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UNCLAS SECTION 01 OF 02 GUANGZHOU 032154 
 
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SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV SOCI PHUM CH
SUBJECT: Central and Local Officials Debate Public Services 
 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) SUMMARY: Central officials, local officials, and academics 
attending a high level academic symposium in Hainan disagreed on how 
to efficiently and equitably build a "public service government." 
Central and local officials in attendance had very different views 
of their governance responsibilities, on transfer payments and 
budget allocation.  Democracy remains officially a "taboo" topic but 
private conversations revealed some scholars' belief that democracy 
is an indispensable element for effective public services.  END 
SUMMARY. 
 
Background on the Seminar 
------------------------- 
 
¶2. (U) Econ/Pol Assistant attended an October 28-29 seminar in 
Hainan on "Public Service Systems in China: Relations between the 
Central Government and the Local Governments," which was hosted by 
the China Institute of Reform and Development (CIRD).  Approximately 
300 senior officials, scholars, and foreign representatives 
attended.  CIRD actively promotes an active government role in the 
provision of public services, particularly education, medical care, 
and social security.  The 5th Plenum of the 16th CPC Central 
Committee, in a statement issued in October, supported these ideas 
in the context of building a "harmonious society." 
 
¶3. (U) In attendance were at least thirty senior central and local 
officials, vice minister or director general level.  They included 
Wu Zhilun, Vice Minister of the State Commission for Public Sector 
Reform under the State Council; Wang Fuyu, Deputy Party Secretary of 
the Guizhou Province CPC Committee; and Wu Changyun, Executive Vice 
Governor of Hainan Province.  Many speakers held senior positions in 
high-level research institutes or think tanks affiliated with 
central government ministries, including the Development and 
Research Center, the Institute of Fiscal Science under the Finance 
Ministry, Tsinghua University, and Peking University.  Foreign 
representatives included the Deputy Secretary General of the United 
Nations and the first prime minister of Poland. 
 
The Central/Local Divide 
------------------------ 
 
¶4. (SBU) All participants agreed that the Chinese government should 
provide more public services and should better define the policy and 
fiscal responsibilities of the central and local governments. 
However, central and local representatives openly disagreed on the 
details, particularly the division of financial resources. 
Officials from Beijing criticized local governments for their 
obsession with investment promotion and urban infrastructure 
projects, saying they were ignoring the need for public services. 
Liu Shangxi, Deputy Director-General of the Fiscal Science Research 
Institute under the Financial Ministry, asserted that China should 
move toward a more centralized system of budget control and 
monitoring.  In response, local officials complained that Beijing 
has given them public service responsibilities out of proportion to 
their budgets or transfer payments.  They asserted that local 
governments must continue to focus on economic development because 
the central standard by which Beijing judges their performance is 
still GDP growth. 
 
Budget Allocation 
----------------- 
 
¶5. (SBU) According to some fiscal experts, three major players are 
involved in dividing China's treasury: the central government (which 
handles transfer payments), the central ministries (each of which 
controls an individual budget), and local governments.  In 2005, 
China's total revenues reached RMB 3.16 trillion (USD 402 billion), 
of which the central government used 52 percent.  The central 
government allots revenues from rich, coastal provinces to fund 
poorer provinces under programs such as the Great Western 
Development, the Rejuvenation of Northeastern China, and the Rise of 
Middle China.  For example, in 2005 Sichuan Province had a revenue 
of RMB 70 billion (USD 8.88 billion) and received transfer payments 
from Beijing of over RMB 40 billion (USD 5.01 billion).  Central 
government ministries also allocate RMB 200 billion (USD 253.8 
billion) each year under various "special projects" they manage. 
 
¶6. (SBU) The conflicts that result are apparent: the rich coastal 
contributors dislike the central government's approach of "robbing 
 
GUANGZHOU 00032154  002 OF 002 
 
 
Peter to pay Paul," the poor provinces are eager for more transfer 
payments from Beijing; and the ministries have no interest in giving 
up their portion of the pie.  Nevertheless, this approach to budget 
allocation is likely to continue for the foreseeable future, as the 
recent CPC Central Committee Plenum did not address the issue. 
 
Economic Growth Versus Public Service 
------------------------------------- 
 
¶7. (SBU) Some speakers, including Fan Gang, a renowned scholar newly 
appointed to be a member of the central bank's Currency Commission, 
defended local governments' focus on economic development.  He and 
others said local governments must pursue investment in order to 
sustain their public service budgets.  In addition, spending on 
infrastructure by local governments is a form of public good.  They 
also argued that China, as a developing country with a per capita 
GDP of only USD 1,200, cannot afford the northern European welfare 
model of providing abundant social benefits and in turn creating 
huge debts and fueling public expectations. 
 
What About Effectiveness? 
------------------------- 
 
¶8. (SBU) Only one scholar noted the importance of public 
participation in creating an effective public service system.  Cai 
Dingjian, a law professor from China University of Political Science 
and Law who also worked in the National Congress, said important 
financial resources are wasted because the public has no say in 
budgetary matters.  Unfortunately, the conference host cut off Cai's 
remarks, citing insufficient time.  However, in sideline 
discussions, several scholars and some officials expressed support 
for Cai's opinions and criticized senior leadership's unwillingness 
to devolve power and increase transparency. 
 
¶9. (SBU) None of the Chinese officials or scholars touched upon the 
issue of democracy or directly called for democratic monitoring of 
public services administration.  Even the less sensitive issue of 
the role of NGOs in the public service arena was largely left 
unaddressed.  In addition, speakers did not discuss the potential 
effects of a slowing economy on China's ability to provide public 
services. 
 
GOLDBERG