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POLI 422 (21)
Juan Wang (19)

POLI 422 - Huang: Political Institutions and Fisal Reforms in China

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Political Science
POLI 422
Juan Wang

Political Institutions and Fiscal Reforms in ChinaProblem if reducing central fiscal control has weakened the economic and political capacity of Chinas central government what explains the successful implementation of inflation controls and other reforms in the 1990s Solution Chinas unitary system has not been affected by economic nor fiscal reforms since 1978 Centres control over provinces remain firm This control has allowed the Centre to implement even politically unpopular policies Fiscal AlarmismMany have believed that economic power had been excessively devoluted during the reforms to the point of posing an existential risk to the unity of the state Others have noted that Chinese state banks have increasingly assumed budgetary functions which impairs the health of the Chinese banking system Yet if this is true then it doesnt seem like the relative decline of monetary clout at the Centre has affected its ability to implement policy The Centre in 1994 was able to push localities to rein in investment expansions and inflationary credit demands These have been apparently effective in bringing down high inflation which moved from 22 in 1994 to 6 in 1996 The most surprising point in this is that conventional wisdom holds that much more fiscal resources would be needed by the Centre to push through such policies Compared with most developing countries the Chinese central government has been able to control inflation with less revenue On average the level of inflation in China has been lower than in other developing countries or about the same but central government tax revenue has been about onethird to onehalf the norm in other developing countries These inflation controls have been in addition to other institutional reforms such as tax reform which directly harmed the locality by clawing more revenue back towards the Centre and along with it political and economic powerInstitutional Foundations of Central PowerHuang notes that the power of the Centre over the locality is not rooted simply in economics The Centre also has the ability to select and control officials who staff local governments During the reform era the center has certainly experienced a loss of control over fiscal resource but it has partially compensated for its fiscal losses by strengthening its political controls Specifically the Centre has two mechanisms of political control its ability to collect information and monitor local activity and its ability to manage local personnel The increase of the Centres ability at pursuing either activity is necessarily an increase in the Centres political power visavis localities
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