China: breaking down financial walls

Tags: | | | | | .

As China undergoes a once-in-a-decade leadership change, what are the chances of it opening the books and promoting greater fiscal transparency? The power of social media is pointing the way

In the past four years, the Chinese government has made unprecedented efforts to implement public access to financial information. This new policy of government fiscal transparency is part of a larger project of public disclosure of government information. The policy basically revoked the long-standing state secret status of government financial information contained in annual government budgets and year-end financial reports.

Under the direction of the Chinese Communist Party and with the encouragement of the National People’s Congress (the Chinese parliament), the State Council (the cabinet) took a major step in 2007 to lift the veil of secrecy over a wide range of government information. The release of financial information is the centre-piece of this new policy initiative. Under the leadership of outgoing Premier Wen Jiabao, the pace of implementation has accelerated in the past two to three years through a series of administrative directives. It is noteworthy that in addition to releasing official government finance statistics, the spotlight is on the so-called san gong jingfei (literally ‘three public expenditures’) for official cars, receptions and travel.

These hotbeds of waste and abuse, as well as outright fraud, are targets for public outcries against official corruption. They are also the subjects of investigations by the National Audit Office, whose reports over the past dozen years have kicked up annual ‘audit storms’. Since virtually all of this information is usually communicated in the Chinese language only, these ‘dirty linens’ are effectively shielded from the outside world. Similarly, the new fiscal transparency policy has also drawn little international attention.

However, the new policy initiative on fiscal transparency has had a major impact on government in China, as well as on the Chinese public. The new transparency initiative is taking place within the established framework of accountability in the Chinese government. The CCP, as the governing party, effectively controls the executive departments and the NPC. The Chinese People’s Political Consultative Conference, consisting of a broad range of political parties and groups, accepts the dominant role of the CCP and provides advice on policy matters. This structure is replicated at the provincial and municipal levels of government.

In the fiscal policy and management area, until just over a decade ago, the government provided only brief information about the budget and final accounts to the NPC for pro forma approval and to the CPPCC for expected endorsement during meeting sessions, and collected the documents afterwards.

With the implementation of departmental budgeting, government budgets are now more informative, and the NPC and CPPCC are playing a more active, but still limited, role in holding the government accountable. In contrast to weak legislative oversight over the executive, the State Council has direct control over central government departments, and the central government effectively has control over provincial and local governments. Consequently, the State Council’s new fiscal transparency requirements were duly implemented in those departments and by government units throughout the country. This has resulted in a remarkable increase in the amount of financial information that is publicly available. For example, the Chinese Ministry of Environmental Protection has posted the following financial overviews under the heading ‘electronic government’ on its website:

•2012 departmental budget.

•2011 departmental budget.

•2010 departmental budget: explanation

•2010 final departmental accounts.

•2010 ‘three public expenditures’ spending.

This is testimony to the statement that if there is strong political will in China, then there is a way. As well as more information being published using existing channels, unofficial internet-based social media in China are also spreading financial data.

The Chinese public used to receive virtually all government information through the official mass media—newspapers, radio and television, and now the internet. They still do, as the government still uses these media to disseminate official information, such as the Finance Minister’s annual budget proposal and budget execution report, and the Auditor General’s annual departmental audit reports, both to the NPC.

However, in the past few years, privately-owned internet-based social media have begun to play an active role in rapidly spreading government financial information. The government has sought to capitalize on this development. For example, in his report on government performance to the NPC in March 2010, Premier Wen appealed for the creation of ‘conditions for people to criticize and oversee the government, giving full play to the oversight role of social media, and let power be exercised in the sunshine’. The People’s Daily, the CCP’s party newspaper, published an article in January 2011 stating that ‘if the media find and disclose government’s improper behavior, the government should be held accountable’.

Once financial information is published by the government, the media effectively take over by disseminating and commenting on it. In 2009, as a first in China, the Guangzhou Municipal Government disclosed the budgets of its departments on its official website. Immediately, the Yangcheng Evening News, Southern Metropolitan Daily, Xinhuanet and other media paid sustained attention to this newsworthy development. They seized particularly on the revelation that large financial subsidies were being paid to kindergartens for government officials’children. Widespread critical commentaries finally forced the government to promise that the government kindergartens would be open to the general public.

According to the China Internet Network Information Centre, there were 513 million internet users in China at the end of 2011. The popularity of the internet in China has spurred the rapid expansion of portals, forums, microblogs/micro-posts, blogs and other means of interactive communication.

Faced with this competition, newspapers and other traditional media also try to take advantage of the internet by promoting their services and products online. The old and new media reproduce and quote each other, contributing to an exponential growth in the social influence of unofficial media. The general public now has rapid internet access to information put out by the government and can express their views on current affairs freely on microblogs, blogs or forums, and even criticize government actions. In short, the growth of the internet in China has greatly expanded the feedback of public opinion to the government.

In addition to improving access to government financial information, the internet-based social media has also sought to make the information easier for the public to understand. They invite government officials and independent experts to simplify and explain government finances to the hundreds of millions of ‘netizens’—internet citizens. Since the profitability of the websites depends on their popularity as evidenced by their number of ‘hits’, internet providershave an incentive to make their view of government financial information as entertaining and provocative as possible.

Consequently, the social media end up promoting government fiscal transparency and exposing fiscal policy and performance to widespread public scrutiny. They provide a forum for political participation and a safety valve for releasing social tensions that result from inequality despite China’s general economic prosperity after 30 years of reform.

Apparently pursuing a strategy of ‘if you cannot beat them, join them’, CCP leaders and senior government officials have embraced the new form of public relations in the internet age. Some of them, including Premier Wen and provincial party chiefs, have conducted well-publicized and well-attended online dialogues with netizens.

According to Xinhuanet, by the end of 2011,32,358 microblogs by the CCP and government departments, including 18,203 party leaders’ and government officials’ microblogs, were registered with four major microblog websites (Sina, Tencent, People’s Network and Xinhua). The year 2011 was dubbed ‘first year of government affairs microblogging’ in China.

Reversing a decades-long practice of secrecy over government financial information, the Chinese government has opened its books to the public. In addition to continuing to provide information through official channels to government bodies and political institutions, Chinese government departments have taken to the internet to disseminate financial information to the public. Hundreds of millions of Chinese netizens now have access to this information, and many use it to complain about official corruption. What effect this public feedback will have on government policy and official conduct remains to be seen. However, we predict that once the books of the government are opened, it will be impossible to close them again.

Qi Zhang is associate professor of accounting at Zhongnan University, China.  James L Chan is professor emeritus of accounting at the University of Illinois, Chicago, and is a distinguished overseas professor at Peking University. This blog is based on an article due to be published in CIPFA’s Public Money & Management (Vol 33, No 1, January 2013), see www.tandfonline.com/toc/rpmm20/current for more information and CIPFA member discounts

Comments

Your email address will not be published. Required fields are marked *