09 | MAY 2018

edited by Elena Vallino, Università di Torino e OEET

INTRODUCTION

Elena Vallino

This issue of the Newsletter “Emerging Economies” is composed by essays extracted from the book “Fiscal underpinnings for sustainable development in China” edited by E. Ahmad, M. Niu, and K. Xiao (2018, Springer Singapore). The book collects chapters on issues related to a possible path of sustainable development in China, with a focus on the Guangdong Province. This province hosted core Chinese economic reforms since the beginning of the Responsibility System in the 1970s, being therefore a good representation of the challenges of the whole nation. The main concept emerging from the book is the strong need for rebalancing economic growth towards a more inclusive and sustainable path. Fiscal and tax reforms are investigated as main instruments for the accomplishment of the required changes.

Ehtisham Ahmad provides a synthetic and informative historical overview of the Chinese governance models, focusing on the important shift of the early 1990s, when for the first time the tax administration authority moved from the local provinces to the center. On the one hand the creation of a centralized and modern fiscal institution contradicted the “normative” prescription of that period; on the other hand China managed to reach an impressive economic growth, the development of coastal regions and a massive reduction in poverty. However, the profound social, economic and institutional changes led to the emergence of new challenges that need to be urgently addressed: new relations between the provinces and the center in term of resource distribution and risk transmission; rising economic and geographical inequality; rent-seeking behaviours; obscure phenomena like hidden borrowing; dramatic rise of environmental pollution. The article provides some suggestion to address these risks.

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Ehtisham Ahmad, Grantham Institute for Climate Change and the Environment, LSE and Pao Yu-Kong Professor, Zhejiang University, PR China*

Sintesi

Le riforme fiscali in Cina del 1993/94 non hanno seguito le prescrizioni “normative”, mentre si sono concentrate sulla generazione di gettito fiscale e sulla fondazione di istituzioni fiscali moderne. Hanno ottenuto un notevole successo nel raggiungimento di un crescita economica a doppia cifra, nella creazione di hub portuali e costieri e nella riduzione molto consistente della povertà. Per quanto riguarda le problematiche connesse alla crescita, occorrono nuove misure fiscali per affrontare (1) crescenti debiti e rischi nascosti, anche a livello subnazionale, (2) forti ineguaglianze a livello personale e spaziale e le rimanenti sacche di povertà, (3) l’inquinamento ambientale e la qualità della vita. Ancora una volta le opzioni relative alle possibilità di riforma devono essere consistenti al modello di governance cinese.

Governance models and Chinese reforms

China has operated under an administrative progression governance model for centuries, under which officials are appointed from the center and enjoy considerable autonomy. The Chinese governance system is evolving, as the economy has undergone a period of extraordinary structural change, and many modern policy instruments relating to taxation and public financial management (PFM) have been gradually introduced since the 1990s. Lessons from US-style governance models based on electoral or Salmon-type “yardstick” competition (formalized by Besley and Case (1995) have to be carefully calibrated as they might not apply to different governance models, including in China, especially where fiscal policies and institutions may not be fully developed.

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Xubei Luo, The World Bank and Nong Zhu, INRS-UCS, University of Quebec*

Sintesi

Il pattern di sviluppo cosiddetto “hub-periphery” dell’economia del Guangdong rappresenta una sorta di miniatura dell’economia cinese nel suo complesso. Il Pearl River Delta si è trasformato in un centro economico a livello regionale. Suggeriamo un approccio basato su quattro pilastri per supportare una crescita inclusiva dell’economia del Guangdong in un ottica di sostenibilità: (1) migliorare l’ambiente per il business, (2) sostenere la realizzazione dei vantaggi comparati latent, (3) aumentare i livelli di competenze della forza lavoro per favorire un upgrade della struttura di produzione, (4) proteggere i segmenti più vulnerabili della società.

Hub-periphery development
Since the late 1970s, institutional and economic reforms have played a crucial role in the unprecedented development of the Chinese economy. The reforms have provided the basis for the transition to market economy and facilitated the integration of the domestic market with the international market. Thanks to the advantageous factor endowment and favorable policy inclination, the coastal region soon took off. Export-oriented and globalized industries are largely concentrated in the coastal region and low tech and resource based industries are mainly located in the inland region. The dynamics of the coastal provinces and the relative stagnation of the inland provinces configure a center-periphery regional growth structure (Lu, 2008; Naughton, 1999; Chen and Fleisher, 1996).

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Gisela Färber and Zhijie Wang, Speyer University, Germany

Sintesi

Il debito pubblico subnazionale costituisce un problema sia per la Cina che per la Germania. In entrambi i casi disequilibri nelle relazioni fiscali intergovernative, gettito da fonti proprie inadeguato o assente a livello subnazionale, informazione incompleta sul livello reale del debito pongono rischi e sfide molto seri. Misure ad hoc per mantenere l’indebitamento sotto controllo, compresi i cosiddetti “freni del debito” in Germania, o l’emissione di bond locali in Cina, difficilmente sono sufficienti e potrebbero peggiorare la situazione. Nonostante differenze nei rispettivi sistemi di governance, vi è molto da imparare dalle esperienze di uno e dell’altro.

Subnational public debt is a problem in both China and Germany—and there are lessons to be drawn from each country for the other. Total public debt amounted to 54% of GDP in China in 2012 and 74% in Germany in 2015 of which subnational governments (provinces, prefecture cities, counties, towns and villages) had a share of 53% in China and respectively 37% Länder and local governments in Germany. Subnational public debt significantly varies across the lower levels of government and among the governments at the same level. The total amount of subnational pubic debt is not very transparent: in China, it has not been counted among the official public debt data because the budget law did not permit direct borrowing until 2015, and much of the debt was due to “off budget” special vehicles and entities owned by local governments. In Germany, local governments in certain states borrowed illegally (so-called cash credits) against their current accounts over many years, or accumulated arrears.

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Kezhou Xiao (London School of Economics), based on analysis by Yuan, Xinghou (2018)

Sintesi

I paesi privi del processo di competizione elettorale come strumento per la garanzia sull’accountability della la spesa pubblica e gli investimenti dispongono dello strumento della social audit per raggiungere obiettivi simili. Tale strumento si basa sulla soddisfazione degli utenti e su un’analisi completa dei costi e dei benefici sociali delle alternative possibili. Questo approccio potrebbe fornire risultati più sostenibili di quelli basati unicamente sulla competizione elettorale. Una proposta di estensione della Bus Rapid Transport System (BRTS) di Guangzhou è stata respinta in seguito ad una social audit, nonostante avesse raggiunto un vasto riconoscimento internazionale. Tale meccanismo può essere utilizzato in un ampio numero di paesi con modelli di governance differenti.

In countries without electoral or “yardstick” competition, ensuring that public spending and infrastructure investment meets the preferences of the population, and also leads to sustainable development, requires mechanisms for public engagement. China has begun experimenting with social audits to evaluate public spending, that focus both on social costs and benefits as well as user responses to examine whether to continue with a given program. This applies also to projects that have been acclaimed internationally and copied elsewhere—such as the Guangzhou Bus Rapid Transport System (GBRT), and the city government had a strong basis to reject an expansion of the “award winning” GBRT that has been a model for others around the world (see Table 1). Indeed, without such direct feedback and evaluation mechanisms even with electoral processes, such programs would likely continue because of donor pressure, as many of the social costs and risks are not perceived by citizens within typical electoral cycles.

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