On June 23, Chief Auditor Li
Jinhua submitted a report to the 10th National People’s
Congress (NPC) Standing Committee that shocked the nation. The
National Audit Office had uncovered misuse of some 1.4 billion yuan
(US$170 million) from the 2003 budget.
The audit office report
summarizes five main problems:
- Fraud, embezzlement and misuse of government funds allocated to
disaster relief, education, the Olympics and treasury bonds, by
organizations of both the central and local governments.
- Financial irregularities at banks resulting from inadequate
supervision.
- Tax irregularities, with some tax bureaus failing to collect
taxes or failing to suspend or terminate levies when so
ordered.
- Illegal requisitioning of land for development, with some local
governments abusing authority in order to obtain profits.
- Misrepresentation and fraud employed by private enterprises to
obtain bank loans.?
The violators are primarily government departments and officials
and state-owned enterprise executives, followed by employees of
state-owned financial institutions and private enterprises. The
funds targeted were mainly fiscal appropriations, tax revenue, bank
loans and land.
Despite the enormity of the misappropriations revealed in the
report, it should be remembered that these were discovered only
through spot checks. Clearly there has been a failure in the
government administrative system and laws, and the NPC Standing
Committee has already asked for thorough investigation of the
departments involved.
In recent months, a number of macro-control measures have been
implemented to avoid economic overheating. The main cause for
concern has been excessive government investment, including
development zone expansion and “vanity” construction projects.
Another major problem area is sizzling growth in the real estate
sector, which transfers the cost of demolitions to the
government.
Local government interests have hindered the implementation of
the central government’s macroeconomic measures. The potential for
danger inherent in this situation is huge. If such corruption
spreads, the central government’s control will be further loosened.
The use of government power to amass wealth from public funds will
widen the gap between the rich and the poor, with a negative impact
on social stability.
In addition to curbing overheated investment, it is imperative
for the government to establish a new order: to administrate the
nation according to law. Without this, China’s development cannot
be sustained.
When the country’s top leaders took office last year, the core
of the new order was to restore the dignity of the law and govern
according to law. To this end, the NPC Standing Committee has
established an office to review all laws and regulations. Leading
scholars have been gathered to form a Constitution Committee.
At the beginning of this year, the Communist Party of China
promulgated a Party supervision and punishment regulation that
includes regular assessment and reporting of performance and
integrity. The Administrative Licensing Law that came into effect
on July 1, 2004, will help to regulate government departments. A
number of high-ranking officials have already left their positions
pursuant to the implementation of the
take-responsibility-and-resign system. Meanwhile, the
anti-corruption drive is moving ahead.
The central government is also working to reform the financial
sector. At the beginning of this year, it injected massive capital
from its forex reserve into the state-owned Bank of China and China
Construction Bank to assist them in eliminating bad debt and
restructuring. Recently, China’s central bank, the People’s Bank of
China (PBOC), also bought US$100 billion worth of bad loans through
a bill issue. The reorganization and planned IPOs of the two
state-owned commercial banks are also accelerating. PBOC Governor
Zhou Xiaochuan said that it was impossible to further split the bad
assets from commercial banks. The legislature is now considering a
law on bankruptcies of financial institutions.
A new round of tax reform will be initiated and enterprise
taxation will be standardized. The State Administration of Taxation
recently called for stronger controls over tax defaults and
collection of taxes in arrears. It also asked for the establishment
of a system to speed collection and improve records of tax
defaults.
State capital will gradually exit from the domestic capital
market. In the future, market influences and laws will resolve
problems in the market. Stock markets will integrate international
standards of operation.
In early June, the Ministry of Commerce (MOFCOM) released
guidelines for improving the legal system, accelerating market
reform, strengthening macroeconomic management and forming a
unified domestic market. Seven ministries, including MOFCOM,
recently released directives to eliminate local protectionism.
The land acquisition system must be strictly implemented and
proper disposal made of all illegally acquired land. The central
government will eventually set property taxes and local governments
will not be permitted to pilot their own schemes.
The reform of SOEs is accelerating. The bankruptcy bill was sent
to NPC Standing Committee for examination on June 21. When it
becomes law, it is expected that over 2,000 state-owned enterprises
that have been operating in the red will exit the market through
bankruptcy.
Recently, with regard to illegal demolitions the State Council
affirmed the importance of the media as a supervisory body. When
the Law on Government Information Transparency is completed,
government administration will become more open and accessible to
media supervision.
The publication of the audit report is a clear example of the
central government’s determination to face the facts and promote
reform.
(China Business Post, translated by Tang Fuchun for
china.org.cn, July 9, 2004)