Saturday, March 19, 2005

A new friend from Germany asked me about the budgetary process in China, here are some quick replies, which, hopefully, are somewhat accurate.

The budgetary process is complicated, but not a total mystery. Basically, the MOF puts together the budget after soliciting expenditure requests from the various ministries and provinces. The ministries receive a spending limit while the provinces receive a central transfer limit each year. The MOF makes a budget also based on the expected central revenue collected by the State Administration of Taxation and State Administration of Customs. Estimating tax collection has been made easier since the centralization of the taxation system in 1994. The "irregular" part of the budget compose of earmarked grants ("zhuanxiang") that the MOF gives out to both ministries and local governments. The maglev train received both MOF zhuanxiang grants and supplementary (peitao) loans from the state banks. Most zhuanxiang projects require SDRC (formerly SPC) approval, but I think mililtary zhuanxiang goes through a different process. If local governments want to apply for a zhuanxiang, they would have to first lobby the SDRC. Upon SDRC approval, the MOF would "implement" (luoshi) this project, along with state bank loans.

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