China Emerging_ 1978-2008 - Xiao-bo , Wu [34]
Old buildings about to be demolished in the “golden area” of Beijing. Residents of the district hurrying out of the demolition area.
central and local governmentswithafine-toothed comb. For many years, the development of regional economies as well as the state-operated enterpriseshadreliedonthe infusion of funding from the central treasury. As one economist remarked, “One old man takes care of and pays for the upbringing of thousands of sons.” However, this “old man” was in a predicament: If he relaxed control,thingswouldbecome chaotic; if he tightened control, his sons would die. By the early 1990s, the national treasury was extremelyshortofmoney and was relying on issuing large amounts of currency to make ends meet. This naturally brought on the risk of inflation. Some economists suggested having central and regional governments “eat at different troughs.” They recommendedthatthecentralgovernmentandeachprovinceshouldconsult with one another on how to divide tax revenues. The goal was to implement a division of the taxation system and ensure that local governments rely on local sources for their funding.
Zhu Rong-ji officially proposed division of the taxation system for the first time at a national fiscal policy meeting on July 23, 1993. A little more than one month later, the first proposal in the reform was made. In order to persuade all provinces, Zhu Rong-ji personally spent the next two months visiting places, negotiating. There was much seesawing and compromise in this process, but Zhu never wavered from the ultimate principle of implementing a “national unified tax division system.”
The implementation of this reform brought about a tremendous change in the entire fiscal system of China. The results were sufficient to revive the finances of the central government. From 1994 to 2002, China’s treasury income rose on average by 17.5%. The percentage of tax income in GDP was 12.6% in 1993, rising to 18.5% in 2002. The percentage of the central tax revenue in the total government revenue was 55% in 2002, 33% higher than it had been before the reforms in 1993. In 2002, other than assistance from tax refunds and structural help, the amount of money paid out by the central government to the regional governments in the form of “transfer payments” was as high as RMB 401.9 billion. This was 8.6 times the 1995 amount. Transfer payments in China refer to the practice of the higher levels of government paying a certain legislated standard amount of treasury receipts to the lower levels of government. This allocation is then considered as a portion of “income” by the local governments.
In addition to relying on the tax division reform to revive central finances, Zhu Rong-ji moved ahead with the exchange-rate reform. He rejected all dissenting views, unified the system, and devalued the renminbi.
Luxury cars and high-fashion ladies, of great interest to Western photo-journalists, are seen again on the streets in Shanghai.
China’s first healthy sex services store opens in Beijing in 1993.
Border trade in the Northeastern region is active.
Beijing International Exhibition Center. An international textile equipment exhibition is under way, and an older lady from Fengrun County in Hebei wanders through the crowds seeking some information. Although foreigners cannot understand what she is saying, they are interested in the fact that she has attended the show.
Before this reform, China had a two-track exchange system, with both an official exchange rate and an adjusted regulated market rate. This was one of those tails that the governor of Sichuan had talked about— the “financial tail” of the planned economy. It protected the interests of the state-owned enterprises as well as encouraged a tremendous black market in foreign-exchange transactions. From January 1, 1994 onward, the two exchange systems were unified “into one track,” and a “single managed-float exchange rate system based on demand and supply in operations” was begun.
The exchange rate was initially set at RMB 8.72 to US$1. The rate just before