China's Dual-finance Structure In The Process Of Economic Transition

Since 1978 China has been transforming its economy from the planning system to the market-system. With the long-run rapid economic growth, the government revenue and expenditure became diversified. The in-budget finance became more and more difficult, meanwhile the government revenue and expenditure without effective formal budget supervision expanded greatly. To inquire this kind of situation of government revenue and expenditure, including its features, causes, effects and countermeasures, this disertation constructs a dual-finance framework, in which we take the in-budget finance as the formal finance and the other government revenue and expenditure as the informal finance(including the ex-budget finance and the ex-institution finance ). The research on the dual-finance structure has great significance in theory and practice for understanding China's economic transition and growth. The formal finance is the unified, conformed and legal budget institutional arrangement led by the state. But,the informal finance is the separated, random and without order led by local government and its non-finance departments. Since adapting the reform and opening, the ratios of formal fiscal revenue/GDP and formal fiscal revenue/total fiscal revenue have decreased continuously, and the ratios of informal fiscal revenue/GDP and informal fiscal revenue/total fiscal revenue have increased continuously. Although this situation haven't changed till the beginning of the 21century, the ratio of total informal revenue/GDP is still about 25%. So, we could not neglect the significance of the informal finance in the economic transition, and also could not simply approach its complicated causes. The basic background for the causes of the dual-finance structure is that, with the background of long-run high-speed economic growth, it is an institutional phenomenon, and is the inevitable consequence or cost of the gradual economic transition and fiscal reform led by the state. So, the informal finance is the twin of transitional institutional arrangement of the formal finance. There are some factors totally leading to the continuous revenue-expenditure gap of in-budget finance for all level governments, including the initial condition and essential cost of the gradual transition, political and financial decentralization lagging behind of the economic decentralization, fiscal expenditure reform lagging behind of revenue reform and so on. To fill in the gap of the in-budget finance, all level governments and its departments are forced to expand different kinds of non-taxes to collect revenue. So, the informal finance comes into being, which can be viewed as an informal innovation to supplement finance institution. It swell and deteriorate with those factors, which are economic resources controlled by administrative power without effective supervision, the intensive maximize-budget motive of all level governments, the administrative charging management system and some other problems. This disertation analyses the positive and neglect effect of the informal finance. The informal finance plays an important role to remedy the gap of in-budget finance and to some extent to remedy the lack of sovereign for local finance. The relative decreasing of the formal finance is the cost of economic transition, and the increasing of the informal finance is the essential supplementary to the in-budget finance. It makes that China can successfully realize economic decentralization without the conformed fiscal decentralization which is adopted by the Western market-economies. So, it stimulates local government forming effective competition to promote local development. But with the deepening of transition, the negative effects of the informal finance have increased, such as damaging revenue system, harming the capacity to manage macroeconomy of all level governments, breaking up fiscal function, deteriorating government behavior and resources allocation and revenue distribution, hindering social equality and justices, and so on. Therefore, it is urgent to transform the dual-finance structure and conform the finance institutions. The author designs some countermeasures to transform the dual-finance structure, In his view, the essence of transform the dual-finance is to be compatible to establish a democratic, equal, united, standard and effective modern public finance institution. Therefore, firstly we must fasten political reforms, especially transforming government functions, regulating administrative mechanism and compressing government scale and gradation to create conditions for conforming finance mechanism. Secondly, in order to thoroughly reduce fiscal burden, we ought to set reasonable boundary of fiscal function and expenditure. Thirdly, we should establish modern tax revenue regulations and public non-taxes regulations, to thoroughly standardize the relationship between taxes and non-taxes, and improve all level governments' fiscal ability. Fourthly, in order to thoroughly relief finance difficulty of local governments, to realize equally supply of public service for different area (urban or rural), we should modify tax-sharing regulations and clarify finance relationship between governments of all-lever (vertical and transverse). Finally, to establish democratic, equal, united, standard and transparent modern budget system and effective modern budget management system, we should take all government revenue and expenditure into unified budget management system to improve finance efficiency.