Highlights

The Interest Chain of Pharmaceuticals behind the Corruption Case of the NDRC

ZHANG Shuguang

According to the media report, Head of the General Bureau of Anti-Embezzlement and Bribery under the Supreme People’s Procuratorate of the PRC declared on October 31st, 2014, that a total of 11 cases with 11 suspects had been investigated for alleged bribery concerning the former high-level officials of the Price Department of the NDRC. The details of the suspects are as follows: Mr. CAO Changqing, Head of the department for over 7 years, in charge of the adjustment of property prices, oil price, price of pharmaceuticals, and the tiered pricing of electricity; Mr. LIU Zhenqiu, Deputy Head of the department, in charge of price of electricity and pharmaceuticals, who replaced Mr. CAO as the Head of the department in May; Mr. ZHOU Wangjun, long-time Deputy Head of the department, in charge of price of pharmaceuticals. Mr. GUO Jianying, Head of the Office of Pharmaceuticals of the department, who was also a deputy inspector of the department. Mr. LI Caihua, former Head of Office of Price of Electricity under the department, who was promoted to Deputy Head of the department.

Four of the five former officials were in charge of the pricing of pharmaceuticals, and three in charge of the pricing of electricity. It makes us wonder when we take into account the fact that another six government officials from the National Energy Administration were sacked. This illustrates that the alleged crimes of these former government officials were involved with pharmaceutical business, and the pricing system. Therefore, they touched upon an important problem of the healthcare system, the pricing system, and the reforms in these two systems.

On April 6th, 2009, the CPC Central Committee and the State Council issued the Suggestion on Deepening the Reform in Pharmaceutical and Healthcare System that started the new round of reforms in this area with a goal to complete and improve the system and to establish a basic institution that encompasses residents of the rural and urban areas, which would solve the issue of inadequate and overly expensive medical service. On November 13th, 2013, the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform further clarified the direction and tasks on this matter as Article 46 of the Decision stipulates comprehensive and detailed guidance to “proceed with a comprehensive reform in medical security, medical care, public health, and the medicine supply and regulatory system”. To be exact, these stipulations are not only necessary but also correct. As long as these stipulations are followed and undertaken, the reform of China’s medical and healthcare system would be successful, and the concerns of the citizens would be solved.

Then, let’s take a look at the reality. Even though the government has proposed to establish and enhance the healthcare service institutions of the basic level, complete and improve a proper tiered medical treatment model, and promote the vertical mobility of quality medical resources, yet as the medical resources allocation is still over concentrated and heavily imbalanced with huge gap between the rural and urban areas, it is very common to see that there are much less patients at low-level medical service institutions and a lot more at big hospitals where two to three minutes of service time is commonplace. The government also proposed to speed up the reform of public hospitals, and to establish a scientific evaluation system and a set of institutions for education and training of professionals and salary system that suits the industry. However, it is astonishing as we witnessed the commercial bribery case involving GlaxoSmithKline and the corruption cases in the pharmaceutical business. Even though it is openly stated that government’s obligations should be implemented,  and between 2008 and 2012, a total investment of over 2 trillion RMB was made by the government in healthcare, it is a shame that this investment was most completed utilised as it was designated, but it ended up in the pockets of corrupted government officials. Individual spending on medical resources is still skyrocketing. We have already established the institution for basic medicines and the division between medical treatment and pharmaceuticals with the cancellation of the medicine-supplementing-medical-treatment mechanism, however, it has become a normal phenomenon that the price of medicines is distorted, with some over expensive and manipulated, and the institution of basic medicines has also become corrupted. The government also proposed to improve the strategy and mechanism of traditional Chinese medicine(TCM), but under the existing system, there’s a crisis for TCM as traditions and methods are deteriorating and the some TCM prescriptions do not have effect. China’s export volume of TCM has been surpassed by South Korea and Japan. It is apparent that the reform of China’s healthcare system has deviated.

How does this take place? The criminal cases of the five former officials in charge of pricing may shed some light upon the reasons. It was in 1999 that China began to adopt a pilot plan of concentrated bidding for medicines. For the regulated medicines, the lower the bidding price is, the higher the profit margin is for hospitals. This policy did not manage to eradicate the conventional medicine-supplementing-healthcare mechanism, but the prices for medicines has been steadily decreasing at a margin of 20%, which benefited the citizens in general. However, as it is not reasonable to regulate the highest price for medicines, Mr. GAO Qiang, a former official from the National Health and Family Planning Commission(NHFPC), claimed that “if you take a serious look at the price of medicines, even though there have been rounds of increases, the prices never surpass the regulated price. That is to say, no matter how expensive the medicines are, they are legal.” And another Mr. LIU Zhenqiu spoke to the press that, “there is not much room for price increase due to multiple adjustment of the regulated price of medicines.”

In 2006, Mr. LIU Zhenqiu and Mr. GUO Jianying, along with their fellow officials, adopted a new policy that regulated the increase rate of price of medicines in the name of solving the problem. This policy regulated the increase rate of 15% and a zero price different mechanism, which interrupted and damaged the system and norms of the production, sales, prescription, and usage of medicines. The increase rate of 15% refers to a 15% increase of price on the basis of the procurement price by the hospital; and the zero price difference mechanism refers to the mechanism that forbids the hospitals to further raise the price for sales. This regulation seems to have prevented hospitals from arbitrarily raise the prices for medicines. However, let’s take a closer look. The key to the problem is the procurement price of medicines. Suppose three companies produce one medicine at three different prices, RMB 10, RMB 20, and RMB 30. Under the existing mechanism, the sales prices for this medicine by the hospital will be RMB 11.5, RMB 23, and RMB 34.5 respectively. In the current system, it is easy for hospitals to procure this medicine at a price of RMB 30 from one of the three companies. This sends off a very strong signal for pharmaceutical companies that they should raise the price of medicines in order to make a profit and to compete in the market.

However, the price of medicines is under the regulation of the Price Department of the NDRC. Therefore, this set of institutions and policies have become the instrument for government officials to fulfil the purpose of rent-seeking, which in turn interrupts the order for the industry and for the market. As a result, medicine manufacturing companies do not compete in terms of quality, low cost, and innovation, but they begin to take efforts in public relations and bribing government officials. These government officials are not only the subject of rent-setting and rent seeking, but they are also the object of the public relation campaigns. The reason why it is so is because these government officials are deluded to believe the pharmaceutical companies will crawl under their feet and make contributions to them. According to some source, the pricing of a certain type of medicine will cost an average PR cost of some RMB10 million. It is therefore not surprising that government officials in medicine-related departments get rich easily. However, this is just the first step.

As the price of medicines is the lifeline for manufacturers, after they bribe the government officials and get their high price of medicine approved, they obtained a gold mine. Now that the price of the medicine is high, what they need to do is to sell the medicine. So the manufacturers will use a part of the overdue price to bribe the executives and procurement staff of the hospitals in order to win the bid for medicine procurement. This is the second step.

The third step is prescription of this medicine after selling it to the hospitals and give cutbacks to the doctors. As there is an information asymmetry between the doctors and the patients, many patients will naturally think the expensive medicine is good. Therefore, it get popular to buy expensive medicine. This information in turn gets back to the manufacturers, which completes the closed cycle of a twisted price and product system. The root reason for this twisted system is the government officials, and now it is a shame that we have to depend on these government officials to push forward reforms in this industry.

These are the routine steps for GSK and many other pharmaceutical companies, this is also the story and logics behind the regulation of medicines and prices. Therefore, we see that the price of medicines is raised, and the corruption and bribery behaviours are springing out: cutbacks for doctors account for a very high proportion of the retail price of medicines. Sales revenue of GSK in 2012 in China amounted to RMB 7 billion, and a modest estimation of the amount used for bribery amounted to 20% to 30%. In Zhangzhou, Fujian Province, there were 73 public hospitals involved in this case, a rate of 100%, including 95% doctors, and the amount for bribery accounted for 50% of the sales revenue of medicines. On this rate, as public hospitals nationwide procure medicines for almost a trillion RMB every year, the amount for cutbacks can approach RMB 500 billion, which is incredible. This phenomenon has resulted in the deterioration of ethics and honesty of government officials, manufacturers, hospitals, doctors, and patients, which is a huge price.

Now that some of the former heads of the Price Department have been sacked, but the system is still functioning. When new officials take office, they will most likely follow the old path. This problem cannot be solved by the General Bureau of Anti-Embezzlement and Bribery under the Supreme People’s Procuratorate of the PRC.

What we can learn from the incident of the five former government officials in terms of reforms of the pharmaceutical industry and in terms of the price system are multi-faceted.

Firstly, price is the most important mechanism and signal of the market economy. Once the price is twisted, the relations between and the behaviours of the market subjects will be interrupted and guided to a wrong direction. Therefore, to quote the late economist Professor SUN Yefang, the profit is to the management of the enterprise is what the nose is to a cow, and the price is the baton to the market economy. It is of critical importance to determine the price. Whoever handles the baton will be able to handle the market, and pricing is of key importance. Therefore, in the market economy, the price can only be determined by market competition. Whoever controls the market is violating the law. When enterprises control the price, they form a market monopoly. When the government controls the price, it forms an administrative monopoly. And these two kinds of monopolies should be avoided. Therefore, two things can twist the price, one is the government power, and the other is market monopoly. So, when the government controls the price, anti-market monopoly does not make much difference.

The government distorts prices by price regulation. Even when the government controls the price of public goods, including public utilities, it has to take into account the supply and demand and the market. It also has to hold public hearings instead of leaving it to government officials. Even for the regulation of medicines and healthcare services, what the government can control is the approval of new medicines and the price of new medicines, which should neither be approved by the department heads, but by a commission of experts.

Secondly, after thirty years of reform of the price, people begin to think that the price for medicines have been totally liberalised. However, the sacking of the five government officials served as a reminder. The price of medicines is not open, neither is the price to electricity, petroleum products, and many other commodities. The pricing power of these commodities is controlled by government officials who are the real decision maker of the manufacturing, circulating and using of the commodities. They are the real manipulator of the market. No wonder people call the Price Department of NDRC the “No. 1 Department in the World”.

If the price of medicines are liberalised, then manufacturers will focus on the market, instead of the government officials, and produce high quality low price medicines. They will compete in the market and win with the best medicines. By doing so, the government officials in the Price Department will be out of jobs, and the No.1 Department in the World can be canceled. In fact, as China has chosen the market economy, it does not make much sense to have a price department. The five corrupted officials have proved this. The first thing to do is to cancel the price department if we really want to promote the reforms of the healthcare industry and the prices. Taking into account the six sacked officials in the Energy Administration and Mr. LIU Tienan who’s in charge of investment, the NDRC also needs to limit its power, reform and transform its system. It is necessary to cancel and limit the powers of the departments that control manufacturing, investment, and price, and enhance departments like anti-monopoly, and those in charge of food and drug security.

What’s more, the biggest success of China’s reform is the implementation of dual-track system, however, the biggest failure is the limitless expansion and continuous implementation of the dual-track system. Not to mention the dual-track system in the political and economic sphere, or with the state-owned enterprises and private enterprises, the dual-track system in the prices of commodities and with the factor prices, especially the dual-track system in the financial area, has greatly suppressed the cost of production, which severely distorted the market signals, resulted in serious mismatch of resource allocation and huge imbalance of the economic structure.

Is it so hard to undertake the reform of prices? No. Will there be chaos when the market determines the price? Will the economy collapse? No. These presumptions are made up to pose obstacles for pushing forward reforms. The failure of the price reform in 1988 and the success of the dual-track price system in 1991 for most commodities have proved that human manipulation does not work. The right thing to do is to open the market and let the market determine the price.

The real problem here is that once the market determines the price of commodities, it will be impossible for government officials to intervene and control the resources, and therefore, the economy. It will then be very difficult for rent-seeking. However, when the factors are marketised, the market will determine the allocation of resources, and the most important statement of the Decision of the third plenary session of the 18th Central Committee will be implemented in its full meaning, that is, to let market have the dominant role in the economy. This is not to say that there will not be any risks to open the price of the factor market. There will be risks, but they are not unmanageable. The mistake of the 30 years of reform is the stagnation of the factor market. In order to avoid and manage risks, an incremental approach is favorable. As long as there is a process of opening the market of factors, one by one, step by step, there will not be any problem that cannot be solved.

ZHANG Shuguang, Chairman of Unirule Academic Committee

Source: FT Chinese and China-Review

Current Events

The 13th UCERC Saloon Held in Guangzhou

On the evening of November 25th, the 13th UCERC Saloon, and the fourth thematic seminar on “Business Ethics Declaration of Chinese Entrepreneurs” was  held in Dongfang Hotel, Guangzhou. Present at the seminar were Professor YAO Zhongqiu(Qiufeng), President of Unirule; Professor XU Xin from Beijing Institute of Technology; Mr. BAI Huiliang, Senior Advisor of Chinese Pharmaceutical Enterprises Association; Mr. LI Hanming, CEO of Techpool Co., Ltd.; Ms. YANG Jie, General Manager of Dynemed Co., Ltd.; and Mr. NIU Zhengqian, Vice President of Chinese Pharmaceutical Enterprises Association. Mr. ZHANG Xiaolong, President of Jiahe Capital Co., Ltd. hosted this event. There was also an audience of more than 70 people, most of whom were CEOs and general managers of pharmaceutical companies.(To read more)

The 14th Annual Conference of Institutional Economics Held in Beijing

December 13th- 14th, the 14th Annual Conference of Institutional Economics was held in Beijing. This conference was jointly held by China Association of Institutional Economics(organizing committee), Unirule Institute of Economics, and Gengdan Institute of Beijing University of Technology.(To read more)

Unirule Master Thoughts Class(2014) 2nd Session Held in Beijing

December 13th – 14th, Unirule Master Thoughts Class(2014) 2nd Session was held in Beijing. This session was joined by Professor MAO Yushi, Honorary President of Unirule, Professor HE Weifang from Peking University, and Professor SUN Liping from Tsinghua University.(To read more)

News

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.

Biweekly Symposiums begin at 2 p.m. every other Friday and are free and open to the public.

Schedule
Biweekly Symposium No. 516: 16th January, 2015
Biweekly Symposium No. 517: 30th January, 2015

Previous Biweekly Symposiums

Biweekly Symposium No. 510: The Logic and Space for Reversed Transmission of Pressure for Reforms: A Reinvestigation of Zhejiang Model
Time: September 12th, 2014
Lecturer: Professor ZHAO Wei
Host: Professor ZHAO Nong
Commentators:XIN Wang, LIU Qihong, ZHANG Shuguang, SHENG Hong

Professor ZHAO Wei started with explanation of the reversed transmission of pressure for reforms, i.e., the institutional transition by analyzing the development model of Zhejiang Province. By analyzing the past experience of Zhejiang and its economic performance in recent years, Professor ZHAO thought the room for reversed transmission of power was expanding. He also pointed out that this model was a norm for regional marketization which featured the privatization.

By analyzing the reform model of the four regions in Zhejiang Province(Wenzhou, Xiaoshan, Yiwu, and Ningbo), Professor ZHAO thought the regional transition model also had something to do with reform of property rights, which was the key to “Zhejiang Economic Miracle” or the “Zhejiang Model”. The theoretical explanation for this was, Professor ZHAO proposed, the industrialization and the industrial clustering, and the industrial development and the institutional evolution. He also illustrated five more detailed progressive up gradation of the two processes, i.e., the industrial clustering, the industrial organization, the entrepreneurship, the expansion of the scope of industrial zones, and the reversed transmission of pressure of institutions. Thereby, Professor ZHAO proposed his logical framework and thought that the first three up gradation would enhance the scope for industries, and therefore, push forward further reforms as the pressure for reform mounted on the administrative entities.

On the basis of this framework, Professor ZHAO also shed light upon the new phenomena in regards to the “small region” and “big enterprises” in Zhejiang’s economy in recent years.

Editor: MA Junjie
Revisor: Hannah Luftensteiner