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Chapter 2 analyzes the rises and falls of China’s government revenue in the last four decades. It estimates the size of China’s government revenue which includes general fiscal revenue, government fund, social security fund, and operating income from state-owned capital, as well as extra-budgetary revenue. It discusses China’s tax reforms and analyzes the reasons for the ups and downs of the general fiscal revenue and other government revenues. It compares the size of China’s government revenue with other countries, showing that the ratio of total government revenue in GDP in China is quite large now. It also discusses the characteristics of China's government revenue system. This chapter finally examines the problems in the current revenue system, and discusses factors affecting future government revenue.
Chapter 9 is on healthcare reforms. First, it examines different government health insurance programs: the new rural cooperative medical system, health insurance for urban workers, health insurance for urban residents, health insurance for government employees, and health insurance for urban and rural residents. Next, it analyzes the healthcare supply system, particularly the state-owned hospitals (SOHs). Then, it scrutinizes the problems with the healthcare system, including under-developed healthcare insurance, heavy government subsidies to SOHs, excessive government intervention in healthcare service provisions, the shortage of qualified doctors, urban-rural healthcare disparity, and unsustainability of the healthcare insurance system. Finally, it offers policy suggestions on healthcare reforms.
This overview first discusses some traditional thoughts on public finance, particularly the thought of implicit taxation, which have had a profound influence on the behavior of the Chinese government historically and currently. It then describes public finance under the centrally planned economic system, followed by an examination of market-oriented public finance reforms before exploring the challenges to China’s public finance. Finally it explains the contributions of this book. By the end of 1956, China completed the “socialist economic reforms,” turning all large- and medium-sized private enterprises into SOEs and small private enterprises into collectively-owned-enterprises. In 1958, the government took back the land previously allocated to farmers and established the people’s communes. Another economic reform started in 1978, allowing private enterprises to develop and allowing farmers to grow whatever they like on the land allocated to them. A modern tax system and a social insurance system were established and local governments have been given some fiscal freedom. However, there are still problems with public finance.
Chapter 7 discusses China’s infrastructure development. It analyzes the ways in which infrastructure investment has been financed, including revenues from land sales, bank loans, infrastructure development funds, domestic and foreign debt, taxes, fees, and user charges. It shows the composition of funds for financing key infrastructures including transportation, telecommunication, energy, and sanitation. It demonstrates that China's infrastructures have grown rapidly in the past twenty-five years. It examines the reasons for the fast infrastructure development in China and the problems with infrastructure development, including a solid tax system, a pro-infrastructure spending system, expansionary fiscal policies, and large local government revenues from land sales and bank borrowings. It also evaluates China’s belt and road initiative and discusses the L17benefits and potential risks to the countries involved.
Chapter 6 analyzes the size and structure of China’s government expenditure. It estimates the size of China’s government expenditure which includes general fiscal expenditure, the expenditure financed by government funds, social insurance expenditure, the expenditure financed by the operating income from state-owned capital, the off-budget expenditure financed by local government debt, and extra-budgetary expenditure. It reveals phenomenon like the Chinese government spending a large proportion of its revenue on economic construction while spending an insufficient amount on education, health and social welfare; and local governments undertaking most of the total government expenditure. The problems with the current expenditure system are discussed, and prospective reforms of the government expenditure system are also discussed in this chapter.
Chapter 3 analyzes consumption-based taxes in China. The Chinese government now heavily depends on the consumption-type value-added tax (VAT) and the consumption tax, a special tax on specific goods such as alcoholic products, cigarettes, and automobiles. In addition, two additional taxes, urban maintenance and construction tax and the additional fee for education, also share the same tax base as the VAT. These consumption-based taxes account for more than half of China’s total tax revenue. Other taxes on goods and services, such as tariffs, vehicle purchase tax, resource tax, and environmental tax are also examined in this chapter. The advantages and disadvantages of consumption taxes are evaluated as well. Consumption taxes are favorable to savings and economic growth but are not favorable to income redistribution.
A comprehensive, up-to-date, insightful, and innovative masterpiece on the Chinese public finance has finally emerged to fill the gap in the field. Considering China's public finance in its entirety, from tax systems, government spending, infrastructure financing, fiscal policies, local government debt, and central-local fiscal relationships to urban and rural social security and healthcare, it analyses China's public finance reforms and examines the reasons and the consequences of these reforms. It explores the challenges to China's public finance, examines its problems, and suggests potential solutions. While covering a broad range of themes, this book remains judicious with the evidence, providing its readers with innovative yet careful conclusions. Using enormous amount of the latest data and illustrative diagrams, the author explains China's public finance with expertise and clarity. This is an indispensable resource for students and scholars from a range of disciplines with an interest in the Chinese economy.
Chapter 4 deals with the individual income tax, a tax first introduced in China two-thousand years ago. It examines the evolvement of the individual income tax system and compares the changes in the marginal and average tax rates in recent decades based on the constant retail price index, showing that marginal tax rates have declined significantly for low- and middle-income earners. It unravels the mystery of the small proportion of the individual income tax in total tax revenue despite high marginal tax rate for the individual income tax. It discusses the optimal marginal and average income tax rates for China, showing that the optimal marginal tax schedule is quite flat when income is beyond a certain level. The chapter ends with an analysis of the problems of the individual income tax system and offers suggestions for further individual income tax reforms.
Chapter 11 analyzes the fiscal relationship between the central and local governments. It first examines China’s budget system and the central-local tax sharing system, the fiscal imbalance between local fiscal revenues and expenditures, and the massive fiscal transfers from the central to local governments. It then discusses fiscal decentralization through extra-budgetary revenue collection, land sales, and bank borrowing by local governments. Next, it discusses the fiscal imbalance of the central and local governments and regional fiscal disparities. Policy suggestions on how to improve the central and local fiscal relationship are provided in the end, including the increase in local government revenue and the shift of some expenditure responsibilities from local governments to the central government, as well as granting local governments more fiscal freedom.
Chapter 10 tackles the controversial issue of high local government debt. It first examines sources of local government debt and clarifies that most of China’s local government debt is set apart from the government budget. It then estimates the size of China’s local government debt over time, scrutinizes the reasons for the fast debt accumulation, and evaluates the immediate impacts and potential problems of high local government debt. In this latter part, the size of government debt in each region is also estimated and the large disparities in government debt among regions are exposed. It shows that local government debt is rather high in some regions. It also shows that the size of local government assets is substantial. Thus, although high, China's local government debt is still manageable It finally discusses the measures China has taken to curb local government debt and offers suggestions for additional fiscal reforms needed for curtailing local government debt.