Chapter 75 Lecture 12 Reform and Opening Up (Part 2): The Return of Totalitarianism

After Zhu Rongji took office, he immediately rectified the economic order by means of thunderbolts. He used bank capital injection and direct government intervention to solve the "triangular debt" problem among state-owned enterprises. The president of the bank severely cracked down on private financing. In the controversial case of Shen Taifu's fund-raising, he fought against all opinions and sentenced Shen Taifu to death. In 1993, China's economy once again experienced overheating investment. In the first half of the year, the national fixed asset investment increased by 69%, and the overall price index of production materials rose by 44.7%.The State Council issued the "National Sixteen Measures" to "cool down" urgently, including: raising deposit and loan interest rates, comprehensively reducing capital construction investment, re-examining the economic development zones approved by local governments, and rectifying the real estate investment boom in Hainan, Guangxi Beihai, and Shanghai.These measures showed the obvious characteristics of administrative leadership and active intervention, and achieved rapid results.

During this process, the central government formed a new reform thinking. From the perspective of decision-makers, after 15 years of gradual and incremental reform, it should enter a new stage of overall reform. The economic system is a Long-term "peripheral warfare" outside the system will bring about a series of problems. Therefore, the object and focus of reform must be placed within the system, so that it can compete with the booming, market-oriented forces outside the system. Form an institutional match. On November 14, 1993, the Third Plenary Session of the 14th Central Committee of the Communist Party of China was held. The meeting passed the "Decision of the Central Committee of the Communist Party of China on Several Issues Concerning the Establishment of a Socialist Market Economic System", clearly proposing a new reform strategy of "overall advancement and key breakthroughs". Announces that future reforms will not only attack on the fringes, but also fight a "tough battle" in the state sector.

Under the guidance of this strategy, the overall supporting system reform plan proposed by Wu Jinglian and others was accepted, and the central government implemented a series of major reforms around the three major themes of price, finance and taxation. The main policy arrangements include the following five aspects . First, establish a new fiscal and taxation system.Transform the financial contract system that has been in use for many years into a new tax-sharing system, thereby changing the financial and taxation relationship between the central government and local governments. Second, start the reform of the financial-banking system.Establish a central bank system that independently implements monetary policy under the leadership of the central government, and promote the commercialization of existing state-owned specialized banks and the diversification of commercial banks.

Third, reform the foreign exchange management system.Announced the abolition of the dual exchange rate system. Since January 1, 1994, the two exchange rates have been merged, and a "single, managed floating exchange rate based on market supply and demand" has been implemented. The exchange rate of RMB against the US dollar is set at 8.72:1 , depreciated by 33% from the previous official exchange rate of 5.7:1. Fourth, promote the reform of state-owned enterprises.Establish a modern enterprise system with the goal of joint-stock reform. Fifth, establish a new social security system.Implement an urban employee pension and medical insurance system combining social pooling and personal accounts.

Among these policies, the most notable one was the proposal of the tax-sharing system, which had the greatest impact on the subsequent Chinese economic structure and was also the most controversial. The purpose of replacing the fiscal contract system with the tax-sharing system is to change the passive situation of the central government in income distribution.In the view of Zhu Rongji and his staff, the financial and administrative powers of the central and local governments must be "reasonably set up", otherwise, macro-control will lack a solid foundation.If the central government is slow to act in reform, while local governments are actively experimenting and striving to expand, then accelerating reform can easily be interpreted as breaking through the central leadership and management from the bottom up.

On July 23, 1993, Zhu Rongji formally proposed the idea of ​​a tax-sharing system for the first time at the National Finance Conference. More than a month later, the first plan for the reform of the tax-sharing system was introduced. According to the plan, consumption tax and tariff are classified as central fixed income, and corporate income tax is assigned to the central and local governments according to the taxpayer's affiliation; value-added tax is divided between the central and local governments at a ratio of 75:25.In order to persuade the provinces, Zhu Rongji traveled across the country in the following two months, trying to persuade them one by one, during which there were many back-and-forths and compromises.During that time, Zhu Rongji was under great pressure, and there were voices of opposition everywhere. His first stop was Guangdong Province, which had benefited the most from the financial contract system.Zhu Rongji succeeded in persuading Guangdong Province. As a "price", he agreed to transfer part of the land transfer income to the local government, which paved the way for future "land finance".

The implementation of the tax sharing system has achieved remarkable results. In the first year of the implementation of this system - 1994, the central fiscal revenue soared by 200% compared with the previous year, and the proportion of the national total fiscal revenue increased from 22% in the previous year. However, the proportion of fiscal expenditure in the national total expenditure increased by only 2% compared with the previous year. The implementation of the tax-sharing system was a turning point in the history of reform, and the most important result it brought was that the central government regained the initiative in the distribution of economic power and interests.From 1995 to 2004 when Zhu Rongji retired, the central fiscal revenue accounted for 52% of the state's total fiscal revenue on average, but its fiscal expenditure accounted for only 30% of the state's total fiscal expenditure on average.

In terms of institutional principles, the tax-sharing system is a federal fiscal and taxation system. Most market economy countries in the world have adopted different forms of tax-sharing systems. However, this system has "mutated" in China and has become a means for the central government to realize the centralization of economic power.As one of the initiators of the tax-sharing system, Wu Jinglian was very dissatisfied with the current implementation of the system in his later years. In his view, the premise of implementing the tax-sharing system is to clearly divide the powers and expenditure allocation between the central and local governments. Deliberately "avoided".

The first is that the powers of administration are unclear, especially the central government, which shifts most of the public service expenditures to the county and the governments below the county level. Taking 2004 as an example, local fiscal revenue accounted for about 45% of the national total fiscal revenue. However, fiscal expenditure accounts for about 72% of the total national fiscal expenditure.In terms of education expenses, the central fiscal expenditure is 21.964 billion yuan, while the local fiscal expenditure is 314.63 billion yuan, which is more than 14 times that of the central government; in terms of social security subsidies, the local fiscal expenditure is nearly 7 times that of the central government; the expenditure on supporting agriculture is 10 times that of the central government. Ji.While the central government collects part of the taxation rights from the provinces, the local governments also act from top to bottom.The provincial level collects fiscal taxes from the prefectural and municipal governments, while the prefecture and city level collects fiscal taxes from counties and townships. As a result, local governments below the provincial level have less than 17% of their financial power, but they have to bear 80% of the tax burden. Expenditure on people's livelihood and most public affairs.Due to the excessive decentralization of "expenditure responsibilities", local governments have to turn themselves into "enterprises" to make money.

The second is that the transfer payment system is not perfect. The central government holds most of the taxes in its hands, but does not disclose the details of fiscal expenditures, and refuses to establish a dialogue and consultation mechanism. The "project construction" method is implemented, and the investment and decision-making power is concentrated in the Development and Reform Commission of the State Council and the major ministries and commissions. The local government has no say, so they have to set up a "Beijing Office" in Beijing, and the so-called "money in from the department" has emerged. bad situation.Once the local government "runs the ministry", the authority of the central government is of course supreme.

These two problems, to put it bluntly, are: the local government has handed over most of the money, but it has to spend more and more money; the central government has collected most of the money, but it has never discussed with the local government how to spend it. . CE Lindblom pointed out in the book "Politics and Markets: The Political-Economic System of the World" that the political power system stipulates a basic environment for economic operation on a more macro level, forming the so-called "domination" rule".The "mutation" of the tax system based on the federal government in China under the centralized regime is a vivid embodiment of this rule.