Portal de Periódicos da CAPES

Embedded institutionalization: sustaining rural tax reform in China

2006; Taylor & Francis; Volume: 19; Issue: 1 Linguagem: Inglês

10.1080/09512740500417673

1470-1332

Linda Chelan Li,

Social Policy and Reform Studies

Abstract Sustaining early achievements in rural tax reforms and peasants' burden reduction is a major challenge facing Chinese leaders. Theoretical discussions over institutional change have noted the propensity of new-found changes to relapse, short of processes institutionalizing the changed, new order. Drawing from the experience of a Hubei county, the paper explores how the Chinese rural tax reform may be sustained, and its achievements protected, through innovative changes in another institutional field: the personnel. Against conventional wisdom on the role of downsizing in government reforms, the paper argues that the crux lies with the performance of government officials, not their numbers or payroll size per se, and thus the importance of reforms targeting the former. keywords: Institutional changesustainabilityinteraction between institutional fieldsrural tax reformsgovernment reforms Acknowledgements Research of this paper is supported by a grant from the Research Grant Council, Hong Kong (RGC reference: CityU 1064/02H), and forms part of a multi-year project on the implementation of rural tax-for-fee reform and associated institutional change issues in China. Field interviews cited in the paper were mostly done with officials in Hubei province, either at the provincial capital of Wuhan or Xian-an District, during 2003–05, and with national officials in Beijing during 2002–04, out of a total of 69 interviews. The references to ‘author's interviews’ in the paper, except where the location of interviews is specified, refer to interviews conducted in Xian-an District. An early version of the paper was presented at the 2004 conference of the Hong Kong Political Science Association, at City University of Hong Kong, 8 May 2004, and benefited from comments by John Burns, Hsin-chi Kuan and other participants, and from Jonathan Unger and Paul Wilding amongst others outside the conference. Kin-on Li provided valuable research assistance to the work leading to this paper, and much of what is reported here benefitted from discussions with scholars in China, in particular Wang Jingyao and Wu Licai. Linda Chelan Li teaches Chinese politics and political analysis at City University of Hong Kong. Her research covers intergovernmental relations and spatial politics, politics of public finance, governance issues in transitional economies, and institutional theory, focusing on the contemporary period of Chinese history and the evolving Hong Kong–Beijing relationship. She is the author of Centre and Province: China. Power as Non-Zero-Sum (by Clarendon, Oxford, 1998), and has published articles in Political Studies, China Quarterly, China Information, Modern Asian Studies. Provincial China. and Journal of Contemporary Asia, as well as chapters in edited volumes. Her article in Political Studies (1997) was awarded the Harrison Prize as the best paper published in PS in the year. Notes 1. In all three major types of institutional change (institutional formation, development and reinsitutionalization) the institutionalization of new additions is key to the process of institutional change. Reinstitutionalization sees those changes to the original institutions being institutionalized again, whilst adopting a different logic and structure from the previous institutions. It is an ‘exit from one institutionalization, and entry into another institutional form’. In institutional development, the original institutionalization process extends to incorporate new elements and contents. It is a continuation, and elaboration, of the same institutionalization process, ‘a change within an institutional form’. Institutional formation refers to the process of exiting ‘from social entropy’, or ‘from non-reproductive behaviourial patterns’ or ‘from reproductive patterns based upon “action”’ (CitationJepperson 1991: 152). 2. Indeed the power of path dependence in an institutionalized state is observed to be so strong that in the case of deinstitutionalization, there is a tendency for the changes to undergo a parallel process of reinstitutionalization simply to keep the momentum of exit from the original institutionalization process. An example is the disinstitutionalization of gender and family in Western societies, accompanied with the (partial) reinstitutionalization of single parenthood. 3. A reference to the recurrence of the problem of peasants' burden is the so-called ‘Huang Zhongxi rule’, first coined by Tsinghua University scholar CitationQin Hui (1997). A scholar-official during the late Ming/early Qing period, Huang Zhongxi had commented on the futility of previous taxation reforms. He maintained that the combination of multiple fees into one tax had only created room for further fees to be added to the new, and enlarged, tax after some time, resulting in a deepening of peasants' burden. Qin wrote a second article on this theme (CitationQin 2000), which reportedly caught the attention of Premier Wen Jiabao. See a report in Liaoning Daily, 21 March 2003, accessed on 3 May 2004 at http://libwisesearch.wisers.net/print.php. The concern over sustainability of the reform was explicit in early central policy documents on the reform, including Central Document No. 7 (2000), ‘A decision on launching pilot reforms to rural fee and tax system’, 2 March 2000, and State Council Notice No. 5 (2001), ‘On furthering the work of rural tax-for-fee pilot reform’, 24 March 2001. 4. In 2002, some twenty provinces implemented the reform on a province-wide basis. All provinces adopted reform by second half of 2003, with an average burden reduction rate of 30 per cent, surpassing the national requirement of 20 per cent. See http://www.mos.gov.cn/template/article/display0.jsp?mid = 2004322001794, accessed on 15 April 2004. Guangdong topped the country at 84 per cent, see http://gzdaily.dayoo.com/gb/node/2004-02/09/node282.htm, accessed on 8 April 2004. In 2004 the central government, vide Premier Wen Jiabao's government report at the second session of the 10th National People's Congress, 5 March, 2004, announced new plans to phase out Agriculture Tax in five years. By 2005, twenty-six provinces had abolished the tax, with the rest to do likewise in 2006 (http://www/mof.gov.cn/news/2005030218624745.htm, accessed on 10 May 2005). 5. CitationLi (2006) discusses the high risk of the reform from an agency control framework. The concern over sustainability also featured prominently in central government inspection of Guangdong's implementation of rural tax-for-fee reform in February 2004 (http://www.gdczt.gov.cn/cznewsnr.jsp?news id = 2070, accessed on 14 April 2004). 6. The literature has noted two parallel dimensions on the constitution of interests of the local officials. First local officials are seen as predatory and corrupt. The second sees local officials' reliance on fees being embedded in an ill-developed national fiscal system, which overburdens local governments and left many mandates unfunded. Both dimensions have similarly made local officials resistant to cuts to the fees they could charge from peasants, though for different reasons and demanding different solutions. 7. Central Committee Secretariat Notice No. 30 (2000), ‘On reducing the staff establishment at city, county and township levels’, issued in December 2000, followed by a similar reference in State Council Notice No. 5 (2001). 8. Total amount of transfer payments from central coffers for the purpose of rural tax-for-fee reform was 3.3 billion yuan (2001), 24.5 billion yuan (2002), 30.5 billion yuan (2003) and 52 billion yuan (2004) (Budget Speeches of the Finance Minister at National People's Congress annual sessions, various years). A lion's share of 3.3 billion yuan in 2001 was given to Anhui (1.7 billion yuan), the only province implementing the reform on a province-wide basis in 2001. In 2002 twenty provinces were conducting reform on a province-wide basis, and by 2003 all provinces were involved. Monies were limited as each province would have a notional average subsidy of 1 billion yuan, just over half of what Anhui secured in 2001 (author's interviews, Beijing, 2002, 2004). 9. This theme was subject of a high-profile conference, ‘Conference on the reform of the township/town level of government’, held at the Center for Chinese Rural Studies, Central China Normal University, Wuhan, 27–29 February 2004. 10. The limits to downsizing included the difficulty to find alternative employment opportunities, in areas where economic development was still lacklustre, for the leaving government officials in downsizing exercises. There was also the observation that the major bottleneck to relieving peasants' burden rested in rural land reform and increasing agricultural, and rural, productivity; that is, on increasing the supply of revenue, rather than focusing on reducing expenses through cutting government staff. See discussion in http://ah.anhuinews.com/system/2005/01/26/001117840.shtml. 11. Xian-an District was Xianning City (county-level) until 1999, when it was renamed Xian-an and made a district of the new and enlarged Xianning City (Prefecture-level). It has a population of about half a million, of which 77 percent are rural. The district is accessible by main national highways and rail-routes, and is a one-hour drive from Wuhan, the provincial capital. 12. Local budgetary expenditures surged 56 per cent from 118 million yuan in 2001 to 184 million yuan a year after, whilst local budgetary revenue (based on the tax-sharing system formula) shrank 30 per cent from 104 million to 71 million yuan, excluding transfers (author's interviews, 2004). The significant drop in local revenue in 2002 was attributable to a revision in 2002 by the provincial government to centralize more revenues to provincial coffers. See State Council Notice No. 37 (2001), ‘On reforming the tax-sharing scheme for Enterprise Income Tax’, 31 December 2001, and Hubei Provincial Government Notice No. 29 (2002), ‘A decision to further adjust and improve the tax-sharing fiscal system’, 24 July 2002. 13. The years 1999 and 2001 were the years of reference Hubei's authorities adopted in assessing reform implementation. Peasant burden for all households after reform was required to be no higher than that in the year before reform, which is 2001 for most counties in Hubei, and at least 20 per cent lower than that in 1999 (http://www.cnhubei.com/aa/cal45760.htm, accessed on 6 January 2004, and http://www.cnhubei.com/aa/cal45718.htm, accessed on 19 July 2003). 14. As part of a package of additional measures intended to reduce further tax/fee extractions on peasants and to raise rural incomes, introduced by the central government in January 2004, peasants selling agricultural products of less than 5,000 yuan per month or 200 yuan per transaction were waived paying value-added tax (http://www.china.org.cn/chinese/2004/Jan/484675.htm, accessed on 11 May 2005). 15. According to Central Document No. 16 (1990), ‘A decision to prohibit firmly abuses in fees, charges and tanpai’, 16 September, only central government may approve government funds, whilst central and provincial governments share the approval authority of ‘administrative’ fees (xinzhengshiyexing shoufei). 16. State Council No. 92 (1991), ‘Regulation on the management of fees and corvee services shouldered by peasants’, 7 December 1991. 17. Only the central government had, officially, the authority to impose new fees/charges that specifically targeted peasants after the rural tax-for-fee reform (author's interviews, Wuhan, 2004). 18. Whilst largely a nation-wide phenomenon, abandoned land syndrome was rather serious in Xian-an. About a third of the rural population in Xian-an had left home for work in cities, leaving as many as 40 per cent of total agricultural land uncultivated as a result. Abandoned land was often reallocated to remaining households or migrant rural workers for cultivation, and they were taxed at a reduced rate, if at all (author's interviews, 2004). 19. See ‘Chinese peasants’ burden will be reduced by 20%', Wen Hui Pao (Hong Kong), 13 June 2002, p. A2 20. There were a total of twenty-one performance indicators but the four most important ones were: (1) calculation of taxable land area in accordance with policy; (2) a cap of agriculture tax (and surtaxes, including Agriculture Special Products Tax) at 100 yuan per mou; (3) burdens per mou (about 670 square metres) not exceeding the level in 2001, the year before reform; and (4) full rebates of excess burdens collected before reform to peasants. The other lesser indicators include, for instance, adequate publicity work on the reform, implementation of the individual burdens' cards scheme, delivery of agriculture tax notices to every rural household, abolition of all other kinds of local extractions, etc. (author's interviews, 2004). 21. Computed from information in Table 1 and local budget expenditure figures. 22. Ministry of Finance Document No. 468 (2002), ‘Temporary methods of central transfer payments under rural tax-for-fee reform’, 26 July 2002; ‘Operational details of sub-provincial transfer payments in rural tax-for-fee reform in Hubei Province’, in Hubei Provincial Government Secretariat Notice No. 39 (2002); ‘A notice on promulgating the documents on reforms related to the rural tax-for-fee reform’, 8 August 2002. 23. In many cases enhanced and early retirement arrangements were offered (author's interviews, Beijing, 2002). The former Party Secretary of Xian-an noted that a neighbouring county (Jian-li) had a bill of over 100 million yuan for its downsizing exercise (http://ah.anhuinews.com/system/2005/01/ 26/001117840.shtml, accessed on 21 March, 2005). 24. Ministry of Finance (MoF) and the State Commission Office for Public Sector Reform No. 75 (2001), ‘The method of the central coffers providing subsidy for payroll of bianzhine personnel during the period of fenliu, 2 November 2001. 25. The provincial report stated that central transfer payments under the rural tax reform comprised two parts: regular and transitional. But a few months back, a provincial document issued in August 2002 (‘Operational details of sub-provincial transfer payments in rural tax-for-fee reform in Hubei Province’), still stated that transitional payments were provincial and municipal responsibility, with no mention of any central role. 26. There was no breakdown of the proportion of rural tax reform transfer payments coming from the central vis-á-vis provincial/municipal coffers which Xian-an received. Province-wide, in 2003 the central government supplied a sum in the range of 1.3 or 1.7 billion yuan to Hubei, whilst provincial government supplied another 700 million yuan to the counties (author's interviews, Wuhan, 2004). 27. In late 2003 it was announced that merit-based transfer payments were to become part of a revised and more elaborate province-wide mechanism in 2004. Hubei Provincial Bureau of Finance Notice No. 14 (2003), ‘Temporary methods to manage provincial transfer payments’, printed in Finance and Development (internal journal edited by Hubei Provincial Fiscal Research Institute), 1 (2004), 50–3. 28. These are, for 2003: (1) achievements in downsizing (4 million yuan); (2) overall performance in government reforms (0.5 million yuan); (3) compensation to the non-collection of Agricultural Special Products Tax in 2002 (0.4 million yuan); (4) award of a ‘progressive unit’ in rural tax reform (0.1 million yuan); and (5) others (1 million yuan) (author's interviews, 2004). 29. See note 27. 30. Another example of this kind of ‘implementation-led’ approach to policy-making was discussed in Li (1998: Ch. 7), regarding Guangdong's influence on national policy on infrastructural investment. 31. The main changes introduced include: ownership reforms to state-owned enterprises, social insurance system for all state-salaried personnel, administrative restructuring and downsizing, job assignment reform, coastal experience exposure for cadres, education restructuring, streamlining fee-administration for enterprises, and township government reforms (CitationXian-an District Party Committee Secretariat 2003). 32. Xian-an's government reforms were making a wider impact with the promotion of its party secretary Song Yapeng to the Provincial Policy Research Office in November 2003. Hubei's provincial leadership in November 2003 promulgated a decree to promote reform experiments in Xian-an throughout localities in the province, with trial implementation in seven counties in 2004, and full implementation intended for all counties province-wide by end of 2005 (http://news.sina.com.cn/c/2004-11-04/15534814599.shtml. accessed on 21 March 2005; author's interviews, Wuhan, 2005). 33. One source reported a cost of 70 billion yuan for the central government downsizing initiative of 1998 (author's interviews, Beijing, 2002; Hong Kong, 2003). 34. The county-level budget sees the largest imbalance between these two categories of expenditure, with productive expenditures accounting for a mere 6–7 per cent of the total on average. Nationally, productive expenditure amounted to about 40 per cent of the total. See Ministry of Finance (ed.) Fiscal Statistical Information of Prefectural and County Levels, various years (Beijing: Zhongguo caizheng jingji chubanshe); Zhongguo Caizheng Nianjian, various years. 35. Computed from Ministry of Finance (2002: 296–7). 36. The shares in the years from 1998 to 2001 are respectively 54, 58, 61 and 60 per cent (CitationMinistry of Finance 2002, and various years). 37. The figure on China was computed from China Statistical Yearbook, 2003, pp. 123, 158. The share in Germany and Hungary was around 8 per cent, Portugal, Denmark and Finland around 14 per cent, Luxembourg around 5 per cent, Spain around 10 per cent and the Netherlands 3 per cent (CitationPublic Governance and Territorial Development Directorate Public Management Committee 2002). 38. Song Yapeng, a doctorate in Economics of the Central China Normal University before he joined the Hubei Provincial Government in the mid-1980s, resigned from the government after a few years and worked in enterprises in Guangdong – Guangzhou and Shenzhen, and Hainan, as well as in Hong Kong as visiting scholar during 1988–89, before he rejoined the rank of cadres in 1998. As District Party Secretary of Xian-an from 1999 to 2003, Song was instrumental in the initiation of government reforms there. He left Xian-an after a full five-year term and joined the Policy Research Office of Hubei Provincial Government as vice-director in November 2003. 39. For those sent off between 2001 and 2003, 646 cadres in total 20 per cent went to the southern Guangdong cities of Shenzhen, Guangzhou and Dongguan, 12 per cent to Wuhan, 11 per cent to three Zhejiang cities of Wenzhou, Taizhou and Hangzhou, with the rest in dispersed cities, and a small minority of ten went overseas, including two in the UK, and four each in Hong Kong and Singapore. Most worked in enterprises, with most earning a monthly pay ranging from 800 to 8,000 yuan. Another 200 left in late February 2004 (author's interyiews, Xian-an, February 2004). Song Yapeng confirmed with the author in spring 2005 that this programme continued to operate with a new batch of cadres sent off in 2005 (author's interviews, Wuhan, 2005). 40. Extracted transcripts of ‘I am doing quite fine in the south’, Central Television programme, Shihua Shishuo (Talking the Truth), 10 June 2001, in Xian-an District Party Committee Secretariat (2003: 148–63). 41. Xian-an District Party Committee Notice No. 3 (2001), ‘Selecting and sending off cadres to economically developed areas for enhancement’, in Xian-an District Party Committee Secretariat (2003: 37–40). 42. The benchmark was subsequently lowered after the first batch to under 45 years of age and high-school qualification (author's interviews, 2004). 43. About 30 per cent of the first batch of returnees secured leadership positions in the government, or had promotions (CitationXian-an District Government 2003). 44. Eligible cadres were estimated to number about 2,000, out of about 3,000 cadres in the administrative establishments (author's interviews, 2004). 45. Total fiscal expenditure in 2003 was 200 million yuan, including a net fiscal inflow of 35 million yuan (author's interviews, 2004).