Rising concerns about the blow-out in government expenses in China echo the causes behind the collapse of the North Song Dynasty more than 1000 years ago
Western businesspeople are used to claiming expenses: while it is not universal, the costs of travel and daily necessities for work are often covered by employers rather than individuals. This is a generally accepted state of affairs, but the public is aware that sometimes these claims can go too far: the case of the claim by the former Speaker of the Australian House of Representatives, Bronwyn Bishop, for a helicopter trip provoked great public criticism last year.
However, this type of expenses has led to a serious economic problem in China, which may have far-reaching economic consequences.
Chinese government employees receive relatively low wages. The average salary of young government employees in Beijing is ¥4530 (A$940) a month, considerably lower than Beijing’s average per capita wage, ¥6463 (A$1400), and arguably insufficient to meet the increasing costs of living. Despite this, government positions are still highly sought after: the number of candidates for the civil service examination has leapt from 4,400 in 1994 to 1.52 million in 2014.
Why are government positions so popular when officials’ pay is so low? The secret is the government personnel allowance system, or GPAS. Government employees receive many allowances and opportunities unavailable to those in the private sector. These can include subsidised housing, free medical care, drivers and cars, overseas travel and, most infamously, food. The rap song “Reimburse That $h*t!“, performed in Mandarin by an American, has gone viral across China. It suggests that Chinese employees and officials constantly abuse reimbursement to impress women, improve their social status, and make up for their low salaries.
The spate of incredibly elaborate banquets, held for government personnel at public expense, has become infamous across China. A proposal submitted at the 11th National People’s Congress in 2012 estimated that there are 300 million official banquets a year, more than 820 thousand banquets a day. Public expense on official hospitality increased from ¥37 billion (A$7.84 billion) in 1989 to ¥300 billion (A$63.6 billion) in 2012, more than twice the amount the government spends on defence. A survey conducted by the National Bureau of Statistics in 2012 suggested that, on average, a city mayor attends 15.1 banquets a week and a county magistrate 18.2 banquets a week— more than three banquets each working day.
The obvious waste of funds on such events—particularly in a context where living costs are increasing and where the cost of health care and education is increasingly transferred to individuals—has provoked a great deal of public anger and calls for reform. The phrase ‘four dishes and one soup’—an exhortation for officials to eat simply which dates to the Ming Dynasty—has been widely promoted by the central government since 2013. The meal that President Xi Jinping shared with Barack Obama took this form—albeit with elaborate dishes and expensive wine.
Although the central government’s disdain for extravagance, and ‘corruption’ more broadly, has been made at least superficially obvious, reforms to the GPAS have been extremely difficult to implement. The case of reforms to the official vehicle scheme is instructive. The cost to the public of official cars, drivers and car maintenance has become extremely high—approximately ¥300 billion since the late 1990s. This is partly because vehicles are used for personal affairs as well as work; partly because there are very few limits on budgets, leading to the purchase of luxury cars; and partly because of misuse of the system, for example excessive claims for maintenance costs.
Occasionally egregious cases of misuse of funds are identified by the state, and the perpetrators strongly punished: Geng Guangli, former vice-chancellor of Kaifeng University, was sacked from his job and expelled from the Communist Party after spending ¥60,000 (A$12,875) on trips to Hong Kong and Macau. But punishment is the exception rather than the rule; broad and far-reaching reform programs are needed to deal with the problem.
Reforms to the official vehicle system have been attempted since the 1990s. Ideologically they have been partly characterised by neoliberal principles: marketisation, where governments have progressively reduced direct provision of vehicles and driver services by outsourcing the services to the market, and monetisation, in essence the conversion of the form of welfare from cars and drivers to cash allowances. These principles, which are characteristic of Chinese political ideology after the reform period, clash awkwardly with other political motivations dating from the Mao period, in particular the traditional emphasis on the state as a provider of all welfare services (the so-called iron ricebowl).
Furthermore, many other factors hinder reforms to the GPAS: the absence of reliable regulatory and law enforcement structures that can be applied to government personnel (that is, the absence of rule of law); the political and social culture in which conspicuous consumption is seen as crucial to individuals’ status; and, perhaps most importantly, the high level of economic independence that local governments have, leading to their reluctance to implement orders from the centre.
History demonstrates that the long-term effects of excessive spending on government employees’ allowances can be very serious.
Collectively these factors mean that reforms to the official vehicle system have been sporadic and shortlived. In some cases, such as in 2009 in the city of Hangzhou, market-based reforms cut the cost of vehicle provision by 38 per cent in three months—but these successful reforms were applied only to certain government units, presumably because of pressure from local officials to stifle the reforms. In larger cities where officials have greater wealth and authority, the reforms have made the situation even worse: the use of the market has led to the purchase of increasingly expensive cars and cash allowances have become exorbitantly high. In Shenzhen the monthly travel allowance is ¥6800 (A$1410), four times more than the recommended national standard and more than most people’s regular salary.
In the public eye these reforms are referred to as ‘a gust of wind’ (yi zhen feng)—promoted vigorously, and sometimes with immediate positive effects, but leading either to stagnation or further damage in the long term. However, history demonstrates that the long-term effects of excessive spending on government employees’ allowances can be very serious.
A useful historical comparison is the period where the emperor Renzong ruled the North Song Dynasty (1022–1063 CE). Like today, China under Renzong was wealthy, technologically advanced and particularly focused on trade and commerce. More specifically, the Renzong government also employed large numbers of government personnel and provided them with generous allowances. Furthermore, just as in modern China, although revenue increased in the Renzong period, the cost of the GPAS put great financial pressure on the government. The GPAS also led to high levels of corruption.
Historians commonly accept that the Renzong period began the decline of the North Song, and that this process of decline was closely linked to the government’s lack of financial stability. In spite of the government being aware of the problem and proposing reforms, these were implemented slowly and in a limited fashion. Tax levels consequently increased, and it was peasants who increasingly bore the majority of the increasing tax burden. This created greater levels of dissatisfaction and led to peasants opting out of the tax system entirely, causing a decline in agricultural production and increased social unrest in the late stages of the North Song—and ultimately being a factor in the dynasty’s loss of territory in northern China.
This parallel should be a sobering lesson for the Chinese party–state. But while it should be conceded that the government is working hard to address corruption, with increasing transparency of budgets being an encouraging first step, long-term successful reforms to the GPAS can only be achieved when a mature legal system and effective social supervision exist in China. When the media is prevented from identifying abuses of the GPAS, and when courts and laws do not effectively target and punish offenders, the damage from this economic epidemic will likely worsen, and ultimately weaken China.