Global Poverty Reduction and Development Forum-2012-Chapter IV

Chapter IV: Inclusive Development & Fiscal Policy in China*

SU Ming

Research Institute for Fiscal Science, Ministry of Finance

I. The Importance of Inclusive Development & Functions of Governmental Finance

(I) Definition of inclusive development

In recent years, China has introduced the concepts of “inclusive growth” and “inclusive development”, and made a series of explorations.

The concept of “inclusive growth” was first proposed by the Asian Development Bank in 2007. Its basic meaning is to impartially and reasonably share the economic growth, which refers to the issue of equality and justice, including measurable standards and more intangible factors. In Poverty，Inequality，and Inclusive Growth in Asia published in June 2012, the inclusive growth is defined as “equal-opportunity growth”. The policy implications include: (1) creating productive employment and economic opportunities via rapid, effective and sustained economic growth, (2) achieving equal opportunities by investing in talent cultivation and creating an environment of fair competition, (3) improving the social security system to alleviate the impact of risks and shocks and reduce poverty. Thus, the inclusive growth aims at creating economic opportunities and allowing everyone to benefit from it.

The World Bank introduced the concept of “inclusive development” in 2008. The Growth Report: Strategy of Sustainable Growth and Inclusive Development issued in the same year clearly stated that the “inclusive growth” is to seek coordination between the society and economy, as well as the stable and sustainable development; to create equal opportunities of free development for all and allow more people to enjoy the achievements of reform and development through a sort of standard and steady system arrangement; to give shelter to the underprivileged in many respects so that they can obtain preferences in government policy and investment; to strengthen the cultivation of small & medium-sized enterprises and individual capacity; to keep balance during the economic growth and emphasize the social stability.

To some extent, the definitions of the inclusive growth and inclusive development have no substantial difference, as both of them stress equality and justice and attach weight to the achievements of economic development enjoyed by everyone. They also focus on developing & improving people’s livelihood and enhancing incomes and benefits of laborers, especially the poor and rural population, and emphasize system innovation and policy improvement.

(II) The significance of inclusive development

The inclusive development is beyond the scope of academic explorations. It becomes an important concept for the Party and the Chinese government. Between 2009 and 2010, President Hu Jintao elaborated on the important idea twice, which was considered a significant guideline of the mid-and-long term sustainable development of the economy and society in the future. The period of the 12^th Five-Year Plan is a major strategic opportunity for China to fully accomplish the objective of building a well-off society in an all-round way in the future; there is a long way to go before a transformation of the economic development pattern. Therefore, it is significant to construct a new development paradigm that aims at the inclusive development.

——The inclusive development is beneficial to the promotion of the balanced development of urban & rural areas. It is a requirement to encourage part of regions to prosper before others so that they can help others to get well-off, thus finally achieving common prosperity. Such a policy played an important role in breaking the shackles of the Chinese economic development and advancing the rapid development of economy during the early stage of reform and opening up. However, the policy has not been fully implemented, which resulted in the unbalanced development of urban & rural areas. It further gradually widened gap between the rich and the poor and the increasingly conspicuous social contradictions. Hence, to advocate the inclusive development to allow surplus rural labor to move to the secondary and tertiary industries via the policies of “nurturing agriculture by industry” and “urban areas helping rural areas” will help farmers and urban inhabitants share reform achievements. Meanwhile, continuing the strategies of the development of West China, rejuvenation of Northeast China and rise of Central China on the basis of the inclusive development performs a vital function in promoting the coordinated development of regions.

——The inclusive development is helpful to avoid the “middle income trap” for the Chinese. The “middle income trap” means when per capita income of a country reaches the medium level in the world, the failure of transforming the economic development pattern leads to the lack of new driving forces for growth, which finally results in a status of economic stagnation. The basic features of the “middle income trap” include the stagnation of the economic growth, polarization between the rich and the poor, frequent corruption, over-urbanization, shortage of public services, difficult employment, social unrest, lack of belief and a weak financial system. The Latin American and Southeast Asian countries with the medium income level, without exception, have fallen into the “trap” because of the failure to properly deal with the issues of development strategy, income distribution inequality and foreign economic relations. Thanks to the policy of reform and opening up over the past three decades, the Chinese economy has rapidly grown, residents’ income constantly increased, and per capita GDP up to USD 5,000——the medium income level.

However, China faces the tremendous risk of the “middle income trap”. The inclusive development, which emphasizes the broad social equality on the basis of the economic development, requires the coordination of equality and efficiency. It ensures people’s right of income growth, and also focuses on the cause of people’s livelihood, including education, employment, medical & health care and social administration. In this sense, it provides a sustained impetus and basic guarantee for China to avoid the “middle income trap”. (ZHANG Feng & LUO Haibo, 2011)

——The inclusive development is conductive to the pursuit and realization of social equality and justice. Equality and justice are core values of socialism, best characterized by inclusiveness. Concentrating on the promotion of equal development opportunities, and establishing a social equality guarantee system and mechanism that focus on right, opportunity, rule and distribution equality will help eliminate the obstacles to people’s participation in the economic development and sharing of development achievements, thus allowing everyone’s participation, joint efforts and benefit sharing. This essentially embodies social inclusiveness, harmony and justice.

(III) Functions of the Chinese government and public finance in achieving inclusive development

Both market and government are important to achieve the goal of inclusive development. The World Bank conducted an empirical research of the economic development and government functions of countries across the world over the last century. It points out in the report The State in a Changing World that the basic missions of governments in both the developed and the developing countries consist of establishing legal bases, maintaining the undistorted policy environment (including the macroeconomic stability), investing in basic public services and infrastructure, protecting the class with low tolerance, and protecting the environment.   

The Asian Development Bank made a more detailed examination on this issue. In Poverty，Inequality，and Inclusive Growth in Asia published in 2012, one of the four sections is focused on related policies that advance the inclusive growth. It can be summarized as follows. Firstly, the government should make efforts and invest resources in full employment. Secondly, the government should explore the issue of obtaining basic services, pay attention to elementary education, medical and health care, water supply, sanitation and electric power, and propose a variety of preferential policies to better and obtain basic services (especially for the disadvantaged community). Thirdly, the government should offer social security in case of extreme poverty. Fourthly, the government should focus on good governance as a crucial policy issue for the inclusive growth.

Since the government plays an important role in the inclusive development, public finance, as a means of the government’s macro-control, is bound to undertake significant missions and performs essential functions in supporting and promoting the inclusive development.

First, by taking part in distribution and redistribution, public finance comprehensively uses tax, expenditure, subsidy and other means of policies to optimize the macro income distribution pattern to adjust the gap of residents’ income and wealth and strengthen support and protection of the entire disadvantaged group in the society.

Second, public finance can lay the foundation for vertical and horizontal balance of financial resources by actively boosting innovation of the fiscal system, dynamically adjusting the transfer payment system and methods, constantly improving and enhancing relations of the central government and governments below the provincial level, thus effectively promoting the relatively balanced development of urban & rural areas and regions, and laying the financial foundation of the economic development and access to basic public services for China’s central, western & poor regions and even the entire rural areas.

In addition, public finance, which supports the inclusive development, not only performs the direct adjustment function, but also, via funds distribution, preferential tax regulation and other means of policies, effectively carries out indirect adjustment or guidance function namely guiding the non-governmental, bank’s and overseas funds to the underdeveloped & poor regions, and to agriculture, rural areas and farmers, guiding the affluent class in helping the disadvantaged by means of donation and charity so as to better embody social inclusiveness and harmony. 

II China’s fiscal policy to achieve the goal of inclusive development

Since the period of the 11^th Five-Year Plan, our economy has developed at a high speed with the scale of revenue and expenditure rising. In 2011, China’s GDP increased from RMB 18,300 billion in 2005 to RMB 47,000 billion; China’s fiscal revenue rose from RMB 316 million to RMB 10,370 billion, expenditure from RMB 339 million up to RMB 10,890 billion. With an increase of China’s fiscal and economic strength, the Chinese government has adopted a range of fiscal reform measures in order to achieve the goal of inclusive development of the whole society. 

(I) The major fiscal policies

1. Public finance has significantly stepped up its pace to cover rural areas

The development of the rural area has always been the main focus in China’s modernization process. Thus, the realization of the inclusive development is important. The 17^th National Congress of the CPC first pointed out that we must take solving the problem of agriculture, rural areas and farmers as the top priority of the Party’s work, and prioritize the coordination of the development of urban and rural areas, accepting it as the essential method of implementing the scientific development view. With the improvement of awareness of the problem of agriculture, rural areas and farmers, the government’s financial support has been constantly strengthened, which significantly quicken the pace of public finance to cover rural areas.

Firstly, the fiscal policy and system for agriculture, rural areas and farmers has always been improved. For example, exempt farmers from taxes and fees since 2006, give producer subsidy (subsidy for grain production, good seeds, agricultural machinery and means of production) to the farmers throughout the country since 2004, step up the construction of infrastructure of rural areas, such as water, electricity and roads, establish and improve the basic service system of rural areas (e.g. reform the fund guarantee mechanism for rural compulsory education, comprehensively establish a new cooperative medical care system for rural areas, implement a new rural social endowment insurance, and establish the rural subsistence security system), reinforce the migration promotion through training of surplus rural labor, and carry out the “case-by-case” award and subsidy system for the rural public welfare cause.

Secondly, the financial input in agriculture, rural areas and farmers has rapidly gone up. The input in agriculture, rural areas and farmers arranged by the central government rose from RMB 351.72 billion in 2006 to RMB 1049.8 billion in 2011, accumulating RMB 4012.2 billion in these 6 years, with an average rise of 24% per year. The expenditure of the public finance around the state on agriculture, rural areas and farmers was RMB 2934.2 billion, showing an increase of 21.2% over the previous year, accounting for 26.9% of the total fiscal expenditure of the country. In 2012, China continues strengthening the financial support of agriculture, rural areas and farmers. The financial expenditure arranged by the central government for agriculture, rural areas and farmers arranged is RMB 1228.66 billion, increasing by 17.9%, wherein RMB 472.42 billion is for agricultural production, RMB 162.8 billion serves as producer subsidy, RMB 531.39 billion is for the development of rural social undertakings, including education and sanitation causes, and RMB 62.05 billion for farm produce reserves and interest.

Thirdly, the integration and management of the fund or the financial input in agriculture, rural areas and farmers has been constantly standardized. The reinforcement of the fiscal policy and fund input has played an active role in advancing the coordinated development of rural economy & society and raising farmers’ income.

2. The Chinese government made great effort to concentrate financial resources to guarantee and improve people’s livelihood

The improvement of people's livelihood not only relates to people’s life and the stable & rapid development of economy, but also is the cornerstone of the social stability. Since the 16^th National Congress of the CPC, the Ministry of Finance has optimized the expenditure structure, and concentrated financial resources to guarantee people's livelihood. It also focuses on the weakness of the development of social undertakings, on regions with difficulties, the grass-root level and disadvantaged groups, and makes efforts in establishing the lasting-effect mechanism to guarantee and improve people's livelihood.

Between 2003 and 2007, China’s financial expenditure on education, social security, employment, medical & health care, culture and sports increased by RMB 2,430 billion, RMB 1,950 billion, RMB 631.1 billion and RMB 311.1 billion respectively, with an annual growth rate of 18.6%, 14.9%, 24.4% and 16.5% respectively, rising by 126%, 141%, 127% and 130% over the previous five years. Between 2008 and 2011, the area of financial expenditure for people’s livelihood was further expanded, and the financial support strengthened. In 2011, China’s financial expenditure on education, medical & health care, social security, employment, housing support and culture directly related to people’s livelihood totaled RMB 3,810.8 billion, with an increase of 30.3% than the last year; the expenditure closely related to people’s livelihood for agricultural irrigation, public transportation, energy saving & environmental protection, and community affairs, etc. amounted to RMB 3,562.9 billion. The expenditures above added up to RMB 7,373.7 billion, taking up 67.7% of the country's total financial expenditure in 2011. It can be considered that the current financial mechanism of growth of expenditure for people's livelihood has been improved.

The realization of free education in urban and rural areas, comprehensive implementation of the financial support policy for students of universities, colleges, higher and secondary vocational institutions, comprehensive advancement of the basic medical insurance and public health service systems in urban and rural areas, the constant enhancement of the framework of social security and employment systems, and the establishment of the low-rent housing system have effectively boosted the construction of the socialist harmonious society.     

3. The transfer payments tilt towards underdeveloped regions in West China

Since the 16^th National Congress of the CPC, as per the objective of the coordinated development of regions and urban & rural areas, the tax assignment system and the corresponding transfer payment system have gradually become the most important system guarantee and arrangement to enhance the central government’s macro-control capacity and promote the coordinated development of regions and equalization of public services via the continuous dynamic adjustment, thus boosting the rise of the financial capacity of Central & West China, and narrowing the gap between the underdeveloped regions of West China and developed regions.

In recent years, besides improving the distribution methods, the government has increased transfer payments. After the reform of the tax assignment system, the central government’s fiscal revenue has been concentrated on transfer payments to local governments, especially those of central & western regions. From 1994 to 2011, transfer payments from the central government to local governments rose from RMB 55 billion to RMB 3,488.1 billion, rising by 6,240%, with an annual growth rate of 28.4%. General transfer payments of them increased from RMB 18.9 billion to RMB 1,831.1 billion, with an annual increase of 31.6%. Around 90% of transfer payments were used for central & western regions, occupying 37.6% of local general budget expenditure in 2011, comparing with 13.6% in 1994, with an annual growth rate of 1.8%. For instance, in 2011 the transfer payments from the central government to provinces of central & western regions were more than RMB 100 billion on average. Those to Heilongjiang, Guangxi and Inner Mongolia are all beyond RMB 150 billion. Some regions even are up to RMB 200 billion, which vigorously advanced the coordinated development of regions and equalization of basic public services. In 2007, the per capita general budget income of central & western regions according to its population was just 31 and 33 if we assume the eastern region as 100. With the transfer payments from the central government, the per capita financial resources of central & western regions went up to 47 and 55 respectively. In 2011, the financial gap between regions was further reduced. Before transfer payments, if the eastern region was 100, the central region was only 35, western region about 40, while after transfer payments, the western region has reached 97, central region 76, which indicates a significant rise of distribution equalization and greatly narrows the gap of per capita finance capacity between regions.

4. A County-level Basic Financial Guarantee Mechanism has been established

County and township finance is the grass-root organization of national finance, and functional department of the county & township governments, assuming important responsibilities in boosting the comprehensive and coordinated development of counties, improving the supply of public products in rural areas, and promoting the social stability & harmony.

Since 2005, for the difficult condition of county & township finance, the Ministry of Finance has implemented the “three awards and one subsidy” mechanism for county & township finance, intended to obviously relieve the problem of difficult county & township finance in about three years. It includes (a) to raise the tax revenue of the county & township governments with financial difficulties; (b) to award the provincial & municipal governments for their financial transfer payments to the counties with financial difficulties; (c) to award the county & township governments which streamline the organization and reduce staff; (d) to award big grain producers; (e) to give subsidy to the regions with outstanding performance in relieving financial difficulties of counties and townships.

Between 2005 and 2007, the Ministry of Finance strengthened the input of the “three awards and one subsidy” policy every year, with an investment of RMB 15 billion in 2005, RMB 23.5 billion in 2006, and RMB 33.5 billion in 2007, beyond RMB 70 billion in total. The execution of the “three awards and one subsidy” policy has emitted a strong effect of policy guidance, mobilized the enthusiasm of regions to ease difficulties of county & township finance, and led local governments to arrange support funds of RMB 80.8 billion, which has increased financial resources of RMB 129.8 billion for the 791 counties with financial difficulties around China, RMB 164.1 million per county (city) on average. In 2007, the number of the counties with financial difficulties across the country decreased from 791 in 2005 to 27, and the financial difficulties, which had upset counties and townships for many years, were significantly alleviated. Since 2010, central finance has comprehensively arranged to establish and improve the county-level basic financial guarantee system, arranging award and subsidy funds of RMB 68.2 billion that year to strengthen the capacity of the county government to provide the basic financial guarantee. In 2011, the central government distributed award and subsidy funds of RMB 77.5 billion for the county-level basic financial guarantee system, with an increase of 13.6%. The budget amount of 2012 is over RMB 100 billion, up to RMB 107.5 billion, growing by 38.7%.

By establishing the award and subsidy system of the central government, together with leading and inspiring local governments to adjust and improve the financial system below provincial level, transfer payments to county finance have been reinforced, the county economic development boosted, and the management of county revenue & expenditure strengthened, thus improving the county financial guarantee, and greatly relieving the financial difficulties of the grass roots.                     

5. The Chinese government strongly supports development-oriented poverty reduction

Poverty reduction has always been a top priority of the government. It is also one of the main contents of the accomplishment of the inclusive development and advancement of the social stability, and an important function to be performed by governmental finance. Over the past three decades of reform and opening up in China, the economy has been growing rapidly, and the development-oriented poverty reduction constantly promoted, which makes our poverty reduction cause a great success with a high reputation in the international society. The fiscal policies play an important role in the process.

In 2001, the country issued and implemented Outline for Development-oriented Poverty Reduction for China’s Rural Areas (2001-2010). In the recent decade, the central and provincial governments have further raised the fund input in the poverty reduction, with the more standard fund management, which has greatly boosted the development-oriented poverty reduction.

Firstly, the financial investment in the poverty reduction has been steadily grown. During the decade of the implementation of the Outline, the ministry of finance has spent a total of over RMB 144 billion, with an average annual increase of 9.7%, and the input from local governments at all levels has also been rising. In addition, the central government has guided an investment of more than RMB 140 billion via the financial discount interest policy. In 2010, the budget of central and provincial financial funds for the poverty reduction totaled RMB 30.268 billion, with a rise of 15.7% from the previous year, wherein the central funds amounted to RMB 22.268 billion, with a growth rate of 12.9%, and provincial funds RMB 8 billion, increasing by 24.45%.

Secondly, the government concentrates the input on the key regions. In 2010, among the central financial funds of RMB 21.288 billion for the poverty reduction transferred to provinces, RMB 20.94 billion were arranged for central & western provinces, taking up 98.35% of the total funds, those for western provinces 66.5%. RMB 14.89 billion was invested in China's key counties, occupying 82.2% of the total, and RMB 19.12 billion in poor villages, accounting for 89.8%. The support included the integrated village development plan, migration promotion through training of rural poor labor, development of agribusiness and resettlement poverty reduction, etc.

Thirdly, the government innovates the mechanism to improve the effectiveness of funds. The policies include the mutual funds pilot project, financial discount interest guidance and performance appraisal, etc. Via the measures above, the fiscal policy framework system which promotes the poverty reduction through multiple channels has been built, the anti-poverty ability of poor regions enhanced, the development environment and conditions improved, and the outstanding difficulties confronting the underprivileged people's work & livelihood relieved. Therefore, the impoverished population of rural areas fell from 94,220,000 by the end of 2000 to 26,880,000 in 2010, and the impoverishment rate reduced from 10.2% in 2000 to 2.8%.

(II) The existing problems

Despite reforms and policy measures adopted by national finance to support the inclusive development in the recent decade and remarkable effects, we should not ignore the fact that with the rapid development of China's economy, the inclusive development and social harmony still confront many contradictions.

1. Income gap in the whole society tends to widen with increasingly serious unfair distribution

Firstly, the overall social distribution difference. Internationally, the Gini coefficient is usually used to judge the fairness of income distribution. The index is between 0 and 1. The lower the value, the more even the distribution of the wealth between social members. The value of 0.4 is typically used as a “warning line” for income distribution difference in the world. The Gini coefficient in the developed countries is often between 0.24 and 0.36. According to the report of the World Bank, in the 1960s, China’s Gini coefficient was around 0.17-0.18, in the 1980s, 0.21-0.27, and in 2000, beyond 0.4, the warning line. Since then, the coefficient has been going up year by year. Data indicate that China’s Gini coefficient was 0.382 in 1988, 0.445 in 1995, 0.454 in 2000, 0.458 in 2003, 0.465 in 2004, 0.47 in 2005, 0.48 in 2007, and 0.54 in 2010. According to the statistics of the UN Development Program, currently, the most impoverished population which accounts for 20% of China’s total population only take up 4.7% of income or consumption, while the most affluent population which accounts for 20% of China’s total population occupy as high as 50% of income or consumption. The ratio of the average income of the 20% of the population with the highest income to that of the 20% with the lowest income is 10.7 in China, 8.4 in the USA, 4.5 in Russia, 4.9 in India, and only 3.4 in Japan, the lowest. The report of the World Bank shows that in the USA, 5% of the population hold 60% of the wealth, while in China, 1% of the population possess 41.4% of the national wealth at present. It means since the period of reform and opening up, China has turned from one of the countries with the most equal income distribution into the one with a large income gap in the world.

Secondly, the income gap between urban & rural areas becomes larger. Since the reform, incomes of both urban & rural areas have been greatly increased, but the income gap has been widened year by year after the lowest point of 1985, for example, 1:2.01 in 1990, 1:2.72 in 1995, 1:2.19 in 2000, 1:3.22 in 2005, and 1:3.23 in 2010.

Thirdly, the income gap between regions is larger. The gap between regions of China decreased in the 1980s, but kept increasing after the 1990s. The overall gap between regions mainly comes from that between inland and coastal areas. By 2009, average annual household income of the eastern region was RMB 23,153.21, RMB 7,613.82, RMB 7,630.18 and RMB 7,310.57 higher than the central, western and southeastern regions respectively. Average income of the urban employees in Jiangxi Province (RMB 24,156) only took up 41.4% of that in Shanghai.

Fourthly, there is an increasing income gap between industries. According to the latest statistics issued by the Institute of Wage Studies of the Ministry of Human Resources and Social Security, the gap between the industries with the highest income and those with the lowest has expanded to 15 times, ranking first in the world. Among the three industries in which employees have the highest average income, the average income in the securities industry is RMB 172,100, 6 times of the national average, in the financial industry, RMB 87,670, 3.1 times, and in the airline industry, RMB 75,800, 2.6 times. The employees in state-owned industries, such as power, telecommunication, petroleum, finance, insurance and water & electricity supply industries are less than 8% of the country’s total population, but the total of their salaries and off-the-book income correspond to 55% of the total salaries of employees throughout the country. The phenomenon of “strong capital and weak labor” is obvious.

2. Supply of basic public services is inadequate and unbalanced

The report of the 17^th National Congress of the CPC points out “improve the public finance system by focusing on the promotion of equalization of basic public services and construction of major function zones”. It can be seen that the advancement of equalization of public services has become an important item to improve our public finance system. In recent years, in compliance with the arrangement of the central government, finance has practically increased the input in people’s livelihood, and basic public services have acquired prominent effects. But on the whole, the supply of basic public services is inadequate in China, and the contradiction of unbalanced development is still striking.

With respect to the supply, for a long period, the criteria and area of basic public services were not clear, the investment in the field of public welfare services insufficient, the historical debt outstanding high, unable to meet social demands.

As for the urban & rural areas, rural basic public services severely lag behind with bad access. In terms of compulsory education, in 2008, the educational funds per student of primary & secondary schools in urban areas were respectively 1.2 and 1.3 times of rural areas, the teachers with an advanced degree of middle schools in urban areas almost twice. As for medical & health care, in 2008, the number of sickbeds per 1000 people of urban areas was 4.22 times of rural areas, medical & health personnel per 1000 people 2.52 times. However, the moralities of infants, children below 5, pregnant and lying-in women of rural areas were respectively 2.8, 2.9 and 1.2 times of urban areas.

In terms of regions, the level of public services is positively correlated with that of the economic development, but the gap of public services between regions is greater than that of economic development levels. In recent years, the difference coefficient of per capita GDP between regions has been gradually narrowing, but that of public services is still large. In 2008, the difference coefficient of per capita local financial expenditure for education, social security, employment, and medical & health care was 0.529, far greater than that of per capita disposable income of urban residents in the same period (0.267). As a further example, currently, the gap of educational funds per pupils between provinces is huge with the ratio of the highest to the lowest being nearly 10 times, and the standard financial subsidy for the new cooperative medical care system between regions at most by more than 4 times. These data all reflect the huge gap existing between regions.

In addition, the gap between groups is also huge. The rights and interests of low-income families and disadvantaged groups in urban & rural areas in basic public services have not been fully secured yet. Some Opinions on Addressing Rural Worker Issues issued by the State Council in 2006 puts forward several guidance opinions on rural workers' wages, employment, labor protection, social security, and reform of the household registration administration system. The implementation of these policies and measures has greatly improved rural workers’ overall situation. But the gap of income and basic public services between rural works and the urban resident population is still large. The coverage of the basic social security system among rural workers is small. In 2006, the work on incorporating rural workers into the basic medical insurance made great progress: a total of 23,670,000 rural workers participated in the insurance, with an increase of 18,780,000. But the ratio of rural workers incorporated into the basic social security system is still low. According to the investigation data released by Chinese Academy of Social Sciences, the ratios of endowment, unemployment, medical, employment injury and female employees’ mutual insurances for rural workers are respectively 33.7%, 10.3%, 21.6%, 31.8% and 5.5% at present, far below urban residents. Rates of rural workers’ participation in enterprise supplementary insurance, employee’s mutual insurance and commercial insurance are even lower, which are respectively 2.9%, 3.1% and 5.6%. The survey conducted by the National Bureau of Statistics indicates that 74.81% of rural workers have not participated in any insurance; the ratios of rural workers’ endowment, medical, unemployment and employment injury insurances purchased by their units are only 11.89%, 12.61%, 8.41% and 23.09% respectively (http://www.people.com.cn/, 2008).

3. Poverty reduction is facing new challenges

As mentioned previously, our development-oriented poverty reduction in the recent two years has made remarkable achievements, basically solving subsistence, food and clothing problems for the poor of rural areas. Based on the original standard of the poverty reduction, the impoverished population of rural areas by the end of 2012 decreased to 26,880,000. It implies that China has accomplished the goal of halving the impoverished population in MDGs set by the UN ahead of schedule and made great contributions to the global poverty reduction. But we must realize that China, as a developing country with a large population and shaky foundation, has an extremely outstanding poverty problem. Therefore, the country’s poverty reduction confronts new situations and problems.

Firstly, as per the country’s new standard of the poverty reduction, the poor population in rural areas is huge. Based on the reality of the economic and social development, raising the poverty reduction standard in due time is an international practice. Currently, 88 developing countries have poverty reduction standards. Over the past two decades, 35 countries have adjusted their poverty reduction standards. In 1986, China formulated the poverty standard of RMB 206. In 2000, China applied the poverty standard of RMB 625 and low income standard of RMB 865. In 2008, the country unified the two standards, using the uniform poverty reduction standard of RMB 1067, which was increased to RMB 1274. In 2011, China conducted a new poverty reduction standard of RMB 2300. Based on the new standard, the impoverished population in rural areas in China will rise from 26,880,000 to 128,000,000, taking up 13.4 of the registered rural population.

Secondly, the income level of the population in poor regions is low. The income index is comprehensively reflects the poverty condition. The income of farmers in poor regions is always below half of the national average in the recent decade. Per capita net income of the farmers in the key counties the poverty reduction aims at accounted for 59.40% of the national average in 2000, 53.0% in 2005, and 55.3% in 2010.

Thirdly, the condition of insufficient infrastructure and public services in poor regions is serious. The development of infrastructure of rural areas such as water, transportation, communication and power still falls behind urban areas, and the shortage of the most basic public services, such as medical care and education is severe.

Fourthly, China’s poor area is of wide scope and the task of poverty reduction in these areas is extremely tough. As per the new poverty reduction outline (2011-2020), China has defined 14 contiguous destitute regions, including 680 counties. These regions are commonly characterized by bad natural conditions, vulnerable ecology, weak financial & economic foundation, poorly educated population and striking phenomenon of poverty & repeated poverty resulting from illness. Thus, they are the regions with the most poverty reduction targets, the highest impoverishment rate and the most difficult poverty reduction assignments, which demand more policy support and financial investment of the country and all social circles.

III. Short & Mid-Term Fiscal Policies to Advance China’s Inclusive Development

The accomplishment of the inclusive development is not only a long-term strategic objective, but also an important, realistic and urgent task, which currently raises concern of all social circles and is supposed to be solved by the government. According to the theoretical and empirical analysis above, the basic approach of the short and mid-term fiscal policy supporting the inclusive development is to improve policies, increase the input, specify the direction, concentrate on key points, solve outstanding contradictions, and practically reinforce pertinence, effectiveness and perspectiveness of policies to realize the inclusive development step by step. In view of this, three policy proposals below are put forward:

(I) To make use of the adjustment function of finance to advance income distribution of society from unbalance to equality

1. To improve the tax policy. The tax policy performs not only the income function but also the adjustment function, which plays a vital role in income distribution. The focuses of reform include four aspects.

Firstly, the government should reform the individual income tax system. The individual income tax is a significant tool to adjust the income gap. China carries out the classified income tax system at present. For tax equality and income gap reduction, the government has continuously raised the cutoff point of the individual income tax in recent years. However, the individual income tax is not brought into full play in the adjustment of the income gap, and the problem of tax inequality is outstanding. Compared with developed countries, China takes individual income as the deduction standard without consideration of family burdens, as individuals with the same income may bear radically different family burdens, but they have to pay the same tax under the current tax system. Hence, the government should reform the individual income system, and implement the individual income system which combines integration and classification instead to incorporate expenditure for residents’ marriage, family support, education, old age support and others into the family unit’s deduction amount without tax paid. In the meantime, the government should firmly strengthen the tax administration.

Secondly, the government should support employment and entrepreneurial activities through the tax policy. Employment and entrepreneurial activities are top priority of the guarantee and improvement of people’s livelihood, so special groups (e.g. undergraduates, rural workers and special disadvantaged groups) should be given preferential tax policies. The cutoff point of the income and business taxes of small and micro-enterprises can be further raised, and the tax rate lowered from 20% to 10%. Meanwhile, the government should clean up and eliminate related charges, and allow the social security payments to be postponed in a certain period. To change the tax items of the business tax into value-added tax is a significant reform, which plays an important role in alleviating enterprises’ taxes and boosting the tertiary industry’s development. It is recommended to summarize experience based on the expansion of pilot area in ten provinces and cities this year to generalize the reform nationwide as soon as possible.

Thirdly, the government should step up the issuance of the house property tax reform. The measures of limitations on house purchase currently taken by the government are just transitional, and the house property tax should be unveiled to replace limitation measures in time. In addition, it performs unique functions in the reasonable regression of house prices, prevention of bank risks and advancement of the long-term and healthy development of real estate and economy. The basic policy framework of the house property tax is to incorporate first-hand and stock houses into the tax scope, define the tax allowance as per the appropriate per capita area rather than the number of houses, take the evaluated value as the tax base (the house property tax should start with a low tax rate), properly entitle local governments to certain rights of tax autonomy on the basis of uniform tax policies, and develop the house property tax into a major tax of local municipal and county governments.

Fourthly, the government should improve the tax policy of the third distribution. Nowadays in the international society, national income distribution is divided into primary distribution, redistribution and the third distribution. The third distribution means collecting certain income from the affluent class by means of donation and welfare to support and assist the disadvantaged groups in society. It is an important complement to redistribute the governmental finance and a significant method of social assistance. The government should learn from other countries’ experience to actively encourage the development of charity, formulate laws of charity promotion, and establish the donation tax exemption mechanism to create a good social atmosphere for the third distribution.

2. To improve the government policy of financial expenditure. Firstly, the government should support the reform of social security, and increase the share of social security expenditure of finance. In the recent years, the reform of the social security is greatly intensified and the framework of basic systems has been established. The target mode in the long term is to make the rural and urban social security systems unified, but certain difference on the social security systems between the rural areas and the urban areas in the short & mid term is still unavoidable. With the economic development and the improvement of the level of the national financial resources, the central and local financial authorities should properly increase the expenditure share of social security and subsidy levels at right time, and meanwhile establish the budget management system of social security funds to make the social security become the real safety valve of social stability. Other countries’ experiences indicate that, due to the large covering area of social security, lots of contents of security, large population and expenditure demands as well as high necessity of expenditure, attention must be paid to the sustainability of finance to prevent the involvement of welfare entailment and debt crisis that currently the western countries are generally confronting.

Secondly, to make full efforts to ensure educational equality. Educational equality is the starting point of social equity, and is the important approach to narrowing the differences of different groups’ development. Efforts should be made to improve the investment mechanism, improve the condition for running a school, promote the balanced development of education between regions, urban and rural areas, and between schools, push the resource allocation of public education to incline towards the vulnerable areas. Special attention should be paid to the issue of supporting the children of rural migrant workers to receive the compulsory education, and gradually incorporate it into the scope of public schools of the town. Resolve the problem of “discrimination against school attendance” that long exists in the past.

Thirdly, to support the services of employment and starting the business. The poverty of the urban households is related to the employment of the family members. The differences of individual income also have close connections with employment status and the industry the employment belongs to. Therefore, it is necessary to strengthen the supports of the finance to the employment and the establishment of a business. Efforts should be made to stimulate the motivation of university graduates, home-going rural workers, etc. to establish a business, strengthen the training of enterprises and services for establishing a business, implement and improve the supportive policies to encourage the enterprises, create the environments beneficial to establish a business, improve the success rate of establishing a business, boost the shifting employment of surplus rural labor, further improve the comprehensive mechanism of vocational training, employment service and rights protection of labor, gradually solve the problems of employment, settlement, school attendance of their children and social security of the rural workers in the cities or towns, and actively and prudently promote the process of urbanization of rural workers.

3. To adjust profit distribution pattern of the state-owned enterprises, and improve the state-owned capital management budget system. The over-monopolization pattern of state-owned enterprises tends to be more serious. It is obvious that the distribution relations between the state and the enterprises are irrational, being an important factor to influence the fair distribution of income. The related data suggests that the profits made by the state-owned enterprises in 2009 reached RMB 1,300 billion, and nearly RMB 2000 billion in 2010, up by 37.9% over the same period of previous year. The proportion of profits delivering to the state was supposed to be within 5 to 10%, but only 6% in 2009 actually, and as low as 2.9% in 2010. However, the average dividend proportion that the listed companies pay to the shareholders is around 40%. In other countries the dividends delivered by the state-owned enterprises generally take up 1/3 to 2/3 of the profits, and some even high up to 80-90%. In addition, the dividends paid by the state-owned enterprises mainly are transferred within the enterprise system, and there is no obvious inclination to benefiting the public. The total operating revenue of the state-owned capital in 2011 was RMB 80.061 billion, and the expenditure was RMB 76.954 billion, wherein RMB 72.36 billion was returned to the enterprises in the name of various items, but the transferred capital used for the expenditure of public security was only RMB 4 billion, taking up 5.2% of the operating expenses of the state owned capital. Accordingly, the next step is to deepen the reform, adjust the distribution relations between the state and the enterprises, and improve the budget system of state owned capital management. The basic considerations are to strengthen the collection of state-owned capital management revenue, promote the reform of the monopolized industries and sectors, and generally plan the expenditure of state-owned capital operation budgets. The government should combine with the elimination of supporting reform of over-monopolization of the state-owned enterprises, and strengthen the collection of state-owned capital management revenue so as to reduce the revenues of enterprises and decrease the interference of the market order due to the over-high monopolistic profits of the state-owned enterprises and franchise fee revenue. The government should also increase the income of the governmental departments, and centralize the profits of the state owned capital which are used to increase the frequent transfers of the residents and improve people’s livelihood by using the state owned capital. These measures are aimed to greatly strengthen the collection of state-owned capital management revenue and properly assign the state-owned capital operation budgets under the framework of the state-owned capital management budget initiated in 2007.

(II) Innovation in financial system and distribution mechanism will substantially promote the equalization of basic public services.

1. To make great efforts to adjust and optimize the financial expenditure structure. In accordance with the requirements of market economy and actual situation of China, the elementary direction of financial expenditure structure of China in the future is to maintain expenditures in some areas while reducing them in others and push forward both the incremental adjustment and the stock adjustment at the same time. Only in this way can the basic public services have more realistic and dependable financial base.

Firstly, we should accelerate the reform of fiscal mechanism, practically resolve the problems of expanding institutions, large population fed by finance and the heavy financial burden, so as to maintain the administrative expenditure within a reasonable scope. Meanwhile sequential measures should be further taken to reduce the three public consumption expenditures.

Secondly, the government should improve the financial investment policy. Finance should be excluded from the investment of general competitive fields to improve the too wide scope of financial investment and too evenly funding.

Thirdly, the government should gather financial resources and increase the investment for the people’s livelihood, in particular the expenditures on the basic public services, such as education, medical treatment and public health, employment service, social insurance and ecological environment. The central government and local authorities should make sure that the growth will be adaptable to the increase of the financial resources and the basic public services, as well as boost the expenditures on the basic public services in accordance with the permanent resident population in the areas.

2. To improve the transfer payment system. The scale of transfer payment should be further expanded, and the structure of transfer payment optimized in the future. By aiming at balancing the differences of the financial resources among areas and realizing the equalization of basic public services for the design of transfer payment system, the functions of transfer payment to adjust the differences of the financial resources among the areas and promote the equalization of public services can be better reflected.

Firstly, the government should expand the scale and the proportion of equalized transfer payment. Equalized transfer payment is the best form of transfer payment which fully embodies the effects of equalization, but in view of current situation, taking the year of 2009 for example, the equalized transfer payment is RMB 391.8 billion which takes up 16.5% in the total of transfer payment. Accordingly, the amount and the proportion should be gradually increased. A rise of 10 to 15% during the 12th Five-Year Plan period is recommended. Efforts should be made to further lay stress on the central and western areas of China in respect of allocation of funds, encourage to strengthen ecological construction and environmental protection in the prohibited and limited development areas, give greater supports to the resource exhausted cities, increase the transfer payments to the ethnic regions and help to accelerate the development of the minority areas.

Secondly, we should improve the calculation methods of equalized transfer payment in order to promote the equalization of public services. The government should formulate the standards of various basic public services, and gradually incorporate them into the scope of equalized transfer payment. Meanwhile, to improve the calculation methods of equalized transfer payment, it is necessary to consider the population scale, the population density, per capita GDP, environment, ecology, altitude, temperature, ethnic minorities, and cost variance between administrative and public services, and adopt standard formulated approach to allocate them according to the actual situations.

Thirdly, the government should regulate the current special transfer payment. It is required to sort out the items of current special transfer payment and strictly control the establishment of new special transfer payments. The items that are not in accordance with the current requirement and inappropriate to pay through special transfer payment should be withdrawn within a specified time limit; the items that are similar in the respects of direction and purposes and can be integrated should be integrated; the items requiring long time to arrange the budget subsidy and with a relatively fixed amount should be included in the general transfer payment. In addition, special transfer payment to the local government should be decreased. The expenditures within the scope of central government’s duties and responsibilities, such as the expenditure of police, should be borne by the central finance without further requirement for the payment of counterpart funds from the local government; as to the duties and responsibilities that belong to both the central and the local governments, when requiring the funds from the local government, due to the different financial systems that provinces set up, the central government is inappropriate to specify the unified proportion borne by provinces, cities or counties; the special funds involving the duties and responsibilities of local governments should be gradually withdrawn and will be incorporated into the general transfer payment.

Fourthly, the government should improve the management system of transfer payment, and promote the fairness and openness of transfer payment. It is required to allocate the funds scientifically and rationally through actively applying the formula methods and the factor methods, reduce the randomness of funds allocation and intensively use supervision and performance appraisal. When the allocation methods of general transfer payment are published, funds management method of the items of special transfer payment that involves people’s livelihood should gradually be open to the public in order to promote the transparency and strengthen the supervision of the public.

3. To accelerate establishment of county-level basic finance security system. Firstly, we should make clear principles and the direction of the reform. It should be in accordance with “make clear objective, focus on the local, awards and subsidies from the central government, and implement step by step” to construct the county-level basic finance security system. The so called “make clear objective” means that the basic financial resources at the county level should be ensured to have “three protections”, so as to promote the equalization of financial resources at county level and the social and economic development of counties; the so called “focus on the local” means to adapt to the county-level basic finance security system and take the local finance as the main responsibility; the so called “awards and subsidies from the central government” means that the central finance should give more subsidies to the less developed areas and give the corresponding awards to the areas where the county-level basic finance security system is carried out well; the so called “implement step by step” means that experience should be spread throughout the country after successful application in trial pilots.

In addition, the government should reform the county-level basic finance security system through institutional innovation. “Set no upper limit or minimum guarantee” is changed to “set no upper limit but impose minimum guarantee” to further consolidate and expand the achievement of and alleviate the difficulty of finance at county or village level. Currently the reform of province directly governing county more likely realizes the changes of the manner of allocating funds from the county and transferring funds from the province, but without any fundamental breakthrough in many respects such as duties and responsibilities, scope of revenues and expenditures, and transfer payment. In view of this, the next step is to construct the county-level basic finance security system, which requires further reform in the aspects of expansion of the scale of bonus and subsidies, reinforcement of the provincial regulatory capability of the security measures. The methods of fund obligation should be rationally determined according to the planned objectives. After the new system is introduced, the coverage and extensionality of the policy become relatively large.

Although the bonus and subsidies that the central finance inputs increase, the guiding function seems not enough. The obligations of the funds should be relevant to the objectives the policies. The scope, standards and demands of county-level finance “three protections” should be scientifically determined. In terms of the scope and standards, consideration should be given to both the advancement of the superficies and the emphasis of the improvement of the level of security. As to the security measures, the policy funds that have relatively good financial resources from the superior should be guided to fully play its inner growth drive, while to those relatively limited financial resources, they should be driven through the increasing control from the superior.

4. The government should actively boost innovation of basic public service supply system. Innovation is the requirement of the basic public service supply system to transform the governmental functions and improve the administrative effectiveness, and also an important means to heighten the efficiency of public service supply, promote the equalization of basic public services and ensure fair income of people in poverty.

Firstly, the government should make sure that the low-income group of people can benefit from public services. In particular we should reduce and even eliminate various limitations to the basic public services to ensure that the basic public services are available to all the people in poverty. For instance, in the process of boosting the basic public health services, promptness and availability for the low-income and poor people to receive the public services should be paid enough attention when designing various items of services. The poor should benefit fairly from the basic public services.

Secondly, the government should establish a diversified basic public service supply system, and spread the poverty alleviation in the society. As the government control the resources of public welfare, the central government should diversify the supplies of basic public services and make the social organizations play a role in it. The market mechanism should be established, in order to improve efficiency and quality of public services. For some areas of basic public services, including basic education, medical & heath care and employment training, etc., reform to the traditional budget allocations and direct holding and provision of the government is encouraged to discover and innovate in the effective supply mechanism. In particular, the government can replace the traditional allotment method of education and health with “education tickets and health tickets”, admittance restriction of basic public service investment is eased. The innovation in the governmental investing system of basic public services is achieved via procurement auction, contract rent, franchise business, government equity participation and so on to hand over the government’s direct supply functions to the subject of market and transform the government’s main responsibility to fund raising and supervision.

Thirdly, we should establish the demands and interests expression system of basic public services. The establishment of the demands and interests expression system of basic public goods in the depressed areas so that the kinds of public goods the poor areas need, their preferences, the priority, the quantity in need and the interests claims can be fully expressed through suitable mechanism and transformed to references for the government to make policy decisions and the goal of action by means of certain procedures. It is of great significance for the establishment of the demands and interests expression system of basic public goods in the depressed areas to keep balancing the relation of the local public goods supplies and demands, reduce the wasting of public resources, lighten the burden of farmers, protect the rights of poverty-stricken population in rural areas, improve the relationship between cadres and masses, and maintain social stability. It is also necessary to establish the system of the governmental administrative promises, hearing system, and information referral and consultation system to ensure the public service can fully embody the demands of the public.

(III) To strengthen financial supports from government, and greatly boost poverty reduction and development in centralized poverty-stricken areas

1. To establish and improve nationally & socially diversified poverty-alleviation input system. Poverty alleviation is a social public welfare establishment. The public finance plays a significant guiding role in addressing poverty problems. It should be noted that poverty reduction in poor areas involves the industrial growth, public services’ provision, resident income increase and so on. It is not enough by relying on the single channel of public finance. Therefore, it is essential to establish a diversified poverty-reduction input system nationally and socially.

Firstly, the government should ensure a reasonable growth of financial investment in poverty alleviation. The growth in financial funds for poverty alleviation should adapt to the governmental functions, the growth of national financial resources, the occurrence of the poverty and the requirement of aid-the-poor development. The central government and local authorities should emphasize investment on poverty alleviation, and increase the relevant proportion of poverty alleviation funds in budgetary expenditure.

Secondly, the government should put the stress of the central government transfer payments to the poor areas. The government should take local financial recourses per person as a core element of equalization of transfer payments. It should also increase the assignment share in the depressed areas for every special transfer payment and lay more stress on the poor area for every type of transfer payments at the provincial level.

Thirdly, the government should continuously maintain and gradually expand the size of the aid-the-poor credit funds. It is necessary to investigate and formulate the strategy and policy of the aid-the-poor credit funds. Through improving finance interest subsidy policy, the government should guide banks in increasing investment in the aid-the-poor credits and reduce the burden of loan interests in the poor areas.

Fourthly, the government should encourage the cooperation between diverse economic sectors, especially the private and foreign funded companies to carry out investment and development in the poor areas. On the basis of the financial preference and taxation policy, the government should pay attention to create a favorable investment environment.

2. National public policy should be favorable to poor areas. Rural anti-poverty activities should be incorporated into the overall planning of economic and social development of the state, and relevant national policies should sway toward the poor areas and the impoverished population.

Firstly, we should implement policy for differential industry development. The country formulates the catalogues of encouraged industries in the impoverished areas and priority industries for foreign investments, and furnishes preferential policies in the aspects of examination, approval, investment, land use and others of projects.

Secondly, the government should boost the investment supports from the state to the depressed areas. Special funds from relevant national departments should be invested in favor of these areas, and increased for the proportion of investment grant and capital funds in the construction projects of highroad, railway, civil aviation, water conservancy, forestry and other fields.

Thirdly, the government should formulate preferential land policy. Priority of the index of national newly-added construction land should be given to building the houses for resettling residents in these areas, and at the meantime the exploration of new approaches to increasing the quality of the arable land should be supported through investigation on the premise of supplementing the same area of arable land and balance between occupation and supplement.

Fourthly, the government should determine the indexes of energy saving and pollution reduction, and as well as that of the emission load of main pollutants in these areas. Industrialization in the poor areas is relatively low, and the economic development is hard restricted by environment, so district differences should be taken into consideration when formulating relevant national environmental constraint indexes. Meanwhile the central finance should strengthen the elimination of backward productive forces and closing down of small-sized enterprises in the poor areas.

Fifthly, the counterpart funds concerning relevant subsidy funds from the central government in these districts should be canceled. The local supporting policies that the central government has been applied for many years are to stimulate the local’s initiative in investment, but the local administration is usually unable to form a complete set due to limited financial capacity and even has fault matching. Therefore, it is necessary to cancel the counterpart funds at the county level or below for the construction projects of various public welfares arranged by the state for the poverty-stricken areas.

Sixthly, the government should implement preferential tax policy. It is by way of tax deduction, investment compensation, reduction in revenue, additional deduction and etc. to support the development of the poor areas. Meanwhile, the reform of resources tax should be propelled. In accordance with unified arrangement, the products adaptable to ad valorem duty will be charged for the ad valorem duty, and the standard tax rate of crude ores of parts of black metals, nonferrous metals and other nonmetallic ores should be appropriately increased.

3. The government should make clear the direction of national financial investment. First of all, the government should break through the restriction and limitation of infrastructure construction. The centralized poor areas are mostly located in the mountainous and remote regions where the infrastructure is still fallen behind, so it is urgent to firstly solve the problems such as safe drinking water, roadway, power supply, communication and small-sized water resource facilities by centralizing financial resources. Meanwhile the transformation of rural dilapidated houses in poor areas should be included into the scope of state subsidy. The “case-by-case” national infrastructure in rural areas should be favorable to the depressed areas. Resettlement for people in the areas where life condition is harsh and unsuitable for human beings to inhabit should be gradually carried out.

Secondly, the government should expand the leading industries of poverty-alleviation. Great efforts should be made to continuously support the competitive industries with traditional characteristics. Most of the poor areas are “county with enormous grain yield but of poor finance”. The government can support the development of agricultural production of the poor areas through many activities, such as increasing the purchase price of grains, enhancing the supports to the agricultural production, raising the share of transfer payments in the key counties producing the grains, linking the output and export amount of grains with the awards and subsidies to the big grain-producing counties and so on. In some of poor areas in China, the cultivation of leading industries such as potato, economic forest and fruit trees, grassland animal husbandry and cotton is stressed. Therefore, the relevant policy support from the government should be given. Additionally, developing new rising industries or strategic new rising industries, such as the tourism, the environmental protection and energy conservation industry as well as new energy industry in the poor areas should be actively supported, which is the strategy adopted in the depressed areas to optimize the industrial structure and develop the economy.

Thirdly, we should promote the capability of self-development. Education is the foundation for banishing poverty and becoming prosperous. Therefore, the next key step for poverty alleviation is to strengthen education, namely establish the system of steady growth of public expenditure for primary and middle schools, ensure education funds for per student can reach the national level at the end of 12^th Five-year Plan period, and consolidate and improve the educational level in the poor areas. Free vocational education should be developed to a large extent to enable the students who are unable to enroll in the high school or universities from the poor areas to immediately transfer to the vocational educational system for the study of specialized skills.

References

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The article is part of the background report of the “10·17 Poverty Reduction & Development High-Level Forum—Inclusive Development & Poverty Reduction” of the Chinese Government in 2012.