Budget Deficits in China: Calculations, Causes, and Impacts

Article excerpt

ABSTRACT. Since China began its market-oriented economic reform in 1979, government budget deficits have been a fact of life. On one hand, the share of resources owned or controlled by the government must be shrunk in order to create a favorable environment for the development of the market economy. On the other hand, the government still performs many responsibilities required by the traditional planed economy. After calculating government budget deficits and analyzing their causes, the article assesses the impacts of government budget deficits and predicts the future of deficits in China.

Huaping Luo and Robert T. Golembiewski*

INTRODUCTION

This essay needs to acknowledge two deep debts. It sees itself in the perspective proposed by a leading report co-authored by the researcher to whom this overview article is dedicated (Verma & Sharma, 1985). There, every public function--personnel, finance and so on--is seen intimately linked with its cultural and constitutional contexts in developmental cycles whose understanding will challenge the best that is in practitioners and researchers. Ideally, research can inform action; and action always helps set the agenda for research, whether that elemental fact is recognized or suffers neglect. Generalizations typically are dangerous, but we cannot here go far wrong in assigning a high priority to public budgeting and financial administration. This was true in the United States of the 1970s and 1980s; it remains appropriate for the 1990s; and one can even now raise reasonable claims for the continuing salience for financial administration as we move beyond the year 2000 A. D.--the Chinese year of the Dragon.

Cross-national studies on public budgeting and financial administration typically involve many challenges but, as a scholar points out, individual case studies and analyses constitute a key step in the right direction (Guess, 1992). This essay deals only with selected aspects of China's financial administration that will inform later and full-blown comparative analysis. This essay does not hide its ambition, but it can now claim the label "comparative" only in the narrow sense of an early exploration of the synergy between the training, methods, and experiences of the two co-authors.

This essay also learns from Verma and Sharma (1985) in another particular: comparative methods and research designs have a special power. Although developmental phases often will differ, good comparative research is relevant for many governmental units. In sum, such research can inform policy-makers about where their jurisdiction is, has been, or may be going.

Budget deficits are a main theme for disciplines like public administration, political science and economics (Eisner & Pieper, 1984; Kettl, 1992; Savage, 1988: 14-17; Schick, 1990: 70-74; Wildavsky, 1988: 205-209). The People's Republic of China provides a window through which students of comparative and development administration can have a glimpse at how one developing country deals with budget deficits. This essay has four emphases: it discusses the calculations of deficits in China, analyzes the causes of budget deficits, assesses the impacts of deficits, and predicts the future of deficits in China.

CALCULATING BUDGET DEFICITS IN CHINA

Budget deficits are simply a fact of life for most of the countries in the world, and they are similarly understood. A budget deficit is simply the amount by which a government's expenditures exceed receipts. There are no important differences in the way oriental and western scholars generally define budget deficits (Chen, Hou & Yuan, 1984: 123-35; Kettl, 1992: 16).

However, a general definition of deficits does not resolve the problem of how to estimate or calculate deficits (Courant & Gramlich, 1986: 8-12). To illustrate, the calculation of deficits by the Chinese government uniquely dealt with debt revenues before 1994. …