4.3 Expenditure Shares ofVarious Orders ofGovernment,2003

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TABLE 4.3 Expenditure Shares ofVarious Orders ofGovernment, 2003 (percent)

Expenditure items Central Provincial Subprovincial All orders

Capital expenditure 44.4 23.1 32.5 100 Operational expenditure 22.7 26.2 51.1 100

Agriculture 11.9 46.5 41.6 100

Education 8.2 14.6 77.2 100

Scientific research 63.5 22.8 13.7 100

Health care 2.8 22.3 74.9 100

Social security 11.4 39.3 49.3 100

Public administration 19.5 10.5 70.0 100

Public security, procuratorial, and justice 5.4 25.4 69.1 100

National defense 98.8 1.2 0 100

Foreign affairs 87.3 12.7 0 100

Foreign aid 100.0 0 0 100 Consolidated government expenditure 30.1 18.5 51.4 100

Source: Data from Ministry ofFinance ofChina.

ofthe total.In general,education is divided into basic,higher,and vocational education.Vocational education is mostly left to the market.2 Basic education in China includes nine years ofcompulsory education.Thecentral government is the policy maker and overall planner,and it is responsible for setting up special education funds for subsidizing basic education in thepoor minority areas and for subsidizing higher education.Meanwhile, the provincial government has the overall responsibility for formulating the development plan for basic education and providing assistance to counties to help them meet expenditure needs in education.The responsibility for actually implementing basic education,such as financing it,lies (in urban areas) with the cities or the districts oflarge cities and (in rural areas) with the counties.The education expenditure ofcounty and lower-level governments in 2003 was US$21.2 billion,about 60 percent ofthe total.

Basic education in rural areas has been a major concern ofthe central government in recent years because ofthe lack ofaccess in poorer areas.New initiatives,such as the Decision on Strengthening Rural Education,which the State Council issued in September 2003,expanded the expenditure responsibilities ofthe central government in basic education (schooling up to ninth grade),and defined it as the shared responsibility ofthe central government and local governments to support students from poor families by

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waiving textbook,tuition,and miscellaneous fees and by subsidizing housing expenditures for elementary and secondary education.The central government,as well as local governments,started to set up special funds to support the program in 2003.It is expected that all students will enjoy the benefit by 2007.

Expenditure responsibility for higher education is different from that for basic education.Access to private higher education,mainly vocational training,is quite limited,and it is regarded as inferior to public higher education.Public higher education organizations are divided into two groups: (a) those belonging to the central government and (b) those belonging to local governments.Expenditure responsibilities for higher education are shared by the central government and the provincial governments.The central government is responsible for planning the national development of higher education and supports the higher education organizations that belong to it.Provincial governments are responsible for planning for provincial development ofhigher education and support the higher education organizations that belong to them.

Health Care

The central government continued its commitment to health care and requires that the health care spending ofboth the central and localgovernments should grow at a faster rate than overall budgetary expenditures.3 In practice, responsibilities for health care are concentrated in local governments,particularly at the county and lower levels.The total government health expenditure in 2003 was US$9.4 billion,ofwhich local government expenditures were US$9.1 billion,accounting for 97.2 percent ofthe total.In particular, the health care expenditures ofcounty and lower-level governments were more than US$4 billion,or 42.6 percent ofthe total.

The major responsibilities for health care relate to rural health care, because more than 70 percent ofthe population lives in rural areas.The Decision to Strengthen Rural Health Care,issued in October 2002,clarified the responsibilities ofvarious levels ofgovernment.The central government retained responsibility for designing the overall plan,the provincial governments were mandated to implement central plans,and the county or city governments were given overall responsibility for rural public health care.

In addition,the central government is responsible for providing subsidies for the prevention and control ofserious infectious diseases,endemic diseases,and occupational diseases in poorer areas,and the provincial

146 Baoyun Qiao and Anwar Shah

government is responsible for giving necessary subsidies to counties or cities for public health projects and for paying for planned immunizations and vaccinations.The county or city governments must ensure that all rural public health projects mandated by the central government are carried out in a timely manner.

A new initiative to build a rural collaborative health care system started in January 2003.It expanded the responsibilities ofboth the central government and the local governments.Starting in 2003,the central government and local governments must pay US$1.20 per year for each rural resident in the middle and western regions who joins the system.The sharing arrangement among local governments at different levels is at the discretion ofthe provincial government.

Social Security Social security is mainly the responsibility oflocal governments.The total government expenditure on social security in 2003 was US$15.3 billion,of which the local share was US$13.5 billion,accounting for 89 percent ofthe total.The main component ofsocial security is the expenditure on a minimal living standard for urban citizens.Therefore,expenditure responsibilities are more concentrated in the provincial and prefecture governments,leaving fewer responsibilities for the county and lower levels,where most residents live in rural areas and do not have the same coverage asurban residents under the current system.The social security expenditures ofprovincial and prefecture governments in 2003 were US$6 billion and US$4.8 billion,accounting for 39 percent and 32 percent ofthe total, respectively.The social security expenditure ofcounty and lower levels ofgovernment was US$2.7 billion,accounting for 17.6 percent ofthe total.

Capital Investment Capital investment is a shared responsibility ofthe central government and local governments.Both play important roles;the higher the government level,the greater its responsibilities.The central government expenditure on capital investment in 2003 was US$18.5 billion,accounting for 44 percent oftotal government expenditure,which was US$41.6 billion.The capital expenditures ofprovincial,prefecture,and county and lower governments were US$9.6 billion,US$9.1 billion,and US$4.4 billion,accounting for 23.1, 21.8,and 10.7 percent ofthe total,respectively.

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Agriculture Agriculture development is mainly the responsibility oflocal governments. It is one ofthe most important tasks ofChina’s government because more than 70 percent ofthe workforce works directly in agricultural production. In general,local governments at or above the county level are responsible for the relevant agricultural development,and they provide support services for agricultural production and related administrative areas.In particular,local governments at and above the county level are responsible for establishing special agricultural funds for agricultural development,forest cultivation, construction ofspecial projects such as water conservancy facilities,research and development in agricultural science and technology,and agricultural education to promote agricultural development.

Meanwhile,the central government is responsible for nationwide projects and services ofagricultural development,production,and administration.In particular,the central government has been mandated to gradually increase overall central government spending on agricultural development, so that the growth rate ofannual overall expenditures on agriculture by the national treasury is higher than the growth rate ofoverall government spending.4

In practice,local governments at the county and lower levels assume primary responsibility for agricultural development.In 2003,total government spending on agricultural development was US$13.8 billion,while local government spending was US$12.2 billion,accounting for 88.1 percent of the total.County and lower governments spent US$6.8 billion,accounting for about 50 percent ofthe total.Local responsibilities and their relative importance are shown in table 4.4.

Distribution ofGovernment Employment The current distribution ofgovernment personnel shows a significant degree ofdecentralization.A large majority is concentrated in lower-level governments,as shown in table 4.5.

As a common practice,most public services are delivered by governments alone.Government organizations can be divided into two groups in accordance with their financing channels.The first group is fully financed by budgetary funds such as the organizations ofthe party and most ofthe administrative organs oflocal governments.Public services delivered by the government alone for this group have no market competition.A few jurisdictions in the eastern coastal regions are experimenting with outsourcing