The Analysis And Measure Of China’s Economic Efficiency Loss Under The Shareholding System Reform And The Tax-sharing System

Since1992, China has got a rapid economic development. By the end of2011,the average annual growth rate of GDP is10.46%, which is much higher than theworld’s average. At home and abroad, more and more scholars begin to look for thedeeply reason. But for now, the Neoclassical Economics cannot give a reasonable andcomprehensive explanation, so the author tries to use the New InstitutionalEconomics’ method to explain. The author considers: in this period, the shareholdingsystem reform of state-owned enterprises and the fiscal tax-sharing system reform arethe biggest institutional innovations, which decrease the China’s economic efficiencyloss.The direct cause of the shareholding system reform is the zero-supervision,which leads to an efficiency loss. But the primary cause of the shareholding systemreform is the rising average professional skill. While the average professional skill isrising, China’s state-owned enterprises have experienced three stages: the unificationof ownership and control in Planned Economy period, the separation of ownershipand control in Double Track period, the change of ownership in Single Track period.Especially at the end of the Double Track period, the whole country’s averageprofessional skill has a great development after two decades’ Reform and Opening-upPolicy. Through the author’s analysis, we know that the optimal supervision is strictlypositive, not zero-supervision. But the state-owned enterprises still lack of supervision,cannot meet requirement of the optimal supervision, so it leads to the economicefficiency loss. Through the change of ownership, we can solve this problem,decrease the economic efficiency loss, and incentive china’s economic development.The direct cause of tax-sharing system reform is that the proportion of total fiscalrevenue to GDP and the proportion of central fiscal revenue to total fiscal revenue are too low. The central government designs the tax-sharing system to solve this problem.At the same time, two incentive mechanisms are generated. The first one is theprincipal-agent incentive mechanism. The provincial governments have fiscal deficitsunder tax-sharing system reform, so the central government through the transferpayment to meet the provincial’s Participation Constraint, and the provincialgovernments choose the optimal efforts to meet the Incentive CompatibilityConstraint. The second one is championship incentive mechanism. The provincialgovernments have fiscal deficits under tax-sharing system reform, so the provincialgovernments design championship incentive mechanisms to solve the fiscal deficits:all the lower-lever-governments’ officials compete for promotions, only top “n”officials can get promotions based on the order of economic growth rate. The twoincentive mechanisms impel local governments to develop their areas’ economy.The author also considers that the relation between the shareholding systemreform and the tax-sharing system is mutual promotion. The shareholding systemreform increases state-owned enterprises’ efficiency, which increases the localgovernment’s fiscal revenue and relieves the local governments’ fiscal deficits. Thetax-sharing system changes the local governments’ behaviors. The local governmentsdo not interfere the local state-owned enterprises at all, begin to seize the entry ofother state-owned enterprises, private enterprises, foreign enterprises. At the sametime, the state-owned enterprises lose the protection of the local government, directlyface to the competition of the private enterprises and foreign enterprises. Aftersurvival of the fittest, the state-owned enterprises improve efficiency.The author also explains some social problems behind the high growth rate ofGDP. For example, the widening gap between the rich and the poor, the rising price ofhouse. The author considers that the widening gap between the rich and the poorowing to the underestimate of the state-owned assets and the competition among thelocal governments, the rising price of house owing to the enterprises’ efficiencyimprovement.Finally, using the provincial data in1994-2008, the author tests the conclusionthat the shareholding system reform and the tax-sharing system reform can decrease china’s economy efficiency loss. To some extent, the author also measures the loss.