Central and Local Officials Debate Public Services

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E.O. 12958: N/A
TAGS: PGOV SOCI PHUM CH
SUBJECT: Central and Local Officials Debate Public Services


(U) This document is sensitive but unclassified. Please protect
accordingly.


1. (SBU) SUMMARY: Central officials, local officials, and academics
attending a high level academic symposium in Hainan disagreed on how
to efficiently and equitably build a "public service government."
Central and local officials in attendance had very different views
of their governance responsibilities, on transfer payments and
budget allocation. Democracy remains officially a "taboo" topic but
private conversations revealed some scholars' belief that democracy
is an indispensable element for effective public services. END
SUMMARY.

Background on the Seminar
--------------


2. (U) Econ/Pol Assistant attended an October 28-29 seminar in
Hainan on "Public Service Systems in China: Relations between the
Central Government and the Local Governments," which was hosted by
the China Institute of Reform and Development (CIRD). Approximately
300 senior officials, scholars, and foreign representatives
attended. CIRD actively promotes an active government role in the
provision of public services, particularly education, medical care,
and social security. The 5th Plenum of the 16th CPC Central
Committee, in a statement issued in October, supported these ideas
in the context of building a "harmonious society."


3. (U) In attendance were at least thirty senior central and local
officials, vice minister or director general level. They included
Wu Zhilun, Vice Minister of the State Commission for Public Sector
Reform under the State Council; Wang Fuyu, Deputy Party Secretary of
the Guizhou Province CPC Committee; and Wu Changyun, Executive Vice
Governor of Hainan Province. Many speakers held senior positions in
high-level research institutes or think tanks affiliated with
central government ministries, including the Development and
Research Center, the Institute of Fiscal Science under the Finance
Ministry, Tsinghua University, and Peking University. Foreign
representatives included the Deputy Secretary General of the United
Nations and the first prime minister of Poland.

The Central/Local Divide
--------------


4. (SBU) All participants agreed that the Chinese government should
provide more public services and should better define the policy and
fiscal responsibilities of the central and local governments.
However, central and local representatives openly disagreed on the
details, particularly the division of financial resources.
Officials from Beijing criticized local governments for their
obsession with investment promotion and urban infrastructure
projects, saying they were ignoring the need for public services.
Liu Shangxi, Deputy Director-General of the Fiscal Science Research
Institute under the Financial Ministry, asserted that China should
move toward a more centralized system of budget control and
monitoring. In response, local officials complained that Beijing
has given them public service responsibilities out of proportion to
their budgets or transfer payments. They asserted that local
governments must continue to focus on economic development because
the central standard by which Beijing judges their performance is
still GDP growth.

Budget Allocation
--------------


5. (SBU) According to some fiscal experts, three major players are
involved in dividing China's treasury: the central government (which
handles transfer payments),the central ministries (each of which
controls an individual budget),and local governments. In 2005,
China's total revenues reached RMB 3.16 trillion (USD 402 billion),
of which the central government used 52 percent. The central
government allots revenues from rich, coastal provinces to fund
poorer provinces under programs such as the Great Western
Development, the Rejuvenation of Northeastern China, and the Rise of
Middle China. For example, in 2005 Sichuan Province had a revenue
of RMB 70 billion (USD 8.88 billion) and received transfer payments
from Beijing of over RMB 40 billion (USD 5.01 billion). Central
government ministries also allocate RMB 200 billion (USD 253.8
billion) each year under various "special projects" they manage.


6. (SBU) The conflicts that result are apparent: the rich coastal
contributors dislike the central government's approach of "robbing

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Peter to pay Paul," the poor provinces are eager for more transfer
payments from Beijing; and the ministries have no interest in giving
up their portion of the pie. Nevertheless, this approach to budget
allocation is likely to continue for the foreseeable future, as the
recent CPC Central Committee Plenum did not address the issue.

Economic Growth Versus Public Service
--------------


7. (SBU) Some speakers, including Fan Gang, a renowned scholar newly
appointed to be a member of the central bank's Currency Commission,
defended local governments' focus on economic development. He and
others said local governments must pursue investment in order to
sustain their public service budgets. In addition, spending on
infrastructure by local governments is a form of public good. They
also argued that China, as a developing country with a per capita
GDP of only USD 1,200, cannot afford the northern European welfare
model of providing abundant social benefits and in turn creating
huge debts and fueling public expectations.

What About Effectiveness?
--------------


8. (SBU) Only one scholar noted the importance of public
participation in creating an effective public service system. Cai
Dingjian, a law professor from China University of Political Science
and Law who also worked in the National Congress, said important
financial resources are wasted because the public has no say in
budgetary matters. Unfortunately, the conference host cut off Cai's
remarks, citing insufficient time. However, in sideline
discussions, several scholars and some officials expressed support
for Cai's opinions and criticized senior leadership's unwillingness
to devolve power and increase transparency.


9. (SBU) None of the Chinese officials or scholars touched upon the
issue of democracy or directly called for democratic monitoring of
public services administration. Even the less sensitive issue of
the role of NGOs in the public service arena was largely left
unaddressed. In addition, speakers did not discuss the potential
effects of a slowing economy on China's ability to provide public
services.

GOLDBERG