Two Sets of Books: China's Budget

By Xi Si
Published: 2011-05-19

News, page 3
Issue 514
April 11, 2011
Translated by Tang Xiangyang
Original article:

Central ministries and provincial governments such as Shaanxi and Guangxi have opened up much of their 2011 fiscal budgets to the public and the detail revealed this year has been a marked improvement on earlier releases. In addition, the Beijing government has promised to reveal how much money it spends on the city's fleet of government cars. Even so, the vast majority of all government spending is still described as "unsuitable" for disclosure and mostly appears in the catch-all "miscellaneous spending" column.

The EO has learned that in recent years the miscellaneous spending has been excessively high, rising to between 30 and 40 percent of total spending in some areas. Some insiders explained to the EO that there are two motives for local government's preference for channeling spending to the miscellaneous column - firstly, the specific use for the funds isn't shown, which makes it easy to get approval from the National People's Congress (NPC), secondly, the Budget Law allows for funds to flow between different areas of spending without applying for NPC approval.

It's said that there are actually two systems for drafting fiscal budgets, and that only the non-public version shows how a government money is really spent.

Other Spending

"The budget is presented as a list. There are always some expenditures that can't be listed; that's why there is always miscellaneous spending," says Xu Shuna, associate professor at University of Finance and Economics.

Research at the China Renmin University has found that "miscellaneous expenditure" is most significant at the lowest level of government in the west of the country - the highest ratio of "miscellaneous spending" to total spending was 42%. It's the largest or second largest of the 20 expense items for all published governmental budgets.

For example, in the Beijing municipal general budget for 2011, miscellaneous expenditure is the second largest item, at 14.6 billion yuan, equivalent to 12% of the whole budget.
Spending on education was the biggest expenditure item at 22.6 billion yuan.

In the budget of Luojiang District of Quanzhou City in Fujian Province, miscellaneous expenditure is the largest item, amounting to 18% of the general budget.

One financial official said that governments were once required to list some miscellaneous expenses, such as buying vehicles and holding meetings. However, as the Chinese government introduces financial reforms, items that were previously classified as miscellaneous have been transferred to new items.

As one financial official put it, legitimate expenses are listed in the category items concerning people's livelihood and the miscellaneous section is used for those that don't fit there. Audit departments have discovered that the miscellaneous category is frequently used for huge amounts of money, particularly in the budgets of low-level governmental agencies.

An audit of the miscellaneous expenses of Lingbi County, Suzhou City in Anhui Province found that it included poverty relief funds, donations, a sponsor fund, subsidies, public treatment and trips. It also contained spending that was embarrassing or illegitimate. The former director of the radio and television bureau in Liuyang City, Hunan Province even included a foot massage, dinners and hydrotherapy as miscellaneous expenses.

The audit department of Gongan County of Jinzhou City in Hubei Province found that there were miscellaneous expenses not only in outlays and overheads, but also in spending on health, education, social security, culture and sports, public securities, etc. The audit bureau of Pinggu District of Beijing City has even found miscellaneous expenses as a subcategory of miscellaneous expenses.

In the central budget of 2011, the aggregate total of miscellaneous expenses amounted to almost 45.8 billion yuan. At last year's "two sessions," an annual political gathering that takes place in Beijing every March, Wang Enduo, a member of the National People's Congress and the Chinese Academy of Science, questioned why, miscellaneous expenditure accounted for more than a third of the Ministry of Science and Technology 19.81 billion yuan budget.

Two Budgets

In fact, there is one type of budget that enables people to see more clearly how governments spend taxpayers money.

Currently, governments keep two budgets - one so-called economic budget and another that is based on function. As an unnamed official put it, originally most budgets are economic and list expenses under headings such as personnel expenditure, overheads and project expenditure, whereas the functional budget lists the purposes of the spending, such as education.

Last year, 74 ministerial agencies published their budgets. This year the coverage will be expanded. However, all the budgets are function-oriented. People view these as inadequate because they don't break down into expenses that can be easily assessed, such as governmental overheads, salaries or spending on meetings.

Currently, the International Monetary Fund publishes a budget based on functions, but most countries publish economic budgets.

The EO has learnt that, within Chinese government, officials still refer to economic budgets when giving speeches and reporting to upper supervisors.

At the beginning of this year, the Ministry of Health provided an economic budget when reporting to the NPC. The ministry oversees 86 work units with distinct budgets, employs more than 110,000 people - 89,000 of which are working staff and 27,000 retired. Its budgeted overheads have increased by 21% on 2010 and are mainly used on housing subsidies for employees.

The Ministry of Water Resources has also published an economic budget. It spent 2.25 billion yuan on paying workers, including 631 million yuan for retired workers.

The Shaanxi, Guangxi and Yunnan provinces have already published budgets in both the functional and economic formats. The Shaanxi Province released the budgets for 10 departments. Its civil affairs bureau spent 34.09 million yuan, or 66% of basic expenditure, on salaries. Additionally, it offered 9.84 million yuan in subsidies to individual employees and their families, and spent 7.83 million yuan in overheads.

However, it's still not clear whether all provincial governments and ministerial agencies will follow this example in publishing both formats of their budgets.

This article was edited by Paul Pennay and Will Bland