The Centre Decides and the Local Pays: Mandates and Politics in Local Government Financial Management in China

Abstract

In China, ‘the centre decides and the local pays’ means the central government decides on policies but requires its local subordinates to provide the financial resources. The politics of this practice implies that local government has to take different strategies to cope with the unfunded mandates with various consequences. As an empirical study framed by Niskanen’s rational choice theory and Dunleavy’s ‘bureau-shaping’ model, this paper examines how the unfunded mandates impact local government behaviour. Its main focus is the question of how the local officials respond, the extent to which they comply or resist and the techniques they use to adapt to these mandates. This paper finds when deciding how to pay the bill for the centre, local officials have to take a number of principles into consideration. They need to stick to the people-orientated principle and to finance money for salaries and operation to the extent that they can; they also have to see if the mandates are strictly implemented or popular among local people.

Key Words:

• Local government
• financial management
• intergovernmental fiscal relationships
• mandates
• China

Notes

1. In 2011, the total government expenditure in culture, education, science and public health was 2.86 trillion yuan, that is, the central government spent 319.31 billion yuan and the local governments spent 2.54 trillion yuan. Data are from the State Statistics Bureau, China Statistical Yearbook (2012).

2. In 2011, the total government expenditure in social welfare, environmental protection and disaster relief funds were 1.39 trillion yuan. The Central government’s share was 57.67 billion yuan, while the local share was 1.33 trillion yuan. Data are from the State Statistics Bureau, China Statistical Yearbook (2012).

3. Outline of State Plans for Medium and Long-term Reform and Development of Education (2010–2020) issued in 2010.

4. During the Planned Economy era, SOEs managed social services including elementary and high schools, hospitals, restaurants and kindergartens, which were fully financed by SOEs. Meanwhile, local governments ran and financed public schools, hospitals and kindergartens outside SOEs.

5. The Chinese currency unit (also known as RMB), 1 USD = 6.1 yuan.

6. Chi fan (eating) finance means government revenues are consumed by salaries, subsidies and other types of income for the government employees.

7. Literally, the phrase is translated into ‘running to the department so the money comes in’. It refers to the local units that build up strong relationship with central departments by lobbying and can get more central funds.

Additional information

Funding

This paper is funded by Project 985 in China.

Notes on contributors

Yongmao Fan

Yongmao Fan is an Associate Professor of Public Administration in the School of Public Administration and Policy at Renmin University of China. His research areas include public financial management, local budgeting, local governance and public policy.