Doing Business with China

Li Yong, Deputy Secretary General, China Association of International Trade

The government reform

The First Session of the Ninth National People's Congress held in Beijing between 5 “19 March 1998 adopted a major organizational restructuring, as a result of which the number of ministries and commissions under the State Council was reduced from 40 to 29 and the total staff size halved.

Why reform?

Reform of the administrative system is crucial to deepening economic restructuring and promoting economic and social development. It is also an important part of the reform of the Party and government leadership regime .

Since the inception of reform and the opening-up of China to the outside world in late 1978, some progress has been made in government restructuring. However, multiple efforts in reforming government organizations have been unable to eradicate the problems, due to the constraints of historical conditions and the limitations of the macro-environment. The contradiction between the government organizational set-up and the development of a socialist market economy has been increasingly prominent. The key symptoms are:

• The framework of present government institutions has evolved from the environment of the planned economy. One increasingly apparent drawback of the regime is the lack of separation between government functions and enterprise management, which has resulted in direct government intervention in the production and operation of enterprises and the establishment of numerous specialized economic management departments. At the same time, unjustified emphasis on the interplay between comprehensive and specialized departments gave rise to overlapping government functions, red tape and inefficiency. Nonetheless, the 20-year reforms have brought about significant changes in the forms of corporate entities, management and operational practices, all of which have identified that the current management of enterprise affairs by the government is inadequate for establishing a modern enterprise system.

• The principles against which the existing government structure was set up were formulated in the absence of a complete socialist legal system. The government resorted to administrative means in its efforts to manage economic and social affairs. Many problems that should have been solved by legal means, or through intermediary bodies, were dealt with by establishing specialized government departments. As a result, excessive social responsibilities and routine contradictions remain with the government. To achieve the objectives of regulating the socialist market economy by legal instruments and of standardizing market practices, the government should respond to the need to perfect the socialist legal system. It should also develop social intermediary bodies by reforming the principles of setting up government departments as well as the operational mechanism of the government.

• The existing government has many overlapping and overstaffed departments which have not only spawned red tape and bureaucracy, but have also given rise to corruption and unhealthy tendencies, and which constitute a heavy burden on the government budget. Currently, there are about 33 million administrative staff at all levels of governments funded by the state budget, which seriously erode the government's capability in carrying out socialist construction and in protecting public interests.

Targets and principles of the reform

The current government restructuring is designed to achieve the following targets:

• Establishment of a highly efficient, well co-ordinated and standardized administrative management system;

• Perfection of the public service system, thereby setting up a highly qualified and specialized administrative management team;

• Gradual formation of an administrative management system that has Chinese characteristics and is compatible with the socialist market economy.

Principles for restructuring

• Government functions need to be transformed and separated from enterprise management to respond to the requirements of developing the socialist market economy. Government functions shall be shifted to macro-control, social management and public service. Decision-making powers with respect to production and operation should be given entirely to enterprises.

• In accordance with the principles of being 'simple, unified and efficient', the structure of the government organizations shall be restructured to reduce redundant administration and staff size. The macroeconomic control departments shall be strengthened . The specialized economic departments shall be readjusted and reduced. At the same time, social service departments shall be appropriately adjusted while strengthening law-enforcement and supervision departments. Intermediary organizations shall be developed.

• According to the principle that the level of power should be commensurate with the level of responsibilities, the power and responsibilities of government departments shall be readjusted to define a clear-cut division of government functions among various departments. Identical or similar functions will be delegated to one department only so as to eliminate the problems of overlapping management and policy making.

• To respond to the requirements of managing the country by legal means and exercising administration with legal instruments, the construction of a legal-based administrative system shall be strengthened.

Government structure streamlined

The emphasis of government reform is on the restructuring of the departments under the State Council. Some of the previous ministries, commissions and administrations have been removed, merged or reorganized.

1. The Commission for Economic Restructuring is removed.

2. Eleven ministries are removed. They include: “ Ministry of Power Industry

   • Ministry of Coal Industry

   • Ministry of Metallurgical Industry

   • Ministry of Machine Building Industry

   • Ministry of Electronics Industry

   • Ministry of Chemical Industry

   • Ministry of Internal Trade

   • Ministry of Posts and Telecommunications “ Ministry of Labour

   • Ministry of Forestry.

   The ministries removed from the State Council have been reorganized into industrial bureaux which are under the jurisdiction of the State Economic and Trade Commission.

3. Two national industrial councils have been removed and reorganized into bureaux under the State Economic and Trade Commission. They are:

   • National Council for the Textiles Industry

   • National Council for Light Industry

4. Two new departments have been set up:

   • Ministry of Information Industry, which is a merger of the former Ministry of Posts and Telecommunications and the Ministry of Electronics Industry.

   • The State Commission of Science and Technology for National Defence Industry

5. Two departments were renamed :

   • The State Commission of Science and Technology has been renamed the Ministry of Science and Technology

   • The State Commission of Education has been renamed the Ministry of Education

6. The Ministry of Labour and Social Security has been established on the basis of the former Ministry of Labour.

7. The Ministry of Land and Resources is formed to take over the responsibilities of the former Ministry of Geology and Mineral Resources, State Administration of Land, State Bureau of Oceanography and the State Bureau of Survey and Cartography.

8. The former Ministry of Radio, Film and Television is now a bureau under the State Council while part of its remit “ the TV network “ is given to the Ministry of Information Industry.

In 2000, a further reform effort was made resulting in the scrapping of nine bureaux and administrations. They include:

• State Internal Trade Bureau

• State Machine-Building Industrial Bureau

• State Metallurgical Industrial Bureau

• State Petrochemical Industrial Bureau

• State Light Industrial Bureau

• State Textile Industrial Bureau

• State Building Materials Industrial Bureau

• State Non-ferrous Metals Industrial Bureau

• State Coal Industrial Bureau.

These bureaux no longer assume government functions, having been turned into industry associations.