Opinion | China's new budget law can modernise governance

Three recent items of news deserve attention. First, the revisions to the Budget Law were passed late last month. Second, in a speech this month marking the 60th anniversary of the founding of the National People's Congress, party general secretary Xi Jinping called for "governance in accordance with the constitution" and pledged to build a government based on the rule of law. Third, at last week's Summer Davos session, Premier Li Keqiang again stressed China would stick to the growth strategy of eschewing stimulus in favour of reform.

The three appear unrelated, but are in fact part of China's drive to modernise its governance. And the budget changes can herald a breakthrough in overall reform.

A country's fiscal policy is a pillar of its governance. China's Budget Law was first passed 20 years ago, and the amendments were 10 years in the making. The revised law is now double the size of the old one, with changes in some 82 areas, many of which are worth highlighting.

Analysts and experts have largely focused on the areas that attracted public attention, such as the rules allowing local governments to sell bonds. But an overview of the revisions makes clear that the guiding principles behind the specific changes are no less important.

Perhaps the most significant achievement of the revised law is that it complied with the framework set out by the third plenum's reform blueprint. First, it spells out that all government revenues and spending must be accounted for, under one budget. Second, the law has strengthened oversight by the legislatures at all levels. For example, budget plans and reports that have been approved by the relevant people's congress or its standing committee must be publicised within 20 days, with greater attention paid to the arrangements for fund transfers, the execution of the budget, government debt, and other issues of concern. This is in line with the third plenum's call for a rules-based and open system.

Indeed, there is a fundamental shift in thinking. Under the new law, budgeting is no longer a government's private affair, but is subject to rules and regulations that hold the government to account.

For example, the first article of the law requires governments to keep to rules on income and spending, with all items put on the books and subject to supervision. Legislators have also been given a more direct role in supervising budget management, the extent of revenue collection and spending, budget approvals and adjustments, and so on. Furthermore, chapter 9 of the law allows civic and legal groups to join the legislators in scrutinising the budget.