Highlights

The “New Normal” Is Not Normal, and the “Five Year Plan” Is Obsolete

SHENG Hong

The topic we discuss is “The Planning Strategy for the ‘13th Five Year Plan’ in the New Normal”. The first thing we need to discuss is the “New Normal”. As I see it, the “New Normal” is a new equilibrium. After the opening-up and reform policy, the old equilibrium was broken and a new equilibrium emerged. In this sense, I find that the “New Normal” is not acceptable, as a mature market with a full set of institutions has not come into being. There are still many reforms need to be conducted and once these reforms are initiated, the equilibrium risks being broken again. 

There are many cases to illustrate this. The first is the reform of the monopolistic state-owned enterprises, which account for one tenth of the national resources. Our research in the past two years has shown that the net return ratio for state-owned enterprises was minus 6%. Updated data, which came out just recently shows some progress, but the ratio is still negative. If the resources occupied by these state-owned enterprises are transferred to private-owned enterprises, a 1% GDP growth can be expected, which is remarkable. Another example is the land institution. Land, in fact, is a very important factor. However, the primary market for this critical factor and its price are still compulsively controlled and regulated by governments. Besides, the interest rate is not marketed yet. Reforms can bring impact to these areas, breaking the old equilibrium. We can either consider that there is already an equilibrium, which means reforms are no longer needed; or reforms are needed; therefore, the “New Normal” does not make any sense.

The “13th Five Year Plan” is obsolete. I think the “five-year plans” are an outcome of the planned economy. Even though in rhetoric terms, the Chinese name for the “five-year plans” has changed, but they are still plans. Therefore, more thoughts should be given to the five-year plan and concrete changes should be made. That is to say, the government should stop emphasizing the five-year plan so much. It is ridiculous when we talk about the GDP growth rate every year. For example, last year’s GDP growth rate was 7.7%, close to the government projection. If the projection and the real rate are close, does it prove the government controls the rate? Or it is just by coincidence that the government is right about it? I find this amusing. The economy is just like an organism, or a child. Nobody knows for sure how much a child will grow in a year. If you predict that the child will grow 2 cm taller this year, does it mean you control his growth, or that you just happen to be right? It is a ridiculous thing for the government to control the growth of an economy. In fact, the growth of an economy is attributed to the economic subjects, mostly the enterprises, instead of the government. The macroeconomic policies of the government should, therefore, be neutral. We have to admit that the economy is a complex system, which cannot be controlled or predicted by human beings. The growth of the economy cannot be controlled, let alone its structures.

In this sense, what sense does it make to continue drafting five-year plans? As declared by the 3rd Plenary Session of 18th CPC Central Committee, the market mechanism is to play a decisive role in the allocation of resources. Then why do we still need these five-year plans? I think we should not take the five-year plans, present and past, too seriously.

What should the government do? The government should provide a good institutional environment. In order to do this, reforms come first. Without reforms, there is not much to be said. There are so many reforms to be conducted without which serious problems may happen to the society. As we have talked about reforms on so many occasions, what matters are specific actions, instead of plans. We see reforms in many places, such as the National Development and Reform Commission (NDRC), but what has it done? Our basic observation is that there have not been any concrete reforms whatsoever even though we’ve talked about reforms for such a long time.

One simple example concerns the oil industry. If the government is serious about reforms, the first thing to do is cancelling the improper entry approval items. And the first thing to change with the oil industry is to open the import of crude oil. Without this measure, which would benefit China in many ways, it makes little sense when the government celebrates the cancellation of some administrative approval items. I think we need more concrete reform actions instead of slogans and talking. If we are just making up plans here without considering whether they’ll work or not, then the plans are good for nothing.

Even if we have reached this state of the “New Normal”, the role of the government should still just be supplementary, instead of decisive. Then what should the government do? The government should firstly do its job in protecting the property rights and maintaining the market order. If the land of peasants and farmers are arbitrarily taken from them, then what is the use of the government? Then we need to consider and analyze with care where market failure exists, and how to fix the market failure. Whether the market failure should be fixed with tax measures or by trading emissions rights, the government should take active part in it. But in general, the government should only play a supplementary role.

SHENG Hong, Director of Unirule Institute of Economics

Current Events

Research Expert Meeting on “Smog Management” Held in Beijing

On the morning of January 30th, the research expert meeting on “Economic Research on the Smog Management in Chinese Cities” was held at Unirule office in Beijing. Present at the meeting were Professor MAO Yushi, Honorary President of Unirule; Professor ZHANG Shuguang, Chairman of Unirule Academic Committee; Professor SHENG Hong, Director of Unirule; and Professor HU Dayuan, Deputy Dean from National School of Development of Peking University. They provided their expertise and advice on the scope, approach, and methods on the research project and discussed with the research team on technical details. The research team expressed its gratitude and planned to take in the advice to further improve the research project.

Unirule 2014 Annual Get-Together Held

February 7th to 8th, Unirule 2014 Annual Get-together was held. Professor MAO Yushi gave an opening speech before Professor SHENG Hong, Director of Unirule, delivered a report on Unirule’s projects, academic activities and events. Professor SHENG Hong also analyzed the shortcomings and problems of Unirule followed by reports from heads of different departments. At last, the staff of Unirule shared their thoughts at the meeting.

On the evening of February 7th, Unirule staff and executives enjoyed the evening at the New Year Gala. Professor GAO Yan, Deputy Director of Unirule announced the list of outstanding individuals. Mr. ZHANG Ling won the title of “Best Unirule Staff”, Ms. LI Jing won the title of “Best Service Award”, Ms. PAN Jin won the title of “Dark Horse Award”, and Mr. LI Yunzhe and Ms. YANG Hua shared the award for “Outstanding Contributions”. Mr. ZHAO Nong won the “Outstanding Contribution Award”.

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

Current Researches/ Consulting

Improving China’s Implimentation and Supervision Institution of the Constitution

At present, research on the implimentation and supervision institution of China’s constitution is insufficient. Multiple problems exist in the current studies, such as the lack of a cultural perspective, and empathetic understanding of China’s political tradition; a lack of authentic Chinese perspective and an indulgence of Westernized framework of analysis; and a lack of reflection of the reality and the existing political framework.

The research on China’s constitution review institution should put the protection of civil rights and constitutional construction first, with a reflection of China’s reality and take in the advantages of external researches. A plausible research approach is as follows: 1. This research ought to provide a right relief mechanism; 2. It should take into account that China is a vast country with imbalanced regional development realities which foster unique and differentiated conceptions of the law and politics in general; 3. It should be built upon the current constitutional structure and take into account the interactive system of the power of the party, the National People’s Congress, etc. in order to make it a progressive research, which can enable the elements of constitutionalism to supplement the current constitutional framework; 4. Scrupulous examination should be given to constitutional practices in other regions and cultures, especially those influenced by the Chinese culture or with a similar institutional set-up, such as Taiwan and France; 5. Observations should be made in regard to the traditional Chinese institutions, such as the institution of the expostulation system (“谏议制度”, or giving advice),  supervision system, and the institutions established in this light, e.g., Taiwan’s Control Yuan.

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 methods 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.

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?

An Economic Research of Chinese Urban Smog Management

The issue of smog has been on the spotlight in China that no matter government officials, ordinary citizens, or journalists and the press have expressed serious concern and anxiety towards it. Unirule Institute of Economics takes on this research topic and is conducting an economic research on China’s urban smog management.

The urban smog is attributed to multiple factors with many interest parties involved, which also makes it an economic issue. Unirule seeks to find a solution to the management of smog by the design of institutions from an economic point of view.

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.

Upcoming Events

Unirule Master Thoughts Class(2014)

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. 520: 13th March, 2015
Biweekly Symposium No. 521: 27th March, 2015

Previous Biweekly Symposiums

Biweekly Symposium No. 513: Several Questions about the Reform in the 1980s
Lecturer: Professor WU Wei
Host: Professor ZHANG Shuguang, Chairman of Unirule Academic Committee
Commentators: LIU Yan, MA Lin, SHENG Hong, TANG Zongkun, XU Youyu, ZHAO Nong

Mr. WU Wie illustrated several problems concerning the political reform history of the 1980s. Firstly, he reflected on the transition of DENG Xiaoping’s political reform thought, that is, rethinking of the Cultural Revolution in the early stage, promoting political reform in 1986 (but this political reform refers to the administrative reform), and the disappearance of political reform in the discourse after 1989. Then, Mr. WU pointed out the two different reform paths in regard to political reforms in the 1980s due to the difference between DENG Xiaoping and ZHAO Ziyang’s thinking. These two paths differ in terms of purpose and goal. In the mean time, the measures taken by ZHAO Ziyang in his political reform went way beyond DENG’s assigned scope. Because of this, the incremental reform was called to a halt. Mr. WU also illustrated the “consumer price challenge”, which is the transition of the price system from dual track to a market system. He thought this mistake has led to the deterioration of the economic and political conditions after the 13th CPC Central Committee. At last, Mr. WU sorted out the relations between the major political leaders within the party at that time.

Editor: MA Junjie
Revisor: Hannah Luftensteiner