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How to Cut the Cake: Wealthy Government and Poor People

A University of Science and Technology Beijing professor and a financial analyst jointly wrote a recent article, which was reprinted in the CCP Central Committee’s Qiushi Journal. The article looked into how the fiscal relationship between the central and local governments contributes to the “wealthy government and poor people” phenomenon. “In the past 20 years, China’s per capita GDP grew 15.71 times from 1,892.8 yuan in 1991 to 29,762 yuan in 2010, while the central government’s fiscal revenue grew 45.27 times in the same period.” 

The 1994 reform of revenue-sharing between the central and local governments shifted the resources toward the former. “The proportion of the central government’s fiscal revenue to total fiscal revenue in each of the three years immediately before the reform, 29.8%, 28.1%, and 22%, grew to 55.7%, 52.2%, and 49.4%, in each of the subsequent three years.” 
“For a long period, a large portion of fiscal expenditure was used in infrastructure and economic development. … Low government expenditures on education, health, and social security exposed people to high tuition and expensive medical care. Residents with low incomes have had to pay for items that should have been covered by fiscal expenditures, leading to high precautionary savings and lowering current and anticipated consumption. This is the basic reason for the difficulties in the growth of domestic consumption and the serious imbalance between investment and consumption!” 
“Most critically, the criterion for the performance evaluation of local officials is GDP. Local officials do not make any effort to improve people’s livelihood, but squander limited fiscal resources on projects that help their performance evaluation! ‘Money’ and ‘performance pressure’ drive local officials to do off-budget land sales! Local governments push up land prices; high land prices push up housing prices, high housing prices empty people’s wallets. Meanwhile, the real estate boom pushes up the GDP, but makes the common people suffer!”

Source: Qiushi Journal, June 22, 2011