Policy Brief: Challenges for China’s Public Spending
China’s evolution from a centrally-planned to a market-based economy is leading to major transformations of its public expenditure policies. Much progress has been made in raising infrastructure spending to a level more in line with China’s development needs and in modernising mechanisms for budget planning and implementation. Nevertheless, significant challenges remain.
The institutions and arrangements governing China’s public spending policies have evolved considerably since the central planning era but still bear important vestiges of that period. While the distinction between spending carried out by the government versus that by businesses, other organisations, and individuals outside the government has become progressively sharper over time, it remains somewhat blurred. Furthermore, responsibility for carrying out government spending remains highly decentralised while the basic decisions about how spending is to be allocated and financed are highly centralised.
This incomplete adaptation of these arrangements is the source of many of China’s current problems with public spending. The transparency, accountability, controllability and overall effectiveness of public spending are greatly hampered by the substantial amount of expenditure which the government controls or is liable for that occurs outside the formal budget. The uneven decentralisation of expenditure responsibilities and the resources to pay for them have led to marked divergences in spending per-capita among regions and between urban and rural areas, and have generated adverse incentives in carrying out spending by local governments. They have also limited the amount the government has been able to spend on key social needs such as education and health. The government is making a strong effort to deal with these problems and has made significant progress but more remains to be done.
These challenges and the efforts being made to address them are discussed in detail in the OECD publication, Challenges for China’s Public Spending: Toward Greater Effectiveness and Equity, and summarised in this Policy Brief.
Long abstract
