Highlights
The Government Should Maintain Neutrality toward the Market
by SHENG Hong, Director of Unirule Institute of Economics
Translated by MA Junjie, Researcher, Unirule Institute of Economics
As we usually see, when government departments issue certain policies, they justify the necessity of these policies. A recent example is the price regulation upon the housing market issued by the government in several big cities. Shanghai stipulates that the premium ratio for second houses is raised to 70%, and more limits are set upon non-local buyers. Langfang, a city bordering Beijing, sets up regulations on buying houses in the counties under its administration. It also grant buyers only one apartment with a premium payment ratio of over 30%. Limits on buying houses are not lifted at all in Beijing, whereas situation is not much different in Shenzhen. Is there something wrong? Data shows that housing price in Shanghai increased by 25% in March compared to the same time period last year. Comparatively, housing price in Beijing grew by 16%, and what’s worse, 61% in Shenzhen. Housing price in all these cities has increased over February.
Source: National Bureau of Statistics,
http://www.stats.gov.cn/tjsj/zxfb/201604/t20160415_1343999.html
So why did the housing price sharply go up? As we know, China’s economy had taken a downturn that bothered the central government so much it began promoting “supply side structural reform”. This has something to do with institutional reforms, but more importantly, the reform aims at solving urgent problems. Such problems include “cutting over-capacity, and cutting excessive stock”. And there is excessive stock in the real estate industry. Therefore, specific measures are called for, such as lowering the premium payment ratio, cutting taxes and fees, which may lead to decrease of the loan interest rate. A majority of Chinese cities have cancelled purchasing limitations. Some cities are even considering encouraging migrant workers who are normally enable to buy departments in cities to buy houses on loans. Such measures worked: from January to March 2016, the sale area of housing has increased by 33% compared to last year.
People have to doubt whether the stock of houses for sale is really a burden in the macro sense as housing prices go up? According to the National Bureau of Statistics, by the end of December 2015, the nationwide sale areas of housing amounted to 720 million m2, approximately the same with the sale area of July, which was not much. However, according to some observers, the sale area of housing accounted for 8.08 billion m2 if adding the areas under construction. To consume this stock required 6.3 years. This raised an issue. However, if all real estate developers are enterprises in the market economy sense, they should decide their operations according to the cost and benefit. Apparently, it’s not worth investing if the cost fails to bring about benefit.
Then why does the central government emphasizes cutting excessive stock in the real estate industry? As a matter of fact, what the decision makers are concerned with is the slowdown of China’s economic growth. China’s nominal GDP grew by 6.9% in 2015, and the real GDP growth rate was much lower. And the housing market weighs significantly in the economy with a RMB 870 million sales revenue in 2015, 12.8% of the GDP. Even minor changes in the housing market have macroeconomic implications. In addition, the real estate market also involves a series of other industries, such as steel and construction in the upstream, and services and interior decorations in the downstream. The growth rate of sale area of housing has decreased significantly since 2010, and it hit -7% in 2014. Based on the sales revenue of the year before, it affected 1% of the GDP growth. The growth in 2015 was much slower than that in 2013.
Source: National Bureau of Statistics
What, then, caused the slowdown in growth rate of the sale areas of housing? In perspective, it all started in 2010. A “10 New State Regulation” by the central government was issued to restrict the purchasing of housing that stipulated “strictly restrict unreasonable housing demands,” and “every household is only allowed to purchase one set of house”. The document also raised the down payment ratio of the second house to over 50%, and halted the grant for loans for a third house. All big cities in China followed the document and set up restriction measures whose main content was to restrict the number of houses purchased by consumers, especially non-local residents. In the meanwhile, many cities adopted direct price regulations.
Looking back, why should there be restrictions? The main concern was the rapid growth of housing price since 2007. Taking Beijing for an instance, from 2001 to 2013, the housing price increased by 20.4% yearly; from 2007 to 2010, the housing price increased by 142%, a 34.3% increase on a yearly basis; the housing price increased by 63% in 2009 over the previous year. Therefore, the government issued this document in the light that “housing prices grow too rapidly and at big scales, which made it harder for residents to solve their demand for housing via the market, and it increases the financial risks, which is not good for the coordinated development of the economy and the society.”
Source: Jieanxin, Housing Price in Beijing, 2014
The issue here is why was there such a rapid growth of housing price? Where did it come from? There are three reasons. The first reason is the speeding-up of the urbanisation process. In the planned economy, the urbanisation rate of China was generally low. By 1978, the urbanisation rate was slightly under 18%, lower than that of 1960. By the late 1990s, China’s economic miracle has brought industrial development and growth of wealth, which brought about rapid urbanisation. The average annual urbanisation rate was 1.2%. In this process, the previous housing supply pattern failed to adjust to the new demands of the people, so there came the reform of housing market. This reform has much positive significance. The reform relied on the market to allocate the housing resources, which also reflects the scarcity of land by prices. In this sense, the rapid growth of housing price after 2000 reflected the speeding urbanisation process.
Secondly, the central government decided to crack down “Houses with limited property rights”(小产权房). Ever since the amendment of the Land Management Law in 1998, the central government has been suppressing the development of houses with limited property rights in order to monopolise the land supply. From 2006 to 2008, the central government and other departments issued 7 policy documents to constrain the construction of houses with limited property rights. According to a survey by the Ministry of Land and Resources in 2007, the total area of houses with limited property rights in that year amounted to about 6.6 billion ㎡.
At least 220 million people could be housed at the rate of 30 m2 per capita. Putting this area in comparison with the 770 million m2 commercial houses in the market, apparently the houses with limited property rights would contain the rapid growth of housing price. However, suppression of houses with limited property rights affected the supply of housing, which led to the rapid growth of housing price.
And a third reason was the rampant construction of economy houses. Why economy houses? The facade was to deal with the rapid growth of housing price and provide housing for the low-income residents, and what lies beneath was more than meets the eye. In the second year after China’s reform in the commercial housing, a document entitled “General Office of the State Council of the People's Republic of China’s Notice to Ministry of Construction ‘On deepening housing institutional reforms and implement measures for Beijing-based state departments’” (《在京中央国家机关进一步深化住房制度改革实施方案》的通知”（厅字[1999]10号）) stipulated that, “In a certain period of time, Government Offices Administration of the State Council and National Government Offices Administration are allowed to organise the construction of economy houses and sell these houses to staff of the Beijing-based departments and government offices.” This document initiated the construction of economy housing by civil servants, and governments of all levels followed suit.
This article does not speculate the incentive of such policy. Whatsoever, the rapid growth of housing price after 2000 coincided with the construction of economy houses in 1999; and the high housing price after 2007 coincided with the economy houses’ occupation of commercial housing lands from 2006 to 2008. Economy housing is necessary because of the high housing price, while housing price goes up thanks to the economy houses. According to Mr. REN Zhiqiang, a real estate tycoon, from 2005 to 2009, the land supply for economy housing accounted 66% of the total land supply in Beijing (2012). As the land for commercial housing was used otherwise in economy housing, the decreased supply of land caused high prices. Therefore, in Beijing’s case, the 66% decrease of land supply led to a 60% increase of housing prices in commercial housing.
Based on the discussion above, what the incumbent administration needs to address right now is the issues caused by the previous administration, and the policy consequences of the last policy was designated to solve the problems brought by the previous policy. The bottom line is, the original policy was a mix of a lack of neutral attitude towards the market responses, and the administration’s concern for its own interest. One thing led to another, a malicious circle emerged. Because of the government intervention, more intervention is called for to address the negative implications of the last intervention. The short-memory of the common citizens, however, lead them to ignore the true cause of all the conundrums at hand, and believe the government should interfere even more.
We’ll talk about the neutrality of the government in dealing with the market first and then it’s incentives to interfere. The neutrality of the government forbids the government to direct the market with policy, regulation, or direct market operations. The intention of the government usually results in huge market fluctuations; even when the government tries to reverse the market development, it normally ends up with excessive government intervention. In fact, the economic problems that are faced with today are not a problem of fast or slow economic growth, but excessive fluctuation of the economy. And this is due to government intervention. Some may ask whether the market itself fluctuates to extremes. Is it that there is market fluctuation in the first place, and then the government intervenes? To answer this question, we need to distinguish government from market.
The market is a place where many individuals undertake transactions in a decentralised manner. Due to the comparison and influence of the transaction information, the decentralised transaction information converges to an equilibrium price. The effectiveness of the market depends on this feature of the market. As individuals exchange according to their own goals and judgments, normally, they don’t buy or sell in the same direction at the same time. Their dispersed decisions off-set each other, and therefore, prevent the market from excessive fluctuation. Of course, in the natural state of decentralised market transactions, voluntary buying does not necessarily off-set voluntary selling. Sometimes, voluntary buyings prevail and the prices go up which pushes up the market prices, and sometimes, the opposite market development takes place. These form the normal fluctuation of the market. Thanks to the negative feedback mechanism of the market in a certain range, supply increases when prices go up, therefore, demand decreases, and the supply and demand relation changes to constrain the prices develop in the same direction any longer.
And in specific times and very rare occasions, the decentralised decisions of individuals accidentally form voluntary transactions in the same direction, such as massive selling which results in huge market fluctuations. However, these are very rare instances that require the government to handle. Direct intervention by the government was only seen during the Great Recession in 1929, or the Black Monday in 1987. As Greenspan recalled, the Federal Reserve injected credit to commercial banks in 1987, and money was basically piled up in the doorsteps of those commercial banks. These policy interventions are designed to be contingencies in desperate circumstances as the real economy can be affected by the sudden break of liabilities and decrease of credit and money supply. However, what’s worth noting is that such instances in history were not caused by the market. As we now come to recognise, the sub-prime debt crisis was a result of long-term stimulus policy by the American government to stimulate consumption on expanding credit. The direct cause was Fannie Mae and Freddie Mac which misled consumers.
Let us now appreciate the nature of government intervention. The government is a super player in the market place. Thanks to the massive scale and compulsiveness of its measures, the government’s policy, regulation and direct market operations are able to throw the market in a certain direction and there is no power that can offset the trend. In fact, China’s went through decades of planned economy, and a market economy in the last three and a half decades, historic statistics shed light upon the reality and remind us of the times when there were huge economic fluctuations. The following graph shows the growth rate of China’s economy from the 1950s to 2014. Quite directly, we come to the conclusion that the more the government intervenes in resource allocation, the more severe the economy fluctuates, and the slower the economy grows. Government intervention coincided with massive economic fluctuations. The economy fluctuated at the largest scale from 1958 to 1971; and followed by big fluctuations in the early years after the reform and opening up as there was a lack of complete market institution. And after 1990s, the economy developed steadily.
Source: National Bureau of Statistics
Taking the global economic crisis in 2008 for an example, an “investment multiplier” effect was witnessed where the Chinese government pushed forward a RMB 4 trillion stimulus package in 2009, which directly invested over RMB 1 trillion. The other concrete measure taken by the government was to encourage local governments to invest, to speed up approval process for local construction projects, and to push state-owned banks to lend quickly and recklessly to local governments and state-owned enterprises. In fact, the high current item surplus in 2009 has led to sufficient supply of money in commercial banks. The loans of that year accounted for nearly RMB 9 trillion, an approximate 20% increase compared with the year before.
The measures taken by the Chinese government prevented China from taking the hit like the US or other western countries. However, immediate inflation was a result. In 2010, the commodity price index increased over months and reached 5.1% in November, 6.5% the following July, and the factor price index hit 7.5%. On the other hand, investment by the local governments and state-owned enterprises based on administrative orders lowered the efficiency of the investment significantly. Many projects were bound to fail when they were invested. And the consequence of such government-led investment was deflation. And what the central government promoted was immediately countered by opposite demand for action.
The government intervention in recent years not only comes in the form of inductive policy measures, such as interest rate and tax rate, but more and more often in forms of direct restriction of purchase or regulated prices that result in more serious consequences, more abrupt changes and bigger fluctuations. This is why the real estate industry, and the macroeconomic shifts and turns with abrupt price regulations, come into being. Is the government intervention good for the economy? Not at all. On the contrary, government interventions have negative effect on the economy.
In general economic terms, a normal market can’t possibly avoid any fluctuation. Sometimes, fluctuation is good for economic structuring. Of course, big fluctuations are not good. Peter Lindert and Charls Kindelberg discussed how stable prices will bring welfare to the world in their International Economics. On the other hand, large economic fluctuations will bring about harm. A simple example is the fluctuation in agriculture. If the agricultural yield fluctuates at a level of 15% between a good year and a bad year, then people expect to economise a little in the bad year in order to survive. But if the fluctuation exceeds 50%, there may be famines and death. China has a long trail of such events in its history.
When the economy is influenced by the government policy, regulation and direct intervention, the excessive fluctuation is a false market signal, as it does not reflect the real supply and demand relation. The investment encouraged and promoted by the government is not met by efficient demand, and the regulated price does not reflect the real demand. The frequent shifts in the short-term due to the changeable policies mislead investors. Investors become coy to invest as the policy shift may turn the expected gain into loss. With distorted market signals, it is impossible for the resource allocation to be efficient. The government regulation itself is harmful. If the regulated price is a deviation from the market price, then no matter whether the price is high or low, the supply cannot meet the demand, and social welfare loss is resulted.
It may seem that price regulation benefits the low-income people, but the truth is, it does not. As pointed by Professor Steven N. S. Cheung, if the “rent” (the difference between the regulated low price and the market price) is not designated to a certain people, then people will compete (such as queuing) to get this rent, and the water resources in the competition equals the rent. That is to say, the rent is dissipated. In addition, as Chinese administrative officials are acting with the biggest discretion, the rent from government regulations is more likely to be owned by some government officials who hold public powers. And the result is more likely to be anything but benefiting the low-income groups.
As we see in the frequent policy shifts and adjustments, the social welfare is not increased. On the contrary, harm and efficiency loss are made. Then, why are there policy shifts and adjustments? How to establish a government of positive value? This is an issue concerning the positioning of the government functions and its code of conduct. We believe that the central government has a duty to the macroeconomy, but only in a very narrow area, that is when the economy is likely to collapse without proper intervention. In most cases, the macroeconomy concerns only the market and enterprises. Such a positioning of the government reflects a principle that is the government should maintain neutral toward the market.
To maintain neutrality means to withhold stance and contain the impulse to intervene when market fluctuations occur. Even when the government has to interfere, direct and compulsive measures should be avoided, such as price regulations, quantity regulations, or entry barriers; directive measures should be favourable, such as influencing the behaviours of the market players by influencing the market parameters. Besides, caution needs to be taken when adjusting policy parameters, too. This requires deep understanding of the market mechanism, and trust in the effectiveness of the market, which is hard. Chinese government officials are heavily affected by the planned economy mentality, and they tend to treat the market as irrational result of individual decisions, and policies as the rational result of careful consideration.
Such a phenomenon is criticised by Hayek as rationalism. As Hayek pointed out that “the most important trait of the price system is that it economise the knowledge it requires to run. That is to say, individuals in this system need but very little information to take the right action.”(1989, p82) And the spontaneous order that contains rich information and neat mechanism cannot be fully understood by human rationality. Once human beings think they have understood the market and design an institution to replace the market, which institution always falls short of the market, and is likely to bring disasters. This has been proven by history.
Secondly, the government should trust the market. It should not only trust that the market is better at allocating resources, but it also is better to self-adjust in terms of economic fluctuation. As argued before, there is a negative feedback mechanism in the market that is to reversely adjust itself against the market trend when there is a fluctuation. In terms of long term and significant market trend, caution is needed to assess whether it’s good or bad. For example, the rapid economic growth after the reform and opening up, or the rapid urbanisation process since the 1990s are either attributed to the released efficiency due to institutional reforms, or the concentration of population due to economic development and industrial growth. When there is short-term odd fluctuation, we need to consider if it is due to non-market factors, such as government policies. As Confucius said, “The Heaven never speaks, and the seasons run naturally…” (天何言哉？四时行焉) It means even though the Heaven never speaks, we all believe winter is followed by spring. So should we believe that the negative mechanism of the market is effective.
Thirdly, the government should be self-conscious. We need to recognise that government officials are human beings who have limits. This requires us to fully acknowledge the lessons from the planned economy, and to be conscious whether the current government policy will bring abrupt shifts and turns in the marketplace. We can always look into the long term and evaluate whether the consequences of some macroeconomic policies are satisfactory, or whether the policies are made just for the sake of intervention instead of handling a tough situation. As Lao Tzu said, “the policies seem plausible, but the citizens are suffering.” (其政察察，其民缺缺) Some seemingly rational policies may lead citizens to blind belief of the government and speculation.
It is very difficult to do the three things mentioned above. Everyone is but common man. And common man is characterised to be “self-loving.” Adam Smith said, self-loving leads to “overestimating one’s capability” and “misjudging one’s luck.” This shortcoming of man also brings overestimation of two statuses, “ambition makes men overestimate the difference between a private position and a public one; vanity makes men overestimate the difference between anonymity and reputation.” (Coase, 2010, p132) For common people conceitedness and over optimism lead to immediate punishment; for government officials, if they are always claiming to offer the remedy to market fluctuations and blame it on the irrational action of the market players, then they are likely to be punished. And what’s also likely to happen is they tend to bring the people and the market into harm’s way while maintaining and expanding their shortcoming of self-loving. And that’s what ambition and vanity entail.
In addition, human beings are economic men, government officials are economic men as well. It has been proven by the example of economy housing. Self-loving and self-interest is the original sin of human beings that can’t be corrected by persuasion or self-constraint. Therefore, an impersonal institution is required to supervise the government and to hold it accountable. For instance, hearings should be held when there are conflicting policies, and critiques on macroeconomic policy and housing policy should be tolerated. What’s more, government’s intervention of the market and enterprises should be restrained.
All in all, the best way to prevent the government from excessive intervention is to uphold the market as an infrangible constitutional principle. In China, the Constitution stipulates that China is a socialist market economy. However, the Constitution is not observed in reality. Whereas in most countries, there is little dispute over the boundary of the market. This shows that in most cases, this constitutional principle is strictly observed. Or to put it in another way, culture has a role to play. On the Black Monday of 1987, Ms. Thatcher said, “You don’t need to worry, the market is sound.” (Steven K. Beckner, 1999, p69) and after the stock market value decreased by 25%, President Reagan was the “least nervous man”. He said, “The market has hit the bottom, and it will rebound.” (Steven K. Beckner, 1999, p70) It was because of his neutral stance that Greenspan issued the proper measures to save the market.
Of course, there are different scenarios. For example, the recent case between Apple and the United States Department of Justice concerns the foundation of market, which are property rights. No matter how this case plays out, it will be a constitutional event that demonstrates how the boundary of market is drawn. However, in China, we were informed of the sharp decrease of housing price in Shenzhen and Shanghai due to forceful government intervention and strict restriction of purchasing. And yet we still remember vividly how important “cutting the excessive stock in real estate market” was at the Central Economic Work Conference at the end of last December. What can we say? Coase said, “The continuous expansion of the government will inevitably led us to such a state: most government activities are harmful instead of beneficial. And I guess we are in such a state.” (2010, p75) Apparently he was referring to the US. And I think we have not left that state in China yet. However, I am positive that we will step out of that state. I believe so not only because rule of the Constitution has wide social consensus, but also because there’s such as saying that weathered two thousand years and is still relevant. It goes, “the Way usually does nothing, and does everything. If the prince can constrain himself, then everything in the world will run according to the natural order. ”
Reference:
Steven K. Beckner, Back from the Brink: The Greenspan Years, Jiangsu People’s Press, 1999.
http://house.hexun.com/2016-04-14/183314946.html。
DENG Haiqing, CHEN Xi, “Is the Stock of Housing Market Really High?—The Return of Cycle and the Soft Landing of Investment”. hexun.com, 2016-04-14, http://house.hexun.com/2016-04-14/183314946.html
Friedrich Hayek, Individualism and Economic Order, Beijing Institute of Economics Press, 1989.
Jieanxin, Housing Price in Beijing, 2014. http://wenku.baidu.com/link?url=qEl0lYvjOwGFQiRF3WPyJdUnBehJxvTfHPRzifoJtwuIz_2ar7INwuOqQMQLZiRV8SYQvdyjjUxgxa6CX76IOT_GC7EEVvH6FgrlzxTxtyq
Ronald Coase, Essays on Economics and Economists, Truth & Wisdom Press, 2010.http://www.360doc.com/content/12/0501/02/699582_207810027.shtml
REN Zhiqiang, “Economy Housing Leads to Institutional Power Corruption”, 2012-05-01, http://www.360doc.com/content/12/0501/02/699582_207810027.shtml
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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 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. 549: 20th May., 2016
Biweekly Symposium No. 550: 3rd Jun., 2016
Previous Biweekly Symposiums
Biweekly Symposium No. 547: The Internal Consistency of the Institutional System: An Analytical Framework for Modernisation.
Lecturer: XU Xiaonian
Host: QIN Sidao
Commentators: SHI Xiaomin, WU Qing, WU Si
Professor XU Xiaonian started with introducing the research framework. He introduced that his research took the institutions as a system with several sub-systems among which there was consistency. The lack of consistency between the sub-systems may result in malfunction or failure of the system.
He pointed out that systematic analysis was proposed by Talcott Parsons, American sociologist, and Chinese scholars such as JIN Guantao, and LIU Qingsong also contributed to this analytical framework. He stressed that this analytical framework was applied in the analysis of the modernisation of states in the world. Two aspects are analysed, the efficiency, and the stability. The research aims to provide an explanatory framework, instead of disclosing a causation or forecasting future modernisation path. He divided the institution system of modern societies into three sub-systems: conceptual sub-system, political sub-system, and economic sub-system.
The core spirit of the conceptual sub-system of the modern society is equal individual rights and freedoms; the political sub-system includes constitutionalism, democracy, and rule of law; and the economic sub-system referred to the free market economy. Only when all sub-systems are coordinate, will the institutional system function well. Otherwise, frictions and contradictions will occur.
In reflecting upon the modernisation prices of other states in the world, Professor XU Xiaonian divided them into two types: the first type includes modern social state emerged from feudalism, such as Germany and Japan; the other type includes Stalinist countries emerged from imperial bureaucratic countries. As Professor XU Xiaonian concludes, there is mismatch between sub-systems in the modernisation of the states. The inconsistency between sub-systems is a result of nationalism which recognises the pursuit of abstract national interests instead of individual rights. The second type of modernisation loses in terms of efficiency.
Professor XU Xiaonian emphasised that China drew from the lessons of the former Soviet Union and undertook economic reforms. In the Stalinism system, only part of the economic sub-system was changed into partial market and partial state-owned, which brought issues such as inconsistency with the political sub-system, and the conceptual sub-system.
Scholars who attended this seminar included Professor SHI Xiaomin, Mr. WU Si, Professor WU Qing, and Professor SHENG Hong.
Biweekly Symposium No. 548: Adjustment of Concept and Improvement of Institution for the Amendment of the Labour Law.
Lecturer: DONG Baohua
Host: QIN Sidao
Commentators: CHANG Kai, LIANG Zhiping, WANG Jiangsong, CHEN Bulei
Professor DONG Baohua introduced the massive uprising of over 170,000 inflicted by the amendment of the Labour Law in France. He thought France and China born some resemblance: the amendment of China’s Labour Law would probably face similar resistance. He attributed this situation to a fractured society, two parties against each other over the amendment of the Labour Law where the employers pursue amendment and the employees object it.
Professor DONG advocated five important aspects for the amendment of the Labour Law, that is basic facts, common sense, insights, consensus, and courage. In this light, he illustrated how the Labour Law led to a fractured society and what possible proposals should be considered.
He explained the imbalance in the negotiation between the employers and the employees, the protection of the rights and interests of both parties, and the abuse of contract in practice.
Professor CHANG Kai, Professor WANG Jiangsong, and Professor CHEN Bulei attended this session.
Editor: MA Junjie
Revisor: Hannah Luftensteiner
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