By Sun Zhiyan, Research Team on "Promoting Reform in Key Areas of Economic System", Department of Development Strategy and Regional Economy of DRC

Research Report No 125, 2013 (Total 4374)

Since reform and opening up, while stimulating local governments to develop their economies, the inter-government relations, which have been formed on the basis of separation of powers, have witnessed an intensified pursuit of interests between the central government and the local governments as well as among local governments, which have triggered off an array of problems, such as the vicious competition among local governments, the difficulty in bringing central government policies into effect, market blockade, barriers between different departments and regions and low administrative efficiency, which are becoming major factors that hold back the transformation of the mode of economic development. As a result, it is imperative to expedite the related reforms in optimizing the relations between government powers and responsibilities and to reinforce the standardized and systematized construction of the inter-government relations.

I. Basic Approach for the Allocation of Inter-Government Powers and Responsibilities in China

The allocation of powers and responsibilities among the governments refers to how governments at all levels allocate and exercise different powers and responsibilities under the national public power system. Not only does the allocation affect the government performance in their governance, but it is of vital importance to the overall national development. While further optimizing the power-responsibility relations between governments at all levels, we should adhere to the following basic principles.

Firstly, the principle of political unity. In China's modernization process, all sorts of factors and forces intertwine and mingle with each other. Historical experiences have proved that if the principle of political unity is not adhered to and if the Central Government fails to effectively restrain local governments from properly exercising public powers, the regional contradictions might become sharpened and the uniform market might be disrupted, which will endanger national unity.. Hence, in the new era when China's inter-government power-responsibility relations are being optimized, we should firstly adhere to the principle of political unity, safeguard the authority of the Central Government and keep in mind the larger picture of national political development.

Secondly, the principle of balancing development guidance and provision of public services. In recent years, with the deep-going implementation of the scientific approach on development, governments at all levels have paid more and more attention to social management and public services. However, local governments' exorbitant pursuit of economic growth has not yet been turned around in an effective way, and the imbalance between economic development and public services has not been improved notably. When further optimizing the inter-government relations, we should still lay stress on the principle of "balancing the development guidance and provision of public services". That is to say, in economic development activities, local governments should turn from "direct management" to "indirect governance through regulations", and from "direct participation" to "scientific guidance and overall planning". Local governments should put more public resources into social management and public service sectors, pay more attention to social justice, offer more superior services to citizens, and constantly improve their ability to respond to citizens' appeals. It is imperative for the transformation of China's economic development mode and social transformation, and it constitutes an indispensable basis for constructing service-oriented governments aimed at meeting people's ever-growing need for public services.

Thirdly, the principle of unifying the scope of benefit and the scope of administrative jurisdiction. This is a basic principle that is applied by most countries in allocating powers and responsibilities among governments at various levels. According to the regional differences of the scope of benefit for public articles (services) and the distribution features, possible efforts should be made to put the scope of responsibilities undertaken by the governments and the scope of benefit for public products (services) provided by the governments in consistency with the scope of administrative jurisdiction of governments at various levels. The pure local affairs, such as fire fighting and municipal facilities in a region, should be all the more undertaken by local governments. It is difficult to judge the boundary of benefit for public services with greater spatial spillover, such as education and medical health. Therefore, such public services should be undertaken by the Central Government. The radius of government services, big or small, is all unbeneficial to the improvement of government management efficiency.

Fourthly, the principle of management efficiency. The optimization or readjustment of the relations among governments at various levels is in essence an optimized allocation of power resources possessed by governments. The maximization of efficiency is the most essential objective. The basic meaning is that during the entire course of government management mechanism and provision of public services, the lowest transaction cost will bring about the highest welfare benefit obtained by the society. When public articles (services) provided can satisfy the lowest payment cost and bring about the maximum benefit, these public articles (services) should be provided as much as possible by local governments at lower levels, which favors the enhancement of the overall efficiency of the government performance.

Based on the above-mentioned principles, the Central Government and local governments should optimize their relations related in powers and responsibilities according to the following overall approach. On the premise of maintaining the authority of the Central Government and in line with the objective requirements for economic and social transformation and development, we should take the rationalization of responsibilities in financial expenditure between the Central Government and local governments as a starting point, and the establishment of standardized government fiscal equilibrium system as a guarantee and, meanwhile, we should expedite the standardized and systematized construction of inter-government relations.

II. Priorities in the Reform of the Power and Responsibility Relations Between the Central Government and Local Governments in the New Era

The optimization and readjustment of the power and responsibility relations between the central government and local governments is a systematic engineering that relates to the supporting reforms of the political system, administrative management system and the economic management system and such a systematic engineering cannot be accomplished at one go. In terms of the overall objective serving the present economic and social transformation and the national economic development strategy, the priority tasks should be highlighted in three aspects of the optimization and readjustment of the relations between the central government and local governments:

Firstly, we should reform the regional and departmental separation-based allocation of government powers and responsibilities. Not only does the present allocation incur the overlapping of organizational functions, making it difficult to improve the administrative efficiency, but it also leads to vertical and horizontal separation of relations among the governments. We should rationalize the inter-government relations as soon as possible, break off the chains of vested interests formed vertically with functional departments as the principal part, and the horizontal regional separation as well, facilitate the substantive change of government functions, and improve the efficiency in allocating resources with the market mechanism. Secondly, we should clarify the powers and responsibilities between the Central Government and local governments. According to the major problems that crop up in different stages of economic and social development, we should sort out priorities and advance by stages the in-depth clarification of the powers and responsibilities of governments at all levels in terms of economic adjustment, public services, social management and market supervision. We should improve relevant laws and regulations, prohibit the rent seeking for powers and virtualizing of responsibilities strictly according to law, so as to improve the efficiency of government governance at various levels as early as possible. Thirdly, we should strengthen the standardized and systematized construction of the power and responsibility allocation between the Central Government and local governments. When optimizing the inter-government power and responsibility allocation, we should maintain the authority of the central government and should as well provide a necessary system space for local governments' innovation and development. We should maintain the necessary autonomy of local governments in social governance and provision of public services and should as well effectively standardize and restrain the behaviors of the local governments in exercising public powers and fulfilling responsibilities. This calls for the placement of the inter-government power and responsibility allocation under a rigorous law system framework to avoid the non-systematic competition among governments in different regions and at various levels, to realize the impartiality in allocating public resources among different governments, and to put an end to the disorderly competition, the unfair competition and the policy competition so as to advance the substantive change of government functions.

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