The last few months have been an unfortunate time for Shanghai.
It has been reported that the administration of public funds has
not been strong, and in some cases eerily murky, in a city
supposedly an expert in financial management.
Obviously, there remains a wide gap between reality and the
municipal leaders' pledge, which they first made in the mid-1990s,
about building the city into an international financial center.
Much has to be done to raise its overall standard.
However since Shanghai is indisputably the financial center of
China, and is running China's most sophisticated money systems, the
recent scandals have an important lesson for the whole nation.
There are also valuable lessons for the overseas merchants who tend
to size up their opportunities, in trade or in investment, by
looking at the things going on in the financial industry.
Stories about Shanghai have just kept unfolding. In the
beginning, there were reports the city's social security funds had
been misappropriated. More information revealed a full-scale
scandal. The funds had been loaned, but not through proper
channels, to some local officials' friends in business.
As a result, the former secretary of the municipal committee of
the Party, along with several of his colleagues, were sacked.
However last week, a report in the Chinese-language press
alleged there were also big holes in the city's public medical
insurance funds. These disturbing reports are only in Shanghai, and
only about the administration of two public funds.
What about the public funds in other provinces and under the
administration by other government offices? Nationwide, there has
yet to be a basic set of figures available, let alone regularly
updated information.
If there is a gap between Shanghai's mission statement and its
actual performance, in other provinces and cities, there may be a
much longer distance for public fund administrations to catch up
with the standard of the international practice.
Of course, whenever problems such as those in Shanghai are
exposed, it is important to name the individuals responsible for
them, and hold them accountable for their poor service. More
importantly, a stronger system to police the use of the public
funds must be developed. These funds are now held by separate
government offices, central and local, in separate accounts -
retirement (social security), medical and housing.
Proper channels must be developed at the same time for the money
in those accounts to be used as investment money - by managers with
proven integrity and expertise.
Requirement of full disclosure, independent auditing, strict
prohibition of political interference, and supervision by central
government regulators are all indispensable parts of the
system.
This is the single, most important piece of work to be carried
out in order to lay the ground-work for China to advance its
development program under the brand name of harmonious society.
Poor administration of public funds can hurt many citizens and
their families. Corruption, such as fund misuses and embezzlements,
can be the worst destructive force to the government's credibility
and society's harmony.
Right now, when the "harmonious society" program is being pushed
forward, and concurrently, grass-roots governments are having their
elections, it would make sense for China to make it a central task
to build a more reliable system of public fund administration,
rather than simply building more banks and urban financial
districts.
The Chinese people need to watch, discuss, and manage their
public money more attentively.
The scandal in Shanghai may well serve as a timely lesson and a
new starting point.
(China Daily November 6, 2006)