, and the chance of getting away with it looks high, he will very likely become corrupted.

The second aspect of systematic flaw is the misallocation of power. This is firstly showcased by the misallocation of power to interfere the market and enterprises by government departments. Major corruption cases are mostly seen in government departments entrusted with the power of examination and approval. For example, one of the primary reasons for the sack of LIU Tienan, a former vice chairman of the National Development and Reform Commission, along with a few other officials who used to serve as deputy director of the energy bureaus, is the that they held powers that were not supposed to be held exclusively. Even though multiple reforms have been undertaken in regards with the examination and approval system, as they were undertaken by administrative departments, there are still many unreasonable items for examination and approval. For instance, even in the newly released list of items for examination and approval by the NDRC, the establishment, investment and financing of enterprises are still stipulated on the list, with some targeted on maintaining the monopolies. Nonetheless, we cannot prove whether these officials were driven by self-interest as well. A research on the resource allocation by administrative departments undertaken by Unirule Institute of Economics shows that the government officials who control the allocation of education and medical resources tend to allocate the resources in a way that benefits them. A simple and stunning fact is that 80% of the public spending on health care in China is spent on civil servants, instead of disadvantaged citizens. (“The Embarrassing Public Hospitals”, by ZHOU Qiren, The Economic Observer, February 11th, 2006)

Another area of misallocation of power is the allocation of land resources. In the name of protecting arable land, the amendments of Land Administration Law of 1998 stipulate that construction land shall be state-owned. However, the interpretation and implementation is exaggerated by administrative departments by expropriating land owned by villagers for the use of urbanization. On the other hand, the local governments put the developed land for sale at the market price that is much higher than that of expropriation. The tremendous benefits prevails the moral disciplines of many government officials. For instance, when SU Rong was the Secretary of the provincial party committee of Jiangxi Province, he intervened in land transactions and transferred a piece of land to a businessman at a price that was RMB 1 billion short of the market price. Government officials that were probed for corruption and related to land issues can be found almost everywhere, including Jiangxi, Liaoning, Sichuan, Chongqing, Beijing, Shanghai, Hebei, Henan, Hainan, Hunan, Guangdong, Shandong, Shanxi, … let alone government officials of county level, even township level. These government officials, along with other people who got famous for their excessive ownership of houses, have shown the general corruption of China’s bureaucratic system.

Another type of misallocation of power is the granting of administrative monopoly to enterprises. Monopolistic power is a power instead of right. It can only be established according to law when there is natural monopoly and oligopoly. However, the administrative monopoly is set up by administrative departments when there is no natural monopoly or oligopoly in the banking and telecommunication industry. This is, by all definition, another misallocation of power. According to our research, in 2010, an incomplete estimation of the social welfare loss accumulated to RMB 1,910.4 billion was caused by the administrative monopoly in oil, telecommunication, banking, railway, and table salt industries. The illegitimate income of these industries accounted RMB 1,616.9 billion. This shows that most of the recently sacked officials or executives come from monopolistic enterprises, such as “you know who” and the 45 senior executives of the CNPC, Mr. CAO Guangjing, president of Sanxia Group, Mr. CHEN Fei, general manager of Sanxia Group, Mr. SONG Lin from China Resources, the vice president of Agricultural Bank of China Mr. YANG Kun, State Grid North Division director ZHU Changlin, and so on.

These people caught national attention because of their senior positions. However, the monopolistic power is granted to the enterprises, and senior executives abuse such power on a very wide range. It’s very common that monopolistic behaviors and self-benefit behaviors are widespread in such enterprises. A Mr. QIAO, a new staff of Sinopec accepted a bribe of RMB 60,000 just because he was told that was the “code of conduct”. When he “accidentally” spent this money on his mistress instead of his wife, his father-in-law turned him in out of anger. Stories like this is not rare. This shows that accepting bribery is not a “privilege” of the executives, but also a systematic failure. And such stories come in large numbers.

The third systematic flaw is the employment, selection and promotion of government officials. There is a long way up to the state level deputy positions for people like XU Caihou, BO Xilai, SU Rong, and many provincial and ministerial level positions for people like LIU Zhijun (former minister of railways) and JIANG Jiemin (former chairman of PetroChina and the head of the State-owned Assets Supervision and Administration Commission (Sasac)), and many deputy party secretaries, provincial governors, or vice chairmans of CPPCC of multiple levels. They did not get corrupted after they got to high positions, but they went through a corrupted path to the top. For example, when BO Xilai was selected as the mayor of Dalian in 1999, he was suspected of taking bribes. However, this did not stop him from getting promoted. In retrospect, there is a lack of a healthy institution for selecting government officials. First of all, there are no moral standards or evaluations to follow. A sociological paper entitled Zhong County's Cadre revealed that the most important factors that influence the selection and promotion of government officials are “capabilities as reference, and relations as key”. Such relations spread from relatives, in-law relatives, classmates, secretaries, and supervisors. To put relations first means there is no need for moral standards. Let alone there are also position selling and position seeking behaviors. For example, the main wrong doing of XU Caihou is that he accepted bribes for other people’s promotion. In a way, promotion is a result of corruption.

The fourth systematic flaw is a subculture among the government officials, which features shortsightedness, vulgarity, self-defense, and a lack of values. There are two kinds of rational economic men, one is the shortsighted rational man, and the other is the far-sighted rational man. In the corruption cases revealed, we discovered many officials who resemble the Wolf of Zhongshan (中山狼, Zhongshan Lang, character of a popular Chinese fairy tale that deals with the ingratitude of a creature after being saved.), who shows no gratitude after satisfying his own desires. These officials abuse public power to fulfill their own interest. And they obviously do not care about the consequences. For instance, JI Jianye, who’s nicknamed “Bulldozer Mayor”, was investigated for his corruption of more than RMB 20 million, most of which came from the construction of infrastructures and the real estate industry. Before he was probed, he had been known for starting massive construction in Nanjing and forceful expropriation of citizens’ houses. And what happened to him seems obvious, too. Another “forceful expropriation deputy mayor” of Shulan city in Jilin Province also once made an assertive statement that “No matter how much you try to sue me, I’ve got my protection. And I am not afraid.”

What’s more, these officials might be very powerful and extend their abuse of public power to their families. For example, people like “you know who”, JIANG Jiemin, and GUO Yongxiang not only abused public power, but also extended the power to their descendents ZHOU Bin, JIANG Feng, and GUO Lianxing. They never spared a thought that this would put them in trouble. A glimpse of China’s history will reveal that whoever was the most powerful in a dynasty would be most likely to embrace crises. Those who were powerful were arrogant and their enemies were almost everywhere. And justice will be done. For example, when HUO Guang (a historic figure of Han Dynasty) was entrusted with assisting Hanzhao Emperor, he made great achievements. But he also exclusively enjoyed 20 years of power, which led to the extinction of his whole family after he died. SIMA Guang (a historian of Tang Dynasty) commented “HUO Guang enjoyed too much power without knowing that it’s time to retire from it. Instead, he promoted many of his trusted people in the royal court, which angered the emperor and the citizens alike. When time came, even though he reserved a whole body after death, his family bore the bitter outcome of his wrongful deeds.” Such lessons filled China’s history. They are not transcendent moralities, but just economic judgments of farsighted economic men. However, the corrupted Chinese government officials lack such awareness.
On the contrary, the government officials have nurtured a self-defensive culture. They don’t think their behaviors are illegal, and they find no violation against moralities, either. Many blamed their corruptive behaviors on their friends or the invisible rules of business when they denied their corruptive accusations on the court. If they had any cultural life at all, it was merely a completion of vanity. They compete their fancy cars, beautiful mistresses, and spacious mansions, none of which exceed the material life, such as what was depicted in the rumored “Ferrari Incident.” Another rumor said that when Deputy Director of the National Energy Board Secretary WEI Pengyuan’s stocked cash was being investigated, four money counters were overloaded and got broken. In many case alike, what the corrupted officials had was way more than they, even their children and grandchildren, could ever need. The marginal utility theory reveals to us that when people’s income and wealth exceeds the level of middle class, their zest and craving for wealth will decline. However, in the case of corrupted Chinese officials, we can only assume their extravagant lifestyle is a symptom of an insatiable pursuit of material wealth. To put it in another way, this is a sign of a problematic institutional system, which makes the government officials this way.

Nevertheless, Chinese citizens and the public are the biggest victims of this corrupted group of administrative officials and senior executives of state-owned enterprises. We don’t need to discuss this. What’s worth mentioning is that there are two other victims, namely the corrupted government official themselves, and the ruling party that promoted and trusted them.

In fact, because of the severe institutional flaws, government officials and senior executives of state-owned enterprises have become high-risk jobs, instead of ideal jobs. According to a report of Yangtse Evening Post on January 6th, 2014, the first eleven months of 2013 witnessed the sacking of 36,907 government officials, and adding the number of December, the total number reached about 40,262. Supposing that the average time of service of a government official is 30 years, and supposing there are 7.089 million government officials nationwide, the chance of one getting corrupted is 17%. In another scenario, if an airline company claims that there is a chance of 0.01% that its plane may crash, I don’t think anyone would risk buying its tickets. In this sense and by this comparison, 17% of chance of getting oneself corrupted and one’s family damaged makes it a high-risk type of career to be a government official.
Some might think that if they were government officials, they would have the power to resist corruption, so there is no risk. What’s essential is that one may not be able to have everything under control. It is under this institution where there is unfettered power, that officials form an interest community as they find there are no effective methods to reveal and dismiss those irresponsible and corrupted officials. They support and protect each other, as one gets promoted, everybody benefits. The inferior officials get shelter from their superiors, and the latter rely on the former for further influence. They are mutually reliant. This usually acts as the cause of “a series of criminal cases of the same group”. For example the CNPC case where a group of corrupted officials got investigated and prosecuted with the center being ZHOU Yongkang; and the Jiangxi corruption case centering SU Rong. …

When a newcomer enters such groups, he will be “blackened” before long. At first, even if he takes in bribes, protection will be there as it is just a “minor mistake” and “capable officials should be protected”. However this will do great harm to the newcomer. He might think as long as he gets well with all relevant personnel and the “boss” above him stays in power, and as long as the political group he belongs to stays prevailing, he will weather the storms even though minor mistakes are made. The initial protection will give the young officials a false implication, that is, his mistakes of this kind are acceptable. Further more, when there are many people in the group who have made similar “minor mistakes”, they will wish everybody to be the same. If there is any upright official, the whole group will feel nervous. That’s why a young official will feel pressure and think that he cannot gain the trust of others if he is not corrupted. Over time, more and more officials are corrupted and their behaviors get bolder. Until one day, the corruption is too widespread to ignore.

Therefore, the loss of freedom or life of a government official is not entirely under his control. The key issue is that unfettered power, misallocation of power, and lack of a healthy institution of promotion and selection of officials, combined with the institutional structure of the subculture that caters to corruption, have brought about substantial danger and risks. However, it is a pity that most of the government officials lack the insightfulness of a farsighted rational man. As they fail to see the institutional flaws, in the long run, they will get hurt before they seek even bigger power. For example, many of the corrupted government officials claimed to take their career even one step further; even though monopoly is generally criticized, they still hold on to the monopolistic power granted by Document 38 and Document 72, the issuance of which was illegitimate in the first place. It is such illegitimate expansion of monopolistic enterprises that brought down the oil clan. Another example is that many land administrative departments changed the nature of the land that was returned return forestry from the grain plots to the land that was reduced by the expansion of cities (Please see ZHOU Qiren’s book Urban and Rural China) By doing so, their slogan of “protecting arable lands” has shifted to the weakening and limiting of rural residents’ land property rights, as well as the expansion of land expropriation. The consequence is the biggest trap for thousands of government officials: corruption related to land.

For the ruling party, the sacking of these corrupted government officials adds to its political reputation and legitimacy. However, this is also an enormous loss for the ruling party. These officials, especially those high-level ones, were of great capabilities. But we should also see that the capable are not necessarily of great morality or self-discipline. If there is only an environment that shelters corruption, the officials will be exposed to more chances of criminal deeds. Simply disposing them as disgrace is not only the ruling party’s loss, but also an act of irresponsibility.

During the previous administration, corruption was comparatively tolerated. The intensity of the discipline of party members declined by two thirds compared to that of the 1980s and and by one third compared to the 1990s. (To read the full article)

(First published by FT Chinese and China-Review)

Professor SHENG Hong
Director of Unirule Institute of Economics, Professor at Shandong University

Current Events

WEI Sen: China’s Path to Rule of Law: From the Perspective of the Cultural Differences between the East and the West

On the morning of July 13th, Professor WEI Sen from Fudan University gave a speech on “China’s Path to Rule of Law: From the Perspective of the Cultural Differences between the East and the West” at Unirule Institute of Economics. Present were Professor Qiufeng (YAO Zhongqiu), President of Unirule; Professor ZHANG Shuguang, Chairman of Unirule Academic Committee; Professor XU Zhangrun from Tsinghua University; Professor CAI Xia from the Party School of the CPC; Associate Professor MO Zhihong from Beijing University of Technology; Mr. LI Renqing, researcher from Chinese Academy of Social Sciences, along with another 40 entrepreneurs. This seminar was hosted by Professor ZHANG Shuguang.

Professor WEI Sen pointed out that the problem faced by us today is the transition from a society of LI (virtues) and customs to a society based on the rule of law. To some extent, this means the problem can be interpreted as the way to achieve a modern society with market economy, democracy, rule of law, and diversity of values. Professor WEI Sen suggested we take a look at the cultural dimension of this problem. He undertook extensive research from the institutions of the east and the west, the different social structures in modern and contemporary times, and the evolving paths. He reached three conclusions: Firstly, the modern western market economy order evolved from its cultural root of individualism, whereas traditional Chinese and Eastern Asian societies were based on corporatism; Secondly, democracy and exclusive property rights system were both the proposition of a healthy market economic order; Thirdly, the process of institutionalization of Chinese society in the future will inspire more scholars to take a serious look at traditional Chinese culture, and to explore the property right structure and democratic order of Chinese society.

News

Delegation of Yunus Microfinance and Social Business Returned to China

June 28th, a delegation of Chinese entrepreneurs returned to China from the Global Social Business Summit 2014 in Bangladesh. This trip was organized jointly by Unirule China Entrepreneur Research Center (UCERC) and Yunus China Center. It aimed to get a better understanding of the business operations of social business that profit while contributing to the society. Also present at the summit were social elites including Mr. W. Dan Mozena, US Ambassador to Bangladesh, and senior executives of Veolia Water in Bangladesh.

During the trip, the delegation also visited the Grameen Bank and examined the operatives of lending and returning of funds. A thematic seminar on “Microfinance and Social Business (China Session)” was held at the headquarters of Grameen Bank. Professor Muhammad Yunus attended the seminar and signed the certificates of attendance for the training program afterwards. Discussions and debates were held during the trip, and Professor FENG Xingyuan and Mr. GAO Zhan from Yunus China Center answered questions from the delegates.

Unirule 10-D Spatial Simulation Planning Model (SSPM)

The Unirule 10-D Spatial Simulation Planning Model (SSPM) is a mathematical and computational model based on economics. It is developed by a Unirule research team led by Professor SHENG Hong. SSPM is designed to simulate the development scale, economic density, industry distribution, resource constraints, ecological preservation, institutional influence, policy effect, and the evolution process in the next ten to twenty years or even longer period for a region. SSPM provides reference for the regional economic development strategy making, which can be directly adopted in the planning on regional economic development, population, land use, industry development, townships, water and ecology.

So far, SSPM has been adopted in the industry planning of Qianhai Area, Shenzhen, and the economic development planning of Yangcheng County, Shanxi Province.

Learn more about the SSPM

China’s Economy Back to Stabilization with Increase of the Tertiary Industry and Correction of Dependence on Policy Still Needed - Analysis on Quarter 1 Macroeconomics 2014

July 22nd, Macroeconomic Analysis on Quarter 2, 2014 was released at Unirule office in Beijing. Professor ZHANG Shuguang, Chairman of Unirule Academic Committee hosted the meeting and took questions from the audience.

Here is the abstract of the Analysis.
China’s economy stabilized due to intensive stimulus policies. In the first half of 2014, the GDP growth was 7.4% with the industrial added value increasing by 8.8%. Economic indicators look more promising than in the first quarter with the weight of the tertiary industry increasing, which shows improvement in the economic structure. In the meantime, a dependence on policy comes into existence. Adjustment and control of the real estate industry and the monetary policy are faced with great difficulty, and efforts should be taken to manage the reserves against deposit. As there is opportunity cost for any policy and government conduct, the administration needs to judge and weigh the task of guaranteeing short and long term economic growth and the task of promoting reforms and restructuring.

Current Researches/ Consulting

Business Ethics Declaration of Chinese Entrepreneurs

Over the last three decades, China’s economy has been embracing rapid growth with entrepreneurs being a key drive. The biggest and most significant structural change is the rise of entrepreneurs who constitute the pillar of the society nowadays. Today, the biggest, and the youngest group of entrepreneurs are going international, bridging China and the world.

However, because of the abnormal political, social and ideological environment of China for the last five decades, Chinese entrepreneurs happen to be widely confused and for the last thirty years, the emerging group of entrepreneurs has been suffering from severe anxiety over identity:

Firstly, due to the long time anti-market ideological propaganda by the authorities, many entrepreneurs believe they have the “original sin”. They are led to believe that their profits are based on exploiting the workers, which further leads to their confusion and anxiety over the ethical justification of their fortune and profits.

Secondly, this anti-market ideology also affects the public; leading the public to envy the fortune of entrepreneurs while disrespect them since their deeds are “unethical” and “dishonest”. This public opinion, in return, affects entrepreneurs’ self-identity. They, therefore, can’t convince themselves of the contributions they make to the society, or identify themselves within the social hierarchy.

Thirdly, Chinese entrepreneurs, especially those whose enterprises have gone international, are bothered with this severe identification anxiety. Chinese people stand out in entrepreneurship, so do Chinese enterprises. But what are the driving forces behind? Thanks to the long time culture break-up from the traditions, and the anti-tradition propaganda, Chinese entrepreneurs find it hard to comprehend and identify their cultural and social roles. This leads to the chaotic and restless mental state of entrepreneurs. This also results in the lack of a cultural supportive pillar for enterprise management in China.

“Business Ethics Declaration of Chinese Entrepreneurs” aims to provide answers to the anxiety over identity for Chinese entrepreneurs, to re-identify them by providing authentic and orthodoxical conceptions, to help them mature their thoughts and corporate social responsibilities.

This research project is committed to establishing a value system for Chinese entrepreneurs. To confront the anxiety over identity for Chinese entrepreneurs, this project provides answers to the three questions below:

1.Do Chinese entrepreneurs have the “original sin”?
2.What do Chinese entrepreneurs contribute to the society?
3.How do Chinese entrepreneurs gain respect?

Improving Entrepreneurs' Survival Environment: Abolishing Death Penalties in Relation to Fund-Raising Cases in China

In recent years, environment for private enterprises has been taking a deteriorating turn, which attracts attention from the media and the academia. The causes are complex and multi-faceted, including: 1, the abuse of powers by government officials as the government powers expand; 2, “the private-owned deteriorating with the state-owned advancing”(guojin mintui) worsens the picture where the survival environment for private enterprises gets more and more squeezed; 3, external demands of enterprises decrease while internal cost increases; 4, financial suppression escalates with the industrial restructuring and updating lagging behind; and 5, the fluctuation of macroeconomic policies by the government poses uncertainty for production and investment. Moreover, many innocent entrepreneurs were labeled and persecuted for their “gangster behaviors” by the policy and law enforcements in Chongqing city, which was just a glimpse of similar occasional “gangster crashing” movements in the country. Many entrepreneurs are suppressed and sanctioned in the name of “illegal fund-raising”. According to active law, the court can sentence entrepreneurs to death penalty with this charge.

Unirule Institute of Economics is planning to undertake research on the problems of the crime of “illegal fund-raising” and specific method to abolish this charge.

It is fit for Unirule to carry out this research project. Unirule Institute of Economics is a non-profit, non-governmental organization, which focuses on institutional economics with expertise in economics, laws, and politics. It has been dedicated to independent research on China’s institutional reforms and public policies as well as the reform of private finance. In 2003, 2011, and 2013, Unirule held seminars on the cases of Mr. SUN Dawu, Ms. WU Ying, and Mr. ZENG Chengjie. These seminars have been very influential before and after the close of the cases.
Unirule Institute of Economics has undertaken research projects in corporate finance and private finance in recent years. Over the years, Professor FENG Xingyuan has been carrying out pioneering research on private finance and private enterprises. He has gained rich experience and published many publications and papers on relevant topics, including Report on the Freedom of China’s Corporate Capitals, Report on the Survival Environment of China’s Private Enterprises 2012, Research on the Risks of Private Finance, etc. In August 2013, Professor FENG Xingyuan and his research team completed and released the Report on Private Enterprise Fund-Raiding in West Hunan and the Case of Mr. ZENG Chengjie, which analyzed and assessed the process, nature, problems, and causes of a series of events and proposed policy recommendations concerning the fund-raising activities in West Hunan and the case of Mr. ZENG Chengjie. Besides, Professor MAO Yushi, Honorary President and celebrated economist of Unirule Institute of Economics, is also an expert in private finance as Professor FENG Xingyuan.

Theoretical Research and Reforming Solution on Opening the Markets of Crude Oil and Petroleum Products

The present system of petroleum industry in China generally has 3 characteristics —— it focuses on state-owned business, price control and restricted access. Thus China’s petroleum industry shows a highly administrative monopoly. A few enterprises have completely monopolized the supply lines from its exploration, mining, refining, wholesale and retail, even to its imports and exports. The research intends to break the administrative monopoly of petroleum industry, stating its objective for the reform and meanwhile figuring out feasible reforming solutions to further liberate the markets of crude oil and product oil.

Strategy of Developing Areas and Planning Studies on Urban Industrialization For Yangcheng County in Jincheng City of Shanxi Province

On the basis of rethinking the strategy of development, the transformation of urban functions and the adjustment to industrial structure for Yangcheng County, Unirule Institute of Economics has developed a unique space-institution mathematical economic model, which can reunite three-dimensional space-time of cities and regions, their industries and institutions, and their economic policy analysis. The Unirule Institute will put the strategy into practice. Meanwhile, such mathematical model will be used to simulate market mechanism, to predict the final size for the long-term developing balance of cities and regions, the space distribution of population density and other economic density, the development time and process of cities and regions, the industrial distribution and its development track, and to test the flexibility of economic systems and policies. Thus the model can be used for the spatial planning of urban and rural areas in Yangcheng County.

Fairness and Efficiency of Financial Resource Allocation

The first scale problem of the fairness and efficiency of financial resource allocation is whether the overall tax bearing standard falls within the optimal interval, whether the design of tax kinds and the mechanism will harm the development of the economy. The second scale problem is whether the expenditure structure of the existing financial resource allocation, especially transfer payment, obeys the principal of justice, and the efficiency of financial expenditure especially the general administrative costs.

Unirule Institute of Economics is going to undertake research on the fairness and efficiency of financial resource allocation with the emphasis on the second scale problem. In order to fulfill the ideal of justice in a society, the involvement of financial resource allocation is one of the methods, and a universal one. A state can promote justice by implying financial expenditure in two ways: the direct and the indirect way. When applying the direct way of implying financial expenditure measures to promote justice, financial expenditure is directly distributed to individuals to fill the gap of incomes between individuals.

Among the financial expenditure items of China are pensions and relief funds for social welfare, rural relief funds as well as social insurance funds. The indirect way is by governments' increase in expenditure used for supporting agriculture and villagers, construction of infrastructure, education and medical treatments. This research is on the justice of financial resource allocation and it deals mainly with whether the transfer payment of financial resources obeys the second rule of Rawls's theory of justice, which states that when violation to the first rule has to be made, resource allocation can be towards the poorest group of people. Besides the justice issue, efficiency is also involved in the financial resource allocation. The administrative costs of China have long been above the average standard of other countries in the world, therefore, a big amount of public financial resources are wasted (trillions of RMB per year as estimated). In regard with the efficiency issue of the financial resource allocation, this research deals mainly with the change of ratio of administrative costs by government agencies (in addition to other costs, such as medical treatments of government officials covered by public budgets, and housing subsidies) of financial income. The reform of the fiscal and taxation system is one of the core issues in China's on-going reforms. This research aims not at a comprehensive examination of the fiscal and taxation system, but a specific aspect which is the "fairness and efficiency of financial resource allocation", and evaluating the status quo of China's financial resource allocation.

Research on China's Urbanization on the Local Level

Urbanization is one of the most essential economic and social policies of the new administration. The emphasis of this policy is posed on medium and small cities as well as townships. As noticed, there are thousands of industrialized townships in China with their social governance lagging far behind their economic development.

Firstly, a big population is located in between the urban and rural level, which can't transform into citizens. Hundreds of millions of people have left their villages and moved to commercialized and industrialized towns. They are in industrial and commercial occupations and it is highly unlikely that they would go back to their villages. However, they are not entitled to local Hukou registration, which further leads to the deprivation of various rights, for example, the right of education.

Secondly, public governance in such industrialized and commercialized towns, in general, is at a rudimentary level. The number of officially budgeted posts is asymmetric with the population governed, which leads to the employment of a large number of unofficially budgeted staff and unjustified power to govern. There is a lack of financial resources for the local government to carry out infrastructure construction or to provide public goods sufficiently. Thirdly, the urbanization results in imbalanced development of the structure of society. Since the industrialized and commercialized townships are unable to complete urbanization, urbanization in China has basically become mega-urbanization which is dominated by administrative power. Local governments centralize periphery resources with administrative power and construct cities artificially, which impedes townships and villages from evolving into cities by spontaneous order. Fourthly, industry upgrading can't be undertaken in those industrialized and commercialized townships and the capacity for future economic development is greatly limited. The industry upgrading is, in essence, the upgrading of people. Enterprises ought to draw and maintain technicians, researchers, and investors, to meet their needs for living standards, which cannot be satisfied by townships. Similarly, the lagging urbanization reversely sets back the cultivation and development of the service industry, especially the medium and high-end services.

Unirule Institute of Economics is going to carry out research on urbanization of China on the local level, aiming at improving public governance of the industrialized townships, optimizing the urbanization methodologies, and improving the "citizenization" of migrant workers, therefore further pushing social governance towards self-governance and democracy.

Research on the Public Governance Index of Provincial Capitals

At the beginning of the year 2013, Unirule conducted field survey, including more than 10 thousands of households in 30 local capital cities. According to the field survey, the Public Governance Index was derived. The main conclusions of the PGI report as below:

Three statements summarize the status quo of public governance in provincial capitals. Firstly, public services have generally just gotten a pass. Secondly, protection to civil rights is disturbing. Finally, governance methodologies need improvements. These statements point out the solution: the structure of the society needs to be altered from that with a government monopoly to a civil society with diverse governance subjects. The ranking of provincial capitals in the public governance assessment from the top to the bottom is as follows: Hangzhou, Nanjing, Urumqi, Tianjin, Chengdu, Shanghai, Beijing, Nanchang, Xi'an, Xining, Shijiazhuang, Wuhan, Guangzhou, Yinchuan, Hohhot, Chongqing, Shenyang, Changsha, Jinan, Kunming, Nanning, Haikou, Fuzhou, Guiyang, Harbin, Hefei, Changchun, Zhengzhou, Taiyuan and Lanzhou.

Generally speaking, all provincial capitals are graded comparatively low in the three public governance assessments from 2008 to 2012. Even those that ranked the highest in performance have just barely passed the bar of 60 points. Few provincial capitals with poor public governance got over 50 points.

There is a certain amount of correlation between the changes of ranking and improvements in public governance in provincial capitals. In the short term, should the capital cities be willing to raise their rankings, they can achieve this by increasing transparency in government information and civil servants selection, encouraging local non-governmental organizations, or promoting wider participation in local affairs. There is but a weak correlation between public governance and the local GDP level. However, a strong correlation exists between the rankings and the equity of local fiscal transfer payment. That is to say, a region gets a higher ranking in public governance if subsidies to local social security, medical care, education and housing are distributed more to the poorest residents in that region. On the contrary, a region's ranking falls if such resources are distributed with prejudice to the groups with high incomes. This phenomenon shows that equity is of significance in the assessment of the government by the people.

When residents are not satisfied with medical care, elderly support system, water supply and electricity supply, the situation can be improved when they complain to the government. But when similar situations take place in public transportation, environment greening, heating systems, and garbage management, whether by collective actions or filing complaints to government agencies, residents can hardly be satisfied with what the government does.

According to the three public governance assessments carried out from 2008 to2012, we discovered that the Gini coefficient of residents in provincial capitals was decreasing and the income fluidity was improving. From 2010 to 2012, citizens' comments on protection of civil rights are deteriorating, especially in terms of property and personal security. The request for freedom of speech is also increasing. For the moment, citizens in provincial capitals have a low evaluation on the cleanness and honesty of local governments.

Research on Disclosure of Government Information

Room for reforms is getting narrower as the opening-up and reforms deepen. It also leads to a more stabilized vertical mobilization of the demographic structure with the conflicts in the distribution of interests exacerbating. A collaborative system centering the political and law system and involving close cooperation between the police, courts, petition offices, and the city guards (Chengguan) is developed to deal with social unrest. This system is operated by local governments and finalized as a system of maintaining stability (Weiwen). There have been Internet spats over the amount of Weiwen funds. It is unsustainable to maintain such a Weiwen system, and the disclosure of government information is the most significant approach for this end. The essence of public governance is to dissolute conflicts instead of hiding and neglecting them. And one way to achieve this is by sufficient communication. Public and transparent appraisement and supervision cannot be achieved without transparent government information, otherwise the result will be the exclusion of citizens from public governance.

Unirule Institute of Economics has been undertaking research on the disclosure of government information since 2011. This research is carried out not only from the perspective of the regulations for the disclosure of government information which evaluates whether governments of various levels are obeying the regulations and their performances, but also by examining information disclosure laws in developed countries while looking at the status quo in China. There are seven aspects where government information disclosure can be improved, namely, information disclosure of government officials, transparency of finance, transparency in the decision-making mechanism, transparency in administration, transparency in public services, transparency of enterprises owned by local governments, and transparency in civil rights protection.

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Unirule Biweekly Symposiums

Unirule's Biweekly Symposiums are known in China and throughout the world for their long history of open and in-depth discussions and exchanges of ideas in economics and other social sciences. Over 380 sessions have been held and over 15,000 scholars, policy makers, and students, as well as countless readers on the web, have directly and indirectly, and participated in the Biweekly Symposium for close to 20 years.

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Biweekly Symposium No. 506: 8th August, 2014
Biweekly Symposium No. 507: 15th August, 2014

Previous Biweekly Symposiums

Biweekly Symposium No. 504: A Comparative Study of China’s Supply and Demand Structure
Time: July 8th, 2014
Lecturer: Professor SONG Li
Host: Professor ZHAO Nong
Commentators: CHEN Yanbin, ZHAO Jingxing, LOU Feng, SHENG Hong, LI Renqing

Professor SONG Li analyzed the structure of supply and demand from three perspectives, namely, the sectoral structure, and investment rate and consumption rate, and China’s dependence on external demand. By comparing the trends of various sectors from home and abroad (agriculture, industry, and services), and by employing econometric models, Professor SONG LI thought a simple conclusion could be reached that if there was a structural problem, it would be due to the disadvantaged development of manufacturing service industry. By comparing the average income, GDP per capita, urbanization rate, economic growth rate, social spending, investment rate and consumption rate, Professor SONG Li believed it was a common phenomenon that the investment rate, surplus rate and the proportion of secondary industry were high. He thought, from the perspective of all the influencing factors, China’s external dependence was comparatively low and the surplus rate was not very high. His conclusion was that the structural problem of China’s economy was not very severe. The nature of the problem concerned interest groups.