Washington, DC: International Monetary Fund, 2017. xvi, 372 pp. (Tables, figures, boxes.) US$38.00, paper. ISBN 978-1-51353-994-2.
We know a lot about the effort China has put into creating hard infrastructure over the last three decades since the reform process started, with studies of its railways, roads, and energy systems. But since 2013 the Xi Jinping administration has set its sights firmly on creating a middle-income, more service-sector orientated, higher consumption economic model that will need institutions, regulatory frameworks, standards agencies, and a host of other entities under the purview of what the International Monetary Fund calls “soft infrastructure.”
China knows how to build high-speed train links and physical infrastructure better than any other country on earth. But reforming its tax system, constructing a workable and fair pension system for its emerging middle class, modernizing its administration, and generally upgrading the way in which it manages and governs itself are far harder goals. Part of this, as several of the book’s chapters make clear, is because of the ongoing tensions between the centre in Beijing and the provincial regions across the country. The mismatch between the revenue of local government and their spending obligations is a recurrent theme indicative of this tension, along with the ways in which in recent years raising of bonds, rescheduling of debt, and land sales have all been used to try and address the shortfall, all with varying but limited levels of success. The bottom line remains a political one, however, with Beijing resistant to empowering provinces to such an extent that they become too strong and start thinking they can push back.
The chapter on tax is illustrative of just how much of a mountain China still has to climb. From the era of Maoist statism, during which tax was simply an abstract notion, the country now has a complex system of personal, corporate, and consumption tax, with a national network of over 100,000 offices and personnel involved in making sure that it is paid. Tax merits close attention, despite its highly technical nature. This contribution doesn’t spell out the specific reasons for this: the ways in which it directly impacts on people’s wealth and their sense of justice in a particular society. But this study makes clear that a central office staffed with only 800 people trying to direct this whole mammoth exercise, the continuing divisions between provinces and the ways they collect some taxes, and the problem, shared with many other countries, of how to deal with the mega-wealthy are all massive structural issues that need to be urgently addressed.
A similarly daunting set of challenges is presented in the chapter on pensions. China faces a rapidly ageing population. Its current system, in which there are three broad groups of pension provision, from retired state enterprise employees, to those from rural areas, and those who worked in the public service apparatus, is once more fragmented across provinces. One of the key policy recommendations this book gives is simply to raise the retirement age, to as high as 67. We are used to viewing the Chinese government as all-powerful and highly coercive. It seems however that even in as simple a remedy as this, it fears angering its citizens, and as yet, no moves have been made to raise these age limits.
Across the areas of budget planning, fiscal administration, and even into the realm of internationalization of the Chinese RMB, a matter on which there are two detailed, very helpful chapters, one consistent theme sticks out: the need for China to have stronger institutions. Once more, the image of the unified Party state under Communism grates against the reality this book illustrates: of a country undergoing immense transformation and needing more and more sophisticated finance and bond markets, regulatory procedures for dealing with state enterprises and the private sector, and a means of allowing Chinese currency a greater international role without this being disruptive, but which currently simply lacks the administrative and institutional wherewithal to properly address these issues.
A critical reading of this book would need to recognize the immense amount of data that it contains. The 350-plus pages of text are littered with graphics, bar and pie charts, and lists of information. The book’s various authors have a huge amount of knowledge about the areas they address. Despite this, there is a sneaking suspicion that this work, while probably right on one level in most of its prescriptions, simply ignores the huge political impediments that stand in the way of many of the reforms its recommends. A unified national pension system makes great sense, for example. But it would also create a vast potential empire of vested interest. And the issues over tax reform have lurking behind them, as stated above, the age-old battle between the centre and Chinese provinces. Chinese attempts to set up more rational systems for its finance sector are only happening in a context where rule of law and freedom of information exist within tight parameters. The Chinese attempt under the Communist Party to create its own indigenous, hybrid system, but one where the Party maintains its supremacy, looks even stronger under Xi Jinping than his predecessors. And one can imagine the bureaucrats in Beijing in particular, who are the target of most of the advice offered here, appreciating the work’s deep knowledge of their system, but dismissing it for its over-rational disregard of the very specific political context in which they are endeavouring to build what they call “socialism with Chinese characteristics.”
Kerry Brown
King’s College London, London, United Kingdom