Intent Declared Summary

In 2006, China was last comprehensively assessed on Fiscal Policy Transparency by Oxford Analytica (OA), which rated China's overall compliance with the International Monetary Fund’s (IMF) Code of Good Practices on Fiscal Transparency as "Intent Declared." This report represents the latest and only available comprehensive third-party assessment of China’s compliance with this standard. The OA report notes that, in 2006, Chinese authorities took several steps to improve its fiscal policy transparency, such as launching efforts to build a system of modern budget management by reforming the Budget Law of 1994. The revised Budget Law was expected to pass in March 2007 within the National People's Congress. However, at the time of the completion of this report in October 2009, the old Budget Law was still on the books. Nevertheless, if passed, the new bill is expected to significantly enhance the transparency of the budget preparation and monitoring process by improving sequencing and timetabling for budget preparation and increasing the medium-term focus of the budget. China also began efforts to fully align its budget classification system with the International Monetary Fund Government Finance Statistics Manual 2001 methodology by 2007. As of October 2009, however, it was not clear whether this had been achieved. The OA Report observes that, in April 2002, China joined the IMF General Data Dissemination System, which mandates increased transparency with regard to macroeconomic statistics. However, the report also cites some considerable weaknesses regarding the quality, coverage, frequency and timeliness of fiscal data provided by Chinese authorities.

General Overview

According to the Oxford Analytica (OA) 2006 Report on Fiscal Policy Transparency, several laws, including the Constitution of the People's Republic of China, set China's main government sectors apart from the private sector. The Constitution, as part of a large body of legislation, also includes a clear breakdown of legislative, executive and judiciary powers and responsibilities. However, the OA report points out that, in China, "practice differs significantly from what is laid out in the legislation" (p. 77) and that "the relationship and distribution of responsibilities between the government, the public sector and the rest of the economy [in China] are characterized by significant shortcomings and an overall lack of transparency" (p. 77). The OA report also observes that, despite the existence of laws and regulations, the real distribution of power and administrative responsibility is unclear due to the considerable control commanded by, and the overwhelming influence of, the Communist Party of China (CPC) in all fiscal policy areas.

The OA report notes that, in 2006, Chinese authorities took several steps to improve fiscal policy transparency, such as launching efforts to build a system of modern budget management by reforming the Budget Law of 1994. The revised Budget Law was expected to pass in March 2007 within the National People's Congress (NPC). However, at the time of the completion of this assessment in October 2009, the old Budget Law was still on the books. Nevertheless, if passed, the new bill is expected to "significantly enhance the transparency of the budget preparation and monitoring process" (p. 76). Some of the proposed reforms include improved sequencing and timetabling for budget preparation and increased medium-term focus for the budget. In addition, as part of the proposed reforms of the new Budget Law, China plans to fully align its budget classification system with the Government Finance Statistics Manual (GFSM) 2001 methodology by 2007. As of October 2009, however, it was not clear whether this had been achieved.

The OA report states that the National Development and Reform Commission (NDRC) and the Ministry of Finance (MoF) are responsible for defining and publicizing fiscal policy objectives, adding that the MoF occasionally publishes ad hoc statements on its progress in meeting fiscal policy objectives. However, the report also concludes that "fiscal policy objectives are not clearly explained in the documentation available to the public" (p. 84). On behalf of the State Council, the NDRC is also responsible for setting the macroeconomic framework used in China's budget process. In addition, the NDRC and the PBC conduct all macroeconomic forecasting and prepare a rolling five-year investment plan. Despite this, the OA report judges China's revenue forecasting to be "weak and pegged to directive growth targets" (p. 84).

The OA report observes that, in regards to budget execution and monitoring, China's recent centralization of money flows through the Treasury Single Account (TSA) represents a considerable improvement in fiscal policy transparency. As part of this reform, different budgetary units can no longer keep separate bank accounts, thus considerably simplifying the process. However, the OA report cites several remaining weaknesses in China's budget execution and monitoring regime. For example, budget data do not correctly list state revenue and spending. Furthermore, the OA report notes that Chinese governments at all levels deliberately evade the budgetary process by spending off-budget, despite the existence of laws and regulations against this. For example, State Council Document No. 29 of 1997, if enforced, is designed to place extra-budgetary revenues under budget allocation as a way to improve the comprehensiveness of the Chinese budget.

According to the OA Report, in April 2002, China joined the International Monetary Fund’s (IMF) General Data Dissemination System (GDDS), which mandates increased transparency with regard to macroeconomic statistics. However, the report cites some considerable weaknesses regarding the quality, coverage, frequency and timeliness of fiscal data provided by Chinese authorities. For example, while the MoF provides the outturn of the preceding fiscal year in the annual budget, it does not make budgetary forecasts beyond the upcoming fiscal year. Furthermore, the OA report notes that China's budget documentation "does not describe the nature and fiscal significance of the central government's contingent liabilities and quasi-fiscal activities" (p. 82). Nevertheless, the OA report points out that China is adopting, with some modifications, a Government Finance Statistics Manual (GFSM) system, and authorities expected to complete this process by 2007.

Regarding the independent scrutiny of fiscal information, the OA report states that the National Audit Office of the Peoples' Republic of China (CNAO), whose Auditor General is appointed by the prime minister and is a member of the State Council, is responsible for auditing the revenues and expenditures of all departments under the State Council. Each year (since 1999), the CNAO Auditor General attends NPC Standing Committee Meetings in June to submit the administration's report on the audit of the previous year's budget. A notable improvement in China's independent audit process was the amendment, in February 2006, of the Audit Law of 1994. The newly amended law, which came into effect in June 2006, mandates that "governments above county level are now legally required to submit auditing reports to the NPC each year" (p. 89). However, the OA report points out that, "although audit capability is improving, with the government increasing its audits at both the national and local level, it is still subject to political oversight" (p. 90).

According to the IMF’s 2009 Public Information Notice (PIN), China “has been hit hard by the global economic crisis,” leading to its lowest level of growth in a decade. However, China responded aggressively to the downturn, engaging in both fiscal and monetary expansion in order to counteract the sudden drop in world demand and private investment. The IMF supported these measures, and expresses tentative optimism that an economic recovery is underway. The Fund further supports China’s ongoing efforts to restructure its economy in a way that promotes domestic consumption in order to absorb increased production, lest exports falter as a result of a renewed global downturn in the future. Due to China’s low public debt, the IMF believes there is room for additional fiscal stimulus in 2010 in order to promote private consumption.

The Principles

IDClarity of roles and responsibilities.

In its 2006 Report on Fiscal Policy Transparency, Oxford Analytica rates China's compliance with this principle as "Intent Declared." According to the OA report, several laws, including the Constitution of the People's Republic of China, set China's main government sectors apart from the private sector. The Constitution, as part of a large body of legislation, also includes a clear breakdown of legislative, executive and judiciary powers and responsibilities. However, the OA report points out that, in China, "practice differs significantly from what is laid out in the legislation" and that "the relationship and distribution of responsibilities between the government, the public sector and the rest of the economy [in China] are characterized by significant shortcomings and an overall lack of transparency" (p. 77). The OA report also observes that, despite the existence of laws and regulations, the real distribution of power and administrative responsibility is unclear due to the considerable control commanded by, and the overwhelming influence of, the CPC in all fiscal policy areas.
The OA report states that the coordination and management of budgetary activities at all levels of Chinese government is primarily governed by the Budget Law of 1994. In addition, the State Council and the MoF have regulations with comprehensive guidelines regarding budget implementation. According to the OA report, a revised Budget Law was expected to pass in March 2007 within the National People's Congress (NPC). However, a review of the database of laws and regulations on the NPC website in October 2009 revealed that the old Budget Law was still on the books. Nevertheless, if passed, the new bill is expected to "significantly enhance the transparency of the budget preparation and monitoring process" (p. 76). Some of the proposed reforms include improved sequencing and timetabling for budget preparation and increased medium-term focus for the budget. In addition, as part of the proposed reforms of the new Budget Law, China plans to fully align its budget classification system with the GFSM 2001 methodology by 2007. As of October 2009, however, it was not clear whether this had been achieved.
Regarding the legal and administrative framework for fiscal management, the OA report observes that the Budget Law delineates the legal framework for budgetary activities in China, specifying budget roles and responsibilities. The proposed new Budget Law is expected to (1) clarify the responsibilities and rights of the legislature and the executive in the budget process; (2) restrict the use of extra-budgetary funds; and (3) mandate the joint consideration of current and capital budgets. The OA report notes that the reforms are likely to further clarify roles and responsibilities. However, the OA report adds that, despite this, "it remains to be seen whether there will be any stipulations to improve the sequencing and timetable of budget preparation" (pp. 79-80). According to the OA report, laws and regulations formulated by the NPC, the State Council, the MoF, and the State Administration of Taxation (SAT) sets the legal framework for taxation, adding that "recent fiscal reforms have contributed towards streamlining the tax system and strengthening the tax administration" (p. 81).

IDOpen budget processes

In its 2006 report, Oxford Analytica rates China's compliance with this principle as "Intent Declared." The OA report notes that the NDRC and the MoF are responsible for defining and publicizing fiscal policy objectives, adding that the MoF occasionally publishes ad hoc statements on its progress in meeting fiscal policy objectives. However, the report also concludes that "fiscal policy objectives are not clearly explained in the documentation available to the public" (p. 84). On behalf of the State Council, the NDRC is also responsible for setting the macroeconomic framework used in China's budget process. In addition, the NDRC and the PBC conduct all macroeconomic forecasting and prepare a rolling five-year investment plan. Despite this, the OA report adjudges China's revenue forecasting to be "weak and pegged to directive growth targets" (p. 84).
Regarding budget presentation, the OA observes that the National Budget Law stipulates that central and local budget drafts, including any amendments, must be reviewed and approved by the NPC and local congresses. However, the report also points out that, due to China's budget preparation process not being fully integrated with the fiscal cycle, there is a lack of coordination between the sub-provincial, provincial and central levels of government. Pertaining to data reporting, the OA report notes that Chinese authorities report budget data on a gross basis, differentiating revenues from expenditures. For example, in the China Statistical Yearbook, China reports data on revenues collected by the central and local governments, while excluding revenues from borrowings. According to the OA report, China's budget documentation and final accounts, which cover all budgetary and some extra-budgetary activities of government, are disclosed through publications like the China Statistics Yearbook. However, the OA report notes that such information is only made available nine months or more after the end of the year. Furthermore, OA observes that, at the time of the release of its report in November 2006, China's budgetary data did not include information on official external borrowing. Also, the OA report concludes that "expenditure classification is weak, but is expected to improve following the introduction of a revised budget classification system in 2007" (p. 86). However, a review of the database of laws and regulations on the NPC website in October 2009 revealed that the old Budget Law was still on the books.
The OA report notes that, in regards to budget execution and monitoring, China's recent centralization of money flows through the Treasury Single Account (TSA) represents a considerable improvement in fiscal policy transparency. As part of this reform, different budgetary units can no longer keep separate bank accounts, thus considerably simplifying the process. However, the OA report cites several remaining weaknesses in China's budget execution and monitoring regime. For example, budget data do not correctly list state revenue and spending. Furthermore, the OA report notes that Chinese governments at all levels deliberately evade the budgetary process by spending off-budget, despite the existence of laws and regulations against this. For example, State Council Document No. 29, if implemented, is designed to place extra-budgetary revenues under budget allocation as a way to improve the comprehensiveness of the Chinese budget. Nevertheless, the OA report concludes that Chinese authorities have made notable efforts to incorporate extra-budgetary revenues into the budget. For example, China has made efforts to transfer land revenues from extra-budgetary funds to the local government budget. However, at the time of the completion of this assessment in October 2009, it was not clear whether this reform had come to fruition.
Regarding fiscal reporting, the OA report states that "legislative oversight of the budget process, although poor, is improving" (p. 88). Furthermore, the NPC has worked with more government departments to improve transparency and accountability. For example, during the year, the MoF reports fiscal data in its publications and on its website. In addition, several times a year, the finance minister reports to the NPC's standing committee on the MoF's progress. Nevertheless, the OA report concludes that, "while the procedures for fiscal reporting are firmly in place, the lack of capacity for effective internal control reduces the transparency and efficiency of fiscal processes in China" (p. 88).
According to the International Budget Partnership’s (IBP) 2008 Open Budget Index, China’s budget process “provides the public with scant information on the central government’s budget and financial activities during the course of the budget year” (p. 1), earning it an overall score of 14 percent. IBP’s approach involves tracking eight separate budget documents that, according to the methodology section of the IBP website, represent “good practice criteria for public sector financial management” (p. 2). These documents are: Pre-Budget Statement; Executive’s Budget Proposal; Citizen’s Budget; Enacted Budget; In-Year Reports; Mid-Year Review; Year-End Report; and Audit Report. The IBP states that these criteria are similar to fiscal transparency guidelines developed by multilateral institutions such as the IMF, the Organization for Economic Cooperation and Development, and the United Nations. China makes available three of the eight budget documents: In-Year Reports, Year-End Report, and Audit Report. The IBP report states that China only provides the public with a summary of the budget, as opposed to a full budget proposal, making it difficult for citizens to gauge the government’s plans for taxing and spending. Furthermore, while China produces a Year-End Report, it “lacks important details” (p. 1), and the amount of coverage in its Audit Report is incomplete. Finally, the IBP notes that this informational opacity persists despite official laws that grant citizens access to government information.

IDPublic availability of information.

In its 2006 Report on Fiscal Policy Transparency, Oxford Analytica rates China's compliance with this principle as "Intent Declared." The report notes that, in 2006, the Chinese government took several steps to improve the public availability of fiscal information. For example, Chinese authorities introduced a new budget classification system that shows expenditures by organization (i.e. ministries and other government agencies) and economic function. The new budget classification system, which was planned to be completed in 2007, is expected to improve transparency of the budget monitoring process. However, a review of the database of laws and regulations on the NPC website in October 2009 revealed that the old Budget Law was still on the books.
The OA Report observes that, in April 2002, China joined the IMF’s GDDS, which mandates increased transparency with regard to macroeconomic statistics. However, the report cites some considerable weaknesses regarding the quality, coverage, frequency and timeliness of fiscal data provided by Chinese authorities. For example, while the MoF provides the outturn of the preceding fiscal year in the annual budget, it does not make budgetary forecasts beyond the upcoming fiscal year. Furthermore, the OA report notes that China's budget documentation "does not describe the nature and fiscal significance of the central government's contingent liabilities and quasi-fiscal activities" (p. 82). Nevertheless, the OA report points out that China is adopting, with some modifications, a GFSM system, and authorities expected to complete this process by 2007. As of October 2009, however, it was not clear whether this had been achieved.
Regarding the publication of fiscal data, the OA report states that the National Bureau of Statistics of China (NBS) publishes monthly and quarterly fiscal data, provided by the MoF and published by the NBS in both English and Chinese in the China Monthly Economic Indicators Bulletin. Other publications of detailed annual data include the NBS' China Statistical Yearbook, the MoF's China Finance Yearbook and the China Financial Outlook. All are available on the NBS website.
With regards to debt reporting, the OA report notes that the PBC's Financial Outlook and Annual Report feature summary quarterly and annual data for the level and composition of the government's debt and financial assets. Furthermore, the MoF and the NBS disseminate more information on the country's debt situation in their publications and on their websites. However, the OA report concludes that the availability of debt information in English and the dissemination of fiscal information are limited, particularly regarding access to ex-ante budget data, despite the MoF being responsible for the distribution of such information. The OA report also states that the MoF does not release an advance release calendar.

NCIndependent assurances of integrity.

Oxford Analytica, in its 2006 report rates China's compliance with this principle as "No Compliance." Regarding the independent scrutiny of fiscal information, the OA report states that the CNAO, whose Auditor General is appointed by the prime minister and is a member of the State Council, is responsible for auditing the revenues and expenditures of all departments under the State Council. Each year (since 1999), the CNAO Auditor General attends NPC Standing Committee Meetings in June to submit the administration's report on the audit of the previous year's budget. A notable improvement in China's independent audit process was the amendment, in February 2006, of the Audit Law of 1994. The newly amended law, which came into effect in June 2006, mandates that "governments above county level are now legally required to submit auditing reports to the NPC each year" (OA 2006, p. 89). However, the OA report points out that "although audit capability is improving, with the government increasing its audits at both the national and local level, it is still subject to political oversight" (p. 90).
The NBS is China's national statistical agency. Furthermore, the Statistics Law of the People's Republic of China of 1983 requires statistical work to be carried out in an effective, timely, and accurate manner. According to the OA report, the reliability of China's statistical system has improved. However, the report also notes that the NBS lacks the resources (both human and financial) to conduct its work effectively. Nevertheless, the OA report states that the NBS has stated its commitment to enhance the quality of its statistics under the IMF's GDDS. A notable component of this effort is the NBS' plan to more adequately enforce the Statistics Law to discourage the misreporting of data. The NBS also plans to better train its staff on data integrity and professionalism. However, at the time of the completion of this assessment in October 2009, it was not clear whether the NBS had seen these reforms through.