china's administrative reforms for a market economy

PUBLIC ADMINISTRATION AND DEVELOPMENT, VOL. 13,345-360 (1993)

China’s administrative reforms for a market economy

JOHN P. BURNS University of Hong Kong

SUMMARY During the 1980s and early 1990s, China’s centrally planned economy has been replaced by one that relies largely on market forces. Leaders have carried out a programme of administrative reforms to tailor the state to the market economy. These reforms have included decentralization, organizational restructuring and civil service reform. A number of factors have undermined the success of the reforms. They include: lack of political support, China’s relatively weak administrative capacity, internal bureaucratic opposition and mixed support from the general public. However, further economic development is likely to improve the prospects of administrative reform in China.

INTRODUCTION

Since 1978, China has carried out significant and far-reaching economic reforms. The reforms have decollectivized agriculture, opened the country to foreign investment and trade, granted more autonomy to state-owned economic enterprises, permitted the re-emergence of a private economy and set many prices according to supply and demand. The reforms have moved the country away from a centrally planned economy, dominated by the state sector, towards a market economy, with a growing collective and private sector. In October 1992, following an initiative by patriarch Deng Xiaoping, the 14th National Congress of the Chinese Communist Party (CCP) officially endorsed a ‘socialist market economy’ for China (Jiang Zemin, 1992, p. 18).

During the 1980s, China’s leaders implemented a number of administrative reforms that were designed to facilitate the trend toward a market economy. Firstly, beginning in 1979 they decentralized management of sectors of the economy either directly to producers or to local governments. Secondly, in 1982, 1988 and again during 1992-93, they attempted to streamline central and local government and, more recently, to restructure the functions of government to meet the needs of a market economy. Finally, beginning in the early 1980s, they have reformed the civil service management system. The reforms have undoubtedly contributed to China’s economic growth, but they have also encountered serious problems.

THE INSTITUTIONAL CONTEXT

The People’s Republic of China is a unitary state ruled by the Chinese Communist Party (CCP). Policy-making is shared among a relatively small number of actors

Dr Burns is a Reader in the Department of Politics and Public Administration, University of Hong Kong, Pokfulam Road, Hong Kong.

027 1 -2075/93/040345- 16$13 .OO 0 1993 by John Wiley & Sons, Ltd.

346 John P. Burns

who have various party and state affiliations. The Politburo of the CCP and its Standing Committee sit at the apex of the political system. They make policy, together with the party secretariat and various joint partyhtate leading small groups, organized to study specific issues. Politburo members undoubtedly also consult a small circle of semiretired party elders on critical policy issues and personnel appointments (Lie- bertha1 and Oksenberg, 1988, pp. 35-62; Hamron, 1992, pp. 95-124). Party committees, organized at each administrative level of the hierarchy, play an important role in coordinating and supervising state institutions at that level and in representing local interests to higher level party agencies.

The State Council, headed by the Premier, consisted in 1992 of 86 ministries, commissions and directly subordinate bureaus and offices, with about 45,000 administrative, managerial and technical staff: Although it has been reorganized on several occasions (Harding, 1981; Lee, 1991), the State Council in the early 1990s was responsible for managing a centrally planned economy with a relatively large state sector. Supraministerial commissions, such as the State Planning Commission, had responsibilities for long-term planning and coordinated the activities of complex networks of economic management bureaucracies that directed heavy and light industry, finance, energy and transportation.

Below the central level, the country was divided into 22 provinces, five autonomous regions and three centrally administered cities (Beijing, Tianjin and Shanghai). Government at this level, headed by a governor or mayor, was typically organized into 50 or 60 bureaus (or departments), each further subdivided into divisions and sections. Each provincial-level government employed up to 1000 people, of whom approximately half were administrators, managers or technical personnel (‘cadres’). In 1992 provincial government consisted in part of planning commissions and economic management bureaus that mirrored those in Beijing, set up to manage a planned economy. Of Shanghai’s 7 1 agencies, for example, nearly one-third were devoted to economic planning or to directly managing either producer goods or consumer goods industries (Shanghai Establishment Commission, 1988, pp. 231-235).

Bureaucracy at the subprovincial level was also concerned with planning and micro- management of the economy. In 1991, China’s provinces were divided territorially into 1894 counties and 476 municipalities (State Statistical Bureau, 1992, p. 3). County governments, each headed by a county magistrate, were typically organized into 30 or so bureaus (or departments) and employed up to 700 people in both administrative and auxiliary positions. Provincial governments also established a total of I5 1 prefectures, intermediate-level units that linked clusters of counties to provincial authorities. Counties, in turn, were subdivided into 58,185 towns and townships. China’s 476 municipal governments, headed by a mayor, were typically organized into 45 or so bureaus, and employed 2,200 or so administrators and support staff. Municipalities were divided into districts and neighbourhoods.

Local government bureaus come under the ‘dual rule’ of local partyhtate leaders on the one hand and higher-level agencies on the other. County tax bureaus, for example, received instructions from county, party and government leaders (so-called ‘leadership relations’ or Zingduo guunxi), and professional guidance from higher level (provincial) tax bureaus (yewu guanxi). In practice, local government departments have been heavily influenced by local concerns.

China’s administrative reforms for a market economy 347

BACKGROUND: ECONOMIC REFORM

In 1978, on the eve of China’s post-Mao reforms, industrial production in China was dominated by the state sector. Central and local state industries produced 80 per cent of industrial output, while the remaining 20 per cent came from collectively owned industrial enterprises. There was no private industrial sector. Commerce was also mostly in state hands: 90.5 per cent of retail sales were controlled by state agencies. Collectives and private retailers controlled only 7.4 and 2.1 per cent, respectively. Nearly 80 per cent of the urban workforce was employed in state institutions. Less than 1 per cent found jobs in the private sector (Harding, 1987, p. 129).

China’s moves toward a market economy began in the countryside in late 1978 when authorities authorized the decollectivization of agriculture. This move permitted China’s farmers to abandon collective farming and distribution, and encouraged them to produce on a household basis for the market. As a result, grain output increased significantly, especially during the early 1980s. From 1977 to 1984, for example, total grain output increased from 282 million tons to 407 million tons, in part also because of increases in the purchase price for gain (State Statistical Bureau, 1992, p. 358). Rural per capita incomes also rose substantially. From 1980 to 1991, for example, net annual per capita rural incomes rose from 191 yuan to 708 yuan (State Statistical Bureau, 1992, p. 306). The growth of township and village enterprises helped considerably. From 1978 to 199 1, they grew from about 1.5 million enterprises employing 28 million people to more than 19 million enterprises employing nearly 100 million people (State Statistical Bureau, 1992, p. 389).

In urban China, reforms centred around price reform and grants of autonomy for economic enterprises. Since 1978 the prices of all but a few producer goods, such as coal, steel, petroleum and electricity, and rents for public housing have been decontrolled. However, price liberalization in the cities produced high rates of inflation during 1988-89 and 1992-1993, which threatened stability. In 1988 and 1989, for example, the urban consumer price index increased by 20.7 per cent and 16.3 per cent respectively (Naughton, 1991, p. 137), and by the end of the first quarter of 1993 had already risen by 15.7 per cent (South China Morning Post, April 20, 1993).

Enterprise reform sought to remove microeconomic decision-making from government departments and hand it over to enterprise managers, and to increase the sensitivity of enterprises to the market through a number of other measures.

First, beginning with experiments in 1978, authorities sought to increase the autonomy of economic enterprises. This process culminated in 1992 with the promulgation of the Regulations on the Transformation of the Management Mechanisms of State Owned Industrial Enterprises, which gave the enterprises authority to manage production, determine prices, participate directly in the negotiation of foreign trade agreements and make investment decisions and personnel decisions, including decisions on wages (Wu, 1992, pp. 13-14). Previously these activities had been handled by government agencies on behalf of the enterprises.

Second, the government replaced the practice of state-owned enterprises remit- ting fixed amounts to the state with a system of taxation on enterprise profits. This change was reflected in the changing composition of state budgetary income. From 1978 to 1991, for example, revenue remitted directly from enterprises to the state shrank from 51 per cent to 2 per cent of total budgetary revenue, while revenue

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from taxes grew from 46 per cent to 83 per cent (State Statistical Bureau, 1992, pp. 215,218). However, by 1992, China’s 11,000 large-and medium-sized state-owned enterprises still contributed 67 per-cent of tax revenues (Wu, 1992, p. 13).

Third, the government promulgated a new bankruptcy law which, for the first time, permitted state-owned enterprises to be wound up (only, however, with the consent of the government department supervising the enterprise) (Blejer et. af., 1991, p. 5). Although the law has been rarely used, authorities have attempted to close loss-making enterprises in some cases. In 1991, for example, Harbin officials ordered four loss-making state-owned enterprises to ‘close, suspend operations, or merge with other enterprises’ (South China Morning Post, November 4,1991).

Attempts to reinvigorate state-owned enterprises have been relatively unsuccessful. Indeed, their relative contribution to the economy declined in the 1980s. From 1978 to 1991, for example, their share of total industrial production fell from 77.6 per cent to 53 per cent (State Statistical Bureau, 1992, p. 408). Real growth of gross value of industrial output (GVIO) for the state sector has fallen far behind the growth of the collective and private industrial sectors (Zinser, 1991, p. 104). Large numbers of state-owned enterprises continued to operate at a loss, and in 1991 government budget subsidies to cover enterprise losses amounted to 50 billion yuan (State Statistical Bureau, 1992, p. 218). However, they contributed nearly 50 per cent of China’s total industrial output value in 1992 (Wu, 1992, p. 13).

An additional key element of China’s economic reform has been the ‘open-door policy’, which has produced dramatic increases in foreign trade and foreign investment. Authorities encouraged enterprises to produce for the export market by, for example, permitting them to retain substantial amounts of scarce foreign exchange earned through trade. From 1979 to 1989, as a result of these changes, China’s foreign trade grew from US$29 billion to US$1 10 billion, while exports grew from 5 per cent to 22 per cent of the country’s gross national product (Wilson, 1991, p. 7 15).

The government has also opened the country to direct foreign investment, a policy that has had the most impact on China’s coastal areas and special economic zones. The number of contracts signed with foreign investors grew from 344 in 1980 to 7236 in 1990. The value of the contracts has grown from US$1.7 billion in 1980 to US$6.6 billion in 1990 (Endean, 1991, p. 760).

As a result of economic reform, China has experienced high rates of growth. Although from 1965 to 1980 China’s gross domestic product grew at the rate of 6.9 per cent per year, during the 1980s GDP grew at an average annual rate of 9.7 per cent (World Bank, 1991, p. 206). Living standards have also improved mar- kedly. Per capita incomes, which grew at an average rate of only 4.4 per cent per year from 1952 to 1978, grew at an average rate of 13.1 per cent per year during the 1980s (Webb and Tuan, 1991, p. 367).

THE NEED FOR ADMINISTRATIVE REFORM

In China, organizational overlapping, unclear jurisdictions, overstaffing and so forth, often the product of bureaucratic inertia, have impeded the activities of government at both the central and local levels.

Examples of these problems abound. In 199 1, for example, at least seven agencies


within the State Council were responsible for agriculture and rural development: the Ministry of Agriculture, the Ministry of Forestry, the State Administration of Land Management, the Ministry of Water Conservation, the Ministry of Commerce (which marketed agricultural products), the Supply and Marketing Cooperatives (which market agricultural inputs, such as fertilizer, and which are affiliated to the Second Ministry of Light Industry) and the Ministry of Light Industry (which was responsible for food processing). This list does not even include such key actors as the banking network. Similar overlapping and confused resonsibilities existed in other areas in 1991, such as environmental protection and urban planning (UNDP/ MDP Mission, 1990). These problems indicated a need for administrative reform.

China’s economic development since 1979 has produced additional pressure for administrative reform. One of the consequences of China’s economic reform has been recurrent government budget deficits, which, in turn, have encouraged cost- cutting. Not surprisingly, attempts to streamline government have generally followed years of relatively large budget deficits or years of rapidly growing deficits. In 1982, for example, after recording huge deficits in 1979 and 1980 (of 17 billion yuan and 12.7 billion yuan respectively), the authorities attempted to streamline central government. Similarly the growing deficits of 1986 and 1987 were followed by the 1988 government streamlining exercise.

The gradual move toward a market economy in the 1980s also required rethinking the functions of government. Bureaus charged with central planning, for example, became increasingly redundant as the scope of planning shrank. New agencies were required that could manage the economy using market mechanisms through the banking and taxation systems. Consequently, beginning in 1988, the central theme of government restructuring became changing the functions of government.

The increasing complexity of managing a large market economy also revealed the need to improve the quality of government decision-making. This could be done through decentralization to those who had the best information to make decisions about the economy, especially to local governments and producers and consumers themselves. Improving the quality of decision-making also meant raising the standard of the cadre corps, by increasing educational levels, imposing retirement ages and managing personnel more effectively.

Since at least 1980, China’s paramount leader, Deng Xiaoping, has recognized the need for administrative reform. His call for reform of the party and state leadership system in 1980 put reform of public personnel administration firmly on the agenda (Deng, 1984, pp. 302-325). Deng has also pushed administrative reforms in other areas, such as streamlining party, army and government organizations (Deng, 1984, pp. 374-179).

The perceptions of central leaders of the need for administrative reform and the content of the reforms has undoubtedly evolved during the reform era. Although in the late 1970s and early 1980s calls for administrative reform routinely included provision for some degree of decentralization (Beijing Review, 1980, pp. 20-24), by the late 1980s many central leaders no longer saw the need.

The explanation offered by Politburo member Song Ping of the need for government restructuring in 1988, for example, said nothing about the issue. Rather Song focused on the needs to separate government and enterprise functions, strengthen macromanagement of the economy, curb the rapid expansion of government agencies and improve the quality of government personnel (Song, 1990, p. 7). Song’s views

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reflected the fact that substantial decentralization to local governments of powers to manage the economy had already occurred.

The perceptions of local government leaders of the need for administrative reform have also changed during the period. For example, local leaders have begun to question the need for the central government to fix local organization structure and establishment as traditionally has been the practice. By implication, local governments, which are in tune with local needs, are best suited to determine these matters. If rich provinces, such as South China’s Guangdong province, need more officials and can afford to employ them, local leaders argued, Guangdong should be able to do so, irrespective of central policies that call for nationwide streamlining (Chen et.al., 1992, p. 462464). Clearly, central and local governments sometimes held different perceptions of the need for, and content of, administrative reform.

THE REFORMS

Since 1980, the Chinese government has designed policies for three broad types of administrative reform: decentralization, organizational restructuring and civil service reform. Each of these policies is discussed in turn.

Decentralization

During the 1980s, the Chinese government adopted policies to decentralize public finance, foreign trade, the management of the domestic economy and personnel administration.

Beginning in 1980, after several years of experiments, China devolved management of financial revenue to provincial governments (Shirk, 1990, p. 230). In particular, the central government began signing revenue-sharing contracts with provincial governments. Because this policy enabled provincial governments to bargain over their remittances to the central government, the reform increased the power of provincial governments substantially. Provincial governments with a strong potential for economic growth, such as Guangdong Province, were able to limit their contributions to the centre during the early 1980s.

To compete more effectively in overseas markets, the central government decentralized the management of foreign trade. Beginning in 1978, the government ended the Ministry of Foreign Trade’s monopoly of foreign trade, which it had exercised through nine state import-export corporations (Kueh and Howe, 1984, p. 829). The central government authorized local governments and various state agencies to sign foreign trade agreements directly (Endean, 1991, p. 744). Consequently, the number of import-export corporations, mostly operated by local governments, grew to over 1000 in 1984 (Sung, 1991, p. 40) and were estimated to number more than 10,000 in 1993 (Sung, 1993, unpublished talk at Hong Kong University). In 1984, when the government opened 14 coastal cities and Hainan Island (later Hainan Province) to foreign investment, local governments in these areas set up vast networks of their own foreign trade companies.

Guangdong and Fujian Provinces, on China’s southern coast, have benefited most from policies of administrative decentralization. Beginning in 1979, the central

China’s administrative reforms for a market economy 35 1

government forged a new relationship with these provinces that gave them much more autonomy over their own development plans and permitted the provinces to retain substantial amounts of foreign exchange earned through foreign trade. In 1985, Guangdong was granted even more autonomy, which included the authority to approve capital construction projects under 200 million yuan, establish its own financial institutions and issue bonds overseas (P.T.-Y. Cheung, forthcoming). These powers were further expanded during 1987-88.

Although Guangdong and Fujian Provinces have been the principal beneficaries of administrative decentralization, local governments nationwide have gained power at the expense of the centre. The new power of China’s local governments was based in part on their control over a significant share of industrial production. By 1988, non-state-owned enterprises, controlled mostly by local governments, produced one- third of the country’s industrial output (Zinser, 1991, p. 117). Also, by 1988, local governments controlled significant amounts of producer goods (54 per cent of coal output, more than half of steel output and more than four-fifths of cement output were distributed outside of the central plan) (Zinser, 1991, p. 117). In addition, local governments had their own means of earning foreign exchange and controlled China’s system of tax collection. As a result, control over the economy during the 1980s and early 1990s shifted from the centre to the provinces.

Finally, to assist local officials to implement reform policies, in 1984 the Chinese Communist Party decentralized control of personnel administration. The reforms changed the previous practice of territorial party committees selecting leading personnel two administrative levels below to a system in which they selected leaders only one administrative level below. At the same time, authorities gave provincial party committees more authority to appoint and transfer leading personnel under the nomenkZatura system (Burns, 1987).

The trend toward greater administrative decentralization has, however, been punctuated by periods of recentralization. In 1980-81 and 1988-90, for example, authorities reacted to the economy overheating and relatively high rates of inflation with measures designed to curb spending on capital construction projects, reduce credit, restrict the money supply and increase remittances from the provinces to the centre. In 1990, the central party also partially recentralized control over personnel selection by extending its control to prefectural level in some cases. These policies temporarily stalled economic growth but did not fundamentally reverse the long-term secular trend toward greater decentralization.

Government Restructuring

Administrative reform in China has involved two types of government restructuring. First, reforms have involved streamlining or downsizing government agencies, prin- cipally to cut administrative expenses and to rationalize government functions by, for example, eliminating duplication. Second, in the late 1980s and early 1990s, government restructuring involved changing the scope and functions of government through expansion of some agencies and contraction of others.

In the major organizational reforms of 1982, 1988 and 1993, streamlining was a major objective. In 1982, for example, authorities reported that they cut the number of State Council agencies from 100 to 61 and the number of employees from 51,000 to 30,000 (J. P. Burns, forthcoming). In the 1988 restructuring, officials reportedly

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reduced the number of ministries and commissions from 45 to 41, the number of directly subordinate bureaus from 22 to 19 and the number of State Council employees from about 50,000 to 44,000 (UNDP/MDP Mission, 1990).

In 1993, authorities also plan substantial cuts. According to the plan, the number of ministries and commissions will be cut from 42 to 41, the total number of agencies of the State Council will fall from 86 to 59 and the number of ad hoc organizations will fall from 85 to 26. From 20 to 25 per cent of personnel will be made redundant in the process, which, over the 3 years of the plan (1993-95), should amount to about 2 million people (Wenhui bao, March 15, 1993). Many of these cuts will be made at local level. According to the 1993 plans, during the next 3 years authorities plan to cut 20 per cent of personnel at provincial level, 31 per cent at prefectural level and 21 per cent at county level throughout the country.

Authorities have pledged that no staff will be made unemployed as a result of the current round of restructuring. Rather they will be absorbed by service units (shiye danwei), such as research institutes, schools and hospitals attached to government agencies; economic enterprises, many of which have been set up by government agencies; or local governments; or sent for retraining, asked to retire or encouraged to find jobs in the growing private or joint-venture sector, that is to ‘drop into the sea of commerce’ (South China Morning Post, March 25, 1993).

Most State Council agencies have set up service units to support government activities. By 1991, for example, the State Planning Commission was reported to have set up eight research institutes, three training centres, two publishing houses and an information centre. The Ministry of Agriculture had 64 such establishments, while the Ministry of Machine Building and Electronics had 114 such organs (State Organization and Establishment Committee General Office, 1992). That is, each of the 42 ministries and commissions controls a network of service units to which surplus administrative staff can be transferred.

In June 1993, authorities reported on the use of corporations set up by government agencies to absorb excess administrative staff. For example, in the creation of the new Ministry of Domestic Trade from the former Ministry of Materials and Equip- ment and the former Ministry of Commerce, the Ministry of Materials and Equipment shed two-thirds of its employees, many of whom were expected to take up positions in one of the 40 companies previously established by the Ministry. Many of the several hundred employees who lost their jobs at the former Ministry of Commerce as a result of the merger could take up positions in one of the 23 companies set up by the former Ministry (Wenhui bao, June 27, 1993). Local governments have also been quick to set up companies to absorb excess staff (Wenhui bao, May 4, 1993, and November 7,1992).

Reformers also expected that excess staff could be absorbed by the private or joint-venture sector, which has expanded rapidly in the 1980s. The Ministry of Person- nel, for example, estimated that in 1992, before government streamlining moved into high gear, more than 120,000 government officials had already resigned their positions to go into business. They tended to be the most junior employees, who had yet to qualify for housing and other benefits ( Wenhui bao, June 20, 1993).

Streamlining has been only one aspect of the government’s efforts to restructure, and, as the above discussion indicates, has not been particularly effective. The 1980s have been punctuated by cycles of rapid, expansion, cuts, rapid expansion, and more cuts. Of more significance has been the leaders’ attempts to change the functions


of government to suit the needs of China’s emerging market economy. Indeed, in recent years, this has been the most critical part of the reforms.

The reforms have taken several forms. First, they have involved strengthening the capacity of agencies charged with macroeconomic management of the economy. Within the State Council, authorities have expanded and strengthened agencies such as the State Auditing Administration, the State Statistical Bureau, the State Adminis- tration for Industry and Commerce and the State Administration of Taxation. The Ministry of Personnel, itself one of the new macromanagement agencies, was set up in 1988 from parts of the former Ministry of Labour and Personnel. In the process its establishment nearly doubled. Similar changes have been implemented at local level. Urban district governments, for example, have expanded existing agencies, such as tax offices, and set up new organizations, such as audit bureaus, to cope with the changed functions of government in a market economy (White, 1991, p. 149).

Second, government restructuring has involved removing from government many so-called ‘micro-management’ functions, and turning them over to economic enterprises. Recent policies have given state-owned enterprises more autonomy to set prices, make personnel decisions, determine investment plans, borrow, design marketing strategies, and engage directly in foreign trade (Wu, 1992, pp. 13-17), all functions previously performed by various government agencies. The reforms seek to remove these functions from government departments.

Third, the reforms have sought to increase administrative efficiency by incorpor- ating some government agencies. In the 1988 reforms, for example, the Ministry of Petroleum became the National Petroleum Corporation. In 1993, additional steps were taken along these lines. For example, because the Ministries of Aeronautics and Space Industry ‘had the conditions for becoming economic entities-their administrative management responsibilities were relatively small’, they have each been replaced by a corporation (Wenhui bao, June 7 , 1993). Local governments have also been quick to incorporate government functions. In 1992, for example, the Guang- zhou Railroad Bureau became the Guangzhou Railroad Corporation of a nationwide Railroad Holding Company [Tielu jituan gongsiguangzhou tielu (jituan) gongsz] (Wen- hui bao, November 30, 1992). At about the same time, Shanghai authorities also replaced the municipal Chemical Industry Bureau’s Housing Office with a corporation and replaced parts of the municipal Textile Bureau with corporations (Wenhui bao, November 7 , 1992).

However, the bureaucratic character of the new corporations may have changed very little. The new aeronautics and space industry corporations, for example, will each report to the State Council’s newly established State Economic and Trade Commission. White concludes that the new corporations in the local government he has studied continued to ‘maintain the reality of direct state control over the economy’ (White, 1991, p. 166).

A final strategy for tailoring the Chinese government to the needs of a market economy involves replacing some government departments with associations or councils (conghui). According to the 1993 restructuring plans, both the Ministries of Light Industry and Textiles Industry will become associations or councils, with duties that include ‘planning for their respective professions or trades, carrying out policy for the professions or trades (hangye zhengce), exercising macro guidance, and provid-

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ing services to economic enterprises’ ( Wenhuibao, June 9,1993). Still, the two associations will probably maintain a strong bureaucratic character.

Implementation of the latest proposals is planned to take 3 years. By mid-1993, authorities in Beijing had already begun to implement the plans for State Council restructuring. Pilot projects in local government restructuring have been under way since 1991-92 in 14 sites, including Hebei province, four large cities (Harbin, Wuhan, Qingdao and Shenzhen) and nine counties.

The key agency in charge of designing and implementing administrative reform in China is the party’s Central Organization and Establishment Committee (COEC), chaired by the Premier. In 1992, other members of the Committee included: the Secretary General of the State Council; a deputy head of the CCP Central Committee General Office; a deputy head of the CCP Central Organization Department; a Deputy Secretary General of the State Council; Vice Ministers of Finance, State Planning, State Economic System Reform and Personnel; and representatives from the National People’s Congress, Chinese People’s Political Consultative Conference, the Supreme People’s Court and the Supreme People’s Procuratorate.

The COEC assists in the making of administrative reform policy, approves central government reorganization plans, sets organizational and personnel establishment quotas for central and provincial government agencies, prepares draft administrative regulations for state institutions, vets draft local regulations of local governments and supervises a national network of local Organization and Establishment Com- mittees (OECs) which perform broadly the same functions within their jurisdictions (Ministry of Personnel Policy and Regulations Bureau, 1992, pp. 555-564).

In 1992 the day-to-day work of the COEC was handled by its General Office, headed by a Vice Minister of Personnel, which was located in the Ministry of Person- nel. General Offices of local OECs, located in local government personnel bureaus, performed similar functions. At local level, party committee organization departments were also represented on the OECs.

Although the OEC network provides leadership in the administrative reforms, it depends on the cooperation of all other government agencies for the implementation of the reforms.

Civil Service Reform

China’s administrative reforms have also focused on reform of the system of government personnel administration. From 1982, authorities began to implement a fixed- tenure system for government officials (for the first time establishing mandatory retirement ages at 60 for most men and 55 for most women), and attempted to raise their educational levels (Lee, 199 1, pp. 266-272). By the mid- 1980s, so successful had they been that younger technocrats had taken over from older generalists at both central and local levels. From 1982 to 1987, for example, the average age of ministers and governors had fallen from 67 to 59 and from 65 to 55 respectively (Lee, 1991, p. 267). From 1980 to 1984, the percentage of China’s central leadership with university education rose from 20-38 per cent (depending on the organization) to 62-83 per cent. From 1978 to 1984, at local level, dramatic increases in the number of leaders with university education were also recorded (Li and White, 1990, p. 15).

In 1987, the CCP announced its intention to reform the civil service system by


placing the country’s 4.2 million government administrators, managers, and pro- fessionals (or ‘cadres’) under a separate civil service management regime (Zhao, 1987). Although the reforms were stalled as a result of elite-level differences of opinion about the scheme that emerged in the wake of the killings in Beijing on June 4, 1989, the policy in revised form re-emerged in early 1992.

According to the 1992 version of the Draft Civil Service Regulations, the civil service system will have several features that distinguish it from current practice. First, cadres will be recruited into the service through open, competitive examinations, rather than allocated government jobs through the labour allocation system for university graduates, as has been the practice. Such a change is especially appropri- ate for an economy with a labour market. Local authorities have been experimenting with this system since 1980 (Burns, 1989, pp. 756-762). By late 1990, 35 ministries or commissions of the State Council were staffing 70 per cent of their vacancies through recruitment and examination. Most provincial-level governments were experimenting with the examinations as well (G. Dai, forthcoming).

Second, civil servants will be paid according to levels of compensation paid to managers of economic enterprises. That is, wage markets will be used to determine civil servants’ salaries, rather than national wage plans, as is currently the case. This policy seeks to redress the current situation of administrative cadres earning up to 30 per cent less than enterprise managers (South China Morning Post, April 15, 1993). According to press reports, authorities planned to raise top-level civil service salaries from about 550 yuan per month to 1200 yuan per month on July 1,1993 ( Wenhui bao, May 9,1993).

Third, the content of training for civil servants will be revamped to meet the needs of a market economy. Authorities have redesigned the curriculum of the Central Party School, which is responsible for training the nation’s elite cadres, to include courses on finance, real estate and securities and exchange markets (Wenhui bao, October 8, 1992, and March 23, 1993). As an integral part of the civil service reforms a new National School of Administration will be set up under the State Council to retrain mid-level cadres in public finance, administrative law, public policy and economics for market economies.

In 1992, authorities announced that they were carrying out trial implementation of selected civil service regulations in 20 of China’s 30 provincial-level governments (Wenhui bao, October 15, 1992). Officials were also conducting trials in six central government agencies (the State Statistical Bureau, the Environmental Protection Bureau, the Construction Materials Bureau, the Bureau of Taxation, the Customs Administration and the State Audit Administration) ( Wenhui bao, December 1 1, 1991; Burns, 1989; Cabestan, 1991; Chow, 1991; Lee, 1991). The government plans to introduce the civil service system throughout the central government in 1995 after the current round of government restructuring is complete (Wenhui bao, Sep- tember 20, 1992). It will then be extended to provincial and local government.

China’s civil service system differs in fundamental respects from those found in many western countries.

First, the scope of China’s civil service system is both narrower and broader than those found overseas. On the one hand, although white collar employees of government agencies are included within the scheme, manual workers are not. Manual workers employed by government will continue to be managed by the Ministry of Labour. On the other hand, China’s civil service system includes the top administra-

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tive positions (President, Vice President, Premier, Vice Premiers, State Councillors and all Ministers), making no distinction between political appointees and career civil servants. Earlier drafts of the civil service regulations recognized this difference, and sought to create two separate categories ofcivil servants. The 1992 draft, however, while dividing the civil service into ‘higher’, ‘middle’ and ‘lower’ categories, conceives of the service as an integrated whole.

Second, unlike the practice in western multi-party democracies, the Chinese Com- munist Party manages the Chinese civil service system directly. It appoints, transfers and dismisses leading civil servants through the nomenklatura system (Burns, 1987); it makes policy and drafts the rules and regulations on civil service management; and it supervises the implementation of all aspects of personnel policy throughout the system. That is, the Chinese civil service is not neutral-it zealously implements party policy. And political criteria will continue to play a key role in personnel decisions.

DISCUSSION

Administrative reforms are more likely to succeed if they have relatively high levels of political support, are implemented in a system with relatively high administrative capacity, enjoy internal bureaucratic support, and can mobilize popular participation in their implementation (Caiden, 1988, pp. 349-352). In some respects, these ingredi- ents are missing in China.

First, China’s central leadership has been divided on key components of economic reform. To overcome resistance to economic reform in the central government, Deng Xiaoping decentralized fiscal authority to the provinces in 1980. As Shirk points out, fiscal decentralization ‘. . . was the cornerstone of Deng Xiaoping’s political strategy to build a coalition of support for the reform drive’ (Shirk, 1990, p. 230). Grants of greater financial autonomy to the provinces gave provincial officials a vested interest in promoting further reform. This was the central theme of Deng’s strategy of ‘playing to the provinces’. However, opposition from central planners in Beijing, led by elder Chen Yun, has continued to dog the reforms since their inception.

Although central leaders undoubtedly supported government restructuring, especially streamlining to cut administrative expenses and increase efficiency, they have remained divided on the extent of the cuts and their timing. During the discus- sions about the 1993 restructuring plans, for example, Vice Premier Zhu Rongji, charged with managing the transition to a market economy, reportedly argued for ‘across-the-board cuts of nearly two-thirds of government staff (Kaye, 1993, p. 13). More moderate plans, which were adopted as official policy, emerged after fierce opposition to Zhu’s proposals.

Political support for parts of the civil service reform package has also wavered from time to time. During the early stages of drafting the policy on cadre retirement, for example, senior veteran party leaders resisted. Their ambivalence stalled the policy for several years in the early 1980s (Manion, 1992, pp. 228-229). In the wake of the crisis of June 4, 1989, senior leaders also sharply criticized former party General Secretary Zhao Ziyang’s plans for more general civil service reform. In 1990, for example, Premier Li Peng argued that Zhao’s reforms would lead to a western-style

China’s administrative reformsfor a market economy 357

civil service system, inappropriate for China. In particular, the reforms as drafted in 1987 would seriously weaken party control of the civil service (interviews carried out by author in Beijing in 1992). Disputes among China’s top-policy makers on these issues have delayed implementation of the reforms.

Although China’s administrative capacity is relatively higher than many other Third World countries, a lack of capacity has hampered implementation of administrative reform. For example, decentralization empowered local governments without at the same time increasing their capacity to use their new powers effectively. The local banking system is a case in point. Although decentralization gave local governments considerable authority to invest in capital construction projects and in other areas, the reforms did not strengthen the capacity of local banks to make loans based on creditworthiness and profitability. Consequently, credit has tended to be made available locally for political reasons. To be sure, in some cases, such as in South China’s Guangdong and Fujian Provinces, and in the country’s special economic zones, the capacity of government to manage the economy has increased substantially (Cheung, forthcoming). In other cases, however, decentralization has led to massive corruption (Lo, 1993, pp. 58-69) and the misappropriation of government resources.

Effective streamlining requires that the economy has the capacity to absorb redundant staff. China’s relatively high rate of growth during the reform era has meant that the country has a better chance of making real inroads on overstaffing than previously. However, to be successful, cycles of economic expansion should be sequenced with the downsizing of government agencies. China’s 1988-89 restructuring attempt failed in part because it was followed by a contraction of the economy to curb overheating and high rates of inflation. The 1993 restructuring proposals could face the same fate.

China’s plans for civil service reform have involved substantial demands on the treasury. The cadre retirement policy, for example, called for the two million retirees who began work before 1949 to receive pensions at 100 per cent of their salary level just before they retired (Manion, 1992, p. 234). This policy has produced an enormous strain on state resources. Wage reform for civil servants, an integral part of the more general civil service reform package, will also place great burdens on the state treasury when it is implemented. These burdens come at a time when the capacity of the central state to raise revenue is much reduced.

Bureaucratic support for administrative reform is crucial for its success. Clearly, provincial bureaucracies had much to gain from decentralization, and undoubtedly they supported the move. Central bureaucracies, however, especially the planning and finance bureaucracies, such as the State Planning Commission, the Ministry of Finance and the People’s Bank of China (the central bank), have lost power in the reforms and may have opposed them.

Bureaucratic opposition to government restructuring is easier to document. When the National People’s Congress discussed the 1993 reform plans, for example, relatively high levels of opposition emerged. Indeed, over 19 per cent of the delegates to the usually docile ‘rubber-stamp’ legislature either abstained, voted against or absented themselves from the vote on the proposals (Kaye, 1993, p. 13). Some argued that the cuts were too little, others that they did not go far enough. Some pointed out that the arrangements made for those made redundant by the plans were inade- quate. Others wanted more information on wage increases for those who remained

358 John P. Burns

in their positions to compensate them for their extra workload (South China Morning Post, March 23, 1993).

Cadres have devised a number of coping strategies to facilitate the transition envi- saged by the restructuring proposals. One of the most popular involves government officials wearing two hats. Without leaving their government positions, some officials have taken leading positions in economic enterprises. The practice became so wides- pread that in March 1993 Vice Premier Zhu Rongji criticized vice ministers and deputy bureau chiefs who used structural reform to become managing directors of companies established by their own government agencies without first retiring from their positions (Wenhui bao, March 6, 1993). By using their official position they were in an excellent position to benefit the enterprise. In 1992-93, confusion about China’s official policy in this area permitted the problem to grow (South China Morning Post, May 4,1993). The reaction of Chinese cadres to government restructuring, on the one hand, and calls for officials to ‘drop into the sea of commerce’, on the other, produced a hybrid Chinese-style bureaucratic capitalism. These prac- tices were not so much evidence of opposition to government restructuring as an unintended consequence of unclear or contradictory government policy on the matter.

Bureaucratic opposition to civil service reform has centred mainly on cadre retirement policy. Before incentives to retire were in place, many cadres of retirement age passively resisted the policy (Manion, 1992, p. 235). Later, faced with no option but to retire, retirees bargained for special treatment, such as better housing, a pre- retirement salary raise or for employment for a son or daughter (Manion, 1992, p. 236). Many cadres were dissatisfied with the gap between levels of compensation offered to retirees based on whether they started work before or after the founding of the People’s Republic of China in 1949 (Manion, 1992, p. 238). Those who ‘joined the revolution’ before the party came to power, received a pension at least 25 per cent higher than those who started after 1949.

The popular reaction to administrative reform can facilitate or hinder reform, even in a relatively closed political system such as China. Decentralization and the drive for a market economy gave local governments much more power to manage the economy. In their drive to make economic enterprises more competitive, they sometimes fired or redeployed workers, actions that are never popular. Because China does not have a system of unemployment insurance, workers have a real fear of losing their job. In addition, new quasi-state companies established by local governments sometimes took harsh measures to become more competitive, such as displacing workers from company-owned housing, which sparked popular opposition (South China Morning Post, July 1, 1993).

Although government restructuring is probably popular, some of its side-effects, such as increasing official corruption and abuse of power, are not. Opinion surveys carried out in the 1980s have consistently reported high levels of popular dissatisfac- tion with official corruption (Institute of Social Research, 1988).

For civil service reform to be successful, the general public must be attracted to apply for government jobs. Recent experience with trial application of recruitment and examination systems in China indicates that there is no dearth of applicants (Dai, forthcoming). Still, the prestige of administrative cadres is probably lower now than at any time during the history of the People’s Republic of China except during the Cultural Revolution. The values of the 1980s and 1990s encourage people, including civil servants, to go into business (that is, ‘to become rich is glorious’).

China’s administrative reforms f o r a market economy 359

CONCLUSION

Although the impetus for reform in China initially came from domestic sources, because the reforms have resulted in the integration of the country’s economy with the world economy, external factors have put pressure on the country’s public institutions. Consequently, to become more competitive, China’s leaders have undertaken further economic and administrative reform. As we have seen, the decision to adopt an aggressive export-oriented development strategy prompted a fundamental decentralization and reorganization of China’s foreign trade system. The links between economic reform and public administration are clearly demonstrated. China is likely to successfully undertake further administrative reform only after the market economy has been established and the country has achieved new levels of wealth.

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