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jumped from 5.3 percent in 1978 to 18.6 percent in 2002.14 In absolute terms, administrative outlays grew seventy-six times in twenty-four years, or averaging 318 percent a year (unadjusted for inflation). In the same period, by comparison, budget revenues rose 65 percent each year (unadjusted for inflation). Administrative expenditures outpaced overall budget revenues by 11 percent annually15 During the same period, personnel costs within the administrative budget also rose in relative terms. In 1978, salary costs for personnel working in various government agencies (including the Communist Party) accounted for about 55 percent of the total administrative budgets in 1978; they amounted to 64 percent in 1998.16 In the meantime, rising administrative costs seemed to have squeezed out public expenditures on social investments and poverty-relief programs. For example, government spending on the agricultural sector in 1978 was 13.4 percent of the budget; in 2001, it fell to 7.7 percent. Research and development spending decreased from 4.7 to 3.7 percent of the budget from 1978 to 2002.17

Given the underreporting of the number of people employed in the various bureaucracies of the state, the actual costs of maintaining the Chinese state could be much larger than the official data would suggest. Based on the data collected from various sources, the real costs of the Chinese state should include both the budget’s administrative costs and the off-budget administrative costs incurred by excess personnel.

Anecdotal evidence gathered from official sources shows that it is very costly to maintain a government official (salary, benefits, and office expenses). According to a Ministry of Finance analysis of administrative expenditures in 1990, the staffing costs for each government official employed in the state’s administrative agencies were 5,000 yuan a year, about 2,900 yuan more than the salary for an average government employee in the same year.18 Another estimate, made in the mid-1990s, raised such costs to a much higher level. An analyst at the Ministry of Finance wrote that by the end of 1996, each additional employee in the administrative apparatus of the state would increase annual administrative outlays by 10,000 yuan to 20,000 yuan in compensation, and 10,000 yuan in office expenses, housing, and benefits.19 These outlays apparently did not include the costs of entertainment and various hidden perks for government officials. At the aggregate level, it is impossible to calculate the costs of entertainment and official junkets. Because government policy formally prohibits lavish spending on such activities, local governments normally pay for such expenses using funds allocated for other spending items (such as capital investment, education, health, and even poverty relief). In many instances, such expenses arc not even reported when local government officials use their own slush funds accumulated through the collection of various—often illegal—levies and fees.20

Overstaffing drives local authorities to raise additional off-budget revenues through fees and hidden taxes, many of which arc declared illegal by the central government. Disclosures by official Chinese sources indicate that local authorities control a significant amount of illegally collected revenues. One estimate showed such revenues totaled about 10 percent of GDP in the 1990s.21 Such an extractive capacity has helped the Chinese local state to support its bloated staff. Indeed, the annual growth rate of administrative expenditures in the government’s off-budget account was, on average, 122 percent per annum between 1982 and 1992 (a period during which a uniform accounting standard was applied to off-budget revenues). This rate was more than 30 percent higher than the rate of growth of administrative expenditures in the official budget during the same period. This evidence establishes the link between the growth of the size of the state and the increase in off-budget revenues.22 Besides aggregate data, local reports also confirm the practicc of using off-budget