Beijing must overcome bottlenecks blocking policy implementation

Hu Shuli says an overhaul of local government operations is needed to get officials fully behind the national goals of stable growth and reform

PUBLISHED : Wednesday, 23 July, 2014, 12:32pm
UPDATED : Thursday, 24 July, 2014, 1:40am

For the past two months, Beijing's efforts to break through the bureaucratic bottleneck blocking policy implementation has been in the news. On the State Council's orders, eight inspection teams fanned out late last month across the country to check on local governments' progress in carrying out the central government's policies to stabilise growth, improve livelihoods, and promote reform and restructuring.

In all, 27 government departments and 16 provinces have been investigated. Officers were asked to find the reasons for tardy implementation and suggest solutions.

The results of the inspections have yet to be announced, but from the media reports so far, businesses have routinely complained of these problems: miscommunication within the bureaucracy, too much focus on administrative approvals and a lack of guidelines to complement the new policies.

These problems have dogged China since reforms began. But an additional complication has been the current administration's decision to move away from using gross domestic product as the sole target of growth, to pay more attention to livelihood concerns, environmental issues and local government debt. This has made the duties of local officials more demanding.

When coupled with administrative reforms and the government's no-holds-barred crackdown on corruption, more and more officials have adopted the attitude of doing as little as possible to avoid making mistakes. This bureaucratic lethargy is especially evident in local government departments.

Perhaps such pain is inevitable as reforms deepen, but if China is to achieve its aim of economic transformation, government officials at all levels must be motivated to take responsibility and be proactive.

Streamlining government administration, decentralising power, and reducing administrative approvals for businesses are three major thrusts of the current reforms. Since last year, the central government has done away with or simplified administrative applications for 479 items. This year alone, it did the same for over 200 related items.

But further down the line, the picture is far less rosy. Many companies say local government officials have lowered the bar in name only, or selectively.

Take the recent orders to decentralise administrative power in provincial governments. While the intent was to modernise governance and reduce administrative hassle, a look at one list showed more than 600 demands of various applications and documentary requirements, including accreditation for lab workers for experiments involving animals - a requirement that was put in place in the early 1990s.

The crux of the problem is institutional. To a large extent, China's phenomenal pace of growth in the past 30 years can be credited to the drive of local governments. Today, we see that their enthusiasm has not only boosted GDP numbers but has also harmed the real economy; local government interference in the economy is a cause of the property bubble, excess capacity and high debt risks, and is also a reason for the policy implementation bottleneck.

Recently, some local governments have gone back to their old practice of pursuing short-term GDP growth at all costs, and are again making the mistakes of directing the allocation of resources and micro-managing the economy.

Interest groups' opposition to reforms has stalled change. But another important reason has been the haphazard way reform measures have been rolled out.

Local government reform must be one of the next big items on the reform agenda. While the leadership has yet to decide on the specifics, the aim of the reform must be to change the function of government - from being a competitor in the market to being a provider of public services. This means streamlining the fiscal relationship between the central and local governments; changing the criteria for evaluating local government performance; simplifying the administration; and setting up a system of supervision that is based on the rule of law.

The work has already started. The Politburo has approved a blueprint on tax reform, and some of these first measures should be in place by 2016. This should help to clarify the roles of the central and local governments in budget commitments.

Building a healthy relationship between government and the market is a goal of current leaders. Just this month, the State Council unveiled a set of guidelines to "protect fair market competition and safeguard market order".

Local governments must support the goals of stable growth and reform. But taking on the role of an economic driver itself is not the way to do it. China's economic transformation depends on the success of reforms and, for that, the country must find a way to encourage the hard work of its officials that actually benefits the nation.