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PubPol 751-001
The Chinese Economy
and Economic Policy
Lecture 5
Dr Liu Yunhua
Beijing Road System
5. Policy for Local Government
Operations and Infrastructure
Construction
5.1 The Role of Local Governments and
Their Behavor Pattern
5.2 Construction of Infrastructure and
Push for Industrial Development
5.3 Case: Decline of the World Largest
Solar Energy Company: SunTech
5.1 The Role of Local Governments
and Their Behavor Pattern
The Government System of China
The political system of China is a one party
system, the Communist Party of China. It is a
centrally controlled power system, with 23
provinces, 5 autonomous districts and 4
direct controlled municipalities, and Hong
Kong and Macao Special Administrative
Regions.
The
neighboring
countries of
China
China’s Provinces and Municipals
China’s Government System
The bureaucratic structure is of five
layers. The top one is the central
government. The rest are local
governments, province, prefecture,
county (city) and township.
The main leaders of the local
governments are assigned from the
direct higher level.
China’s Government System
Responsibility of and Economic
Resources of the Central and Local
Governments
The central government controls a large part
of the national tax revenue, energy and
mineral resources and the major large sized
state owned enterprises.
The land ownership system in China is very
special that the land in urban areas is owned
by the national government, while the land in
rural areas is collectively owned by the
village people.
China’s Government System
Responsibility of the Central Government
National defense.
National road, and other national
construction projects such irrigation system,
nuclear power station.
Research, high education and cultural
development.
National economic policy management, such
as industrial policy (subsidies), energy
security, food security.
Income transfers to balance national
development.
China’s Government System
Responsibility of the Local Governments
Local infrastructure construction.
Nine years national education, medical care,
social security.
Local economic development and
employment.
All other local social maintenances, such
social order, safety, and so on.
China’s Tax System
China has a similar tax system to western
market economy countries, with about 16
categories of them.
The current tax system was mainly
established in 1994 and reformed further in
2003 to accommodate the WTO member
requirements.
Started in 1st January 2008, tax privilege for
FDI investors was ended and the corporate
income tax rate was united for all
enterprises.
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China’s Tax System
Types of Taxes from Chinese Government Web
I. Value Added Tax
IX. City Maintenance and
Construction Tax
II. Consumption Tax
X. Tax on the Use of Arable Land
III. Business Tax
XI. Land Appreciation Tax
IV. Enterprise Income Tax
XII. Vehicle Purchase Tax
V. Individual Income Tax
XIII. Vehicle and Vessel tax
VI. Resource Tax
XIV. Stamp Tax
VII. Urban and Township Land
Use Tax
XV. Deed Tax
VIII. House Property Tax
XVI. Tobacco Leaf Tax
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China’s Tax System
The Chinese tax system is a mix of
consumption, income, property, and other
taxes.
In 2007, 57.2 percent of China’s total tax
revenue (net of export tax rebate) came from
consumption taxes, which consisted of a
VAT (net of export rebate), business sales
taxes and other consumption taxes; 29.1
percent came from income taxes; 5.7 percent
came from various property taxes and taxes
related to property investment; and the rest
came from other forms of taxes.
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1994, China reformed the tax revenue share
between the central and local governments.
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Wrongly jailed man wants
69.8m yuan compensation
Updated:
2012-11-30 02:51
By Wang Xiaodong ( China Daily)
A businessman wrongly imprisoned in
North China on tax-evasion charges is
suing the court that tried him, seeking
69.8 million yuan ($11.2 million) in
damages.
Jiao Zhanjun was exonerated on
appeal in 2011 after staying in jail for
two years (from 2001 to 2003) and a
legal battle that lasted eight years
(from 2003 to 2011).
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The Role of Local Governments
The revenue of local governments in China
comes from two sources, share of national
tax, about 30%, and other local government
revenues such as land sale, local SOEs,
license fees.
Duties of the local governments include
maintaining all the social responsibilities
such as medical care, education, social
security, infrastructure, social order and
economic growth.
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The local government behavior pattern
Since the promotion of government officers
are based on their performance, mostly in
economic growth, they will try all the
possibilities to do their best.
Resources over use, environment
deterioration, overuse of loans, surfacial
ways to increase GDP, all can be done.
Managing land sales is an important way for
local government revenue.
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The local government behavior pattern
Build economic and technological development
zones to attract capital to come in are typical for
growth.
Supporting new industries accordance with central
government policy is another one.
Over use loans resulted local
governments' debt to about 20
trillion yuan (3 trillion U.S.
dollars) in 2014. That amount
equaled about 30 percent of
China's gross domestic product
(GDP) in 2014.
Source: China National Audit Office
Ministry of Finance.
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What could be the right mechanism to
regulate the behavior of local governments?
Beautiful
China’s local
government
buildings
Bayannoer City
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Fuyang, Anhui
Kelamayi, Xinjiang
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Shanghai Pudong
new district and a
small alley on
Nanjing street
contrasts the uneven
development pattern
and government
policy.
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Chinese Solar Panel Giant Is Tainted by
Bankruptcy
By KEITH BRADSHER, Published: March 20, 2013
HONG KONG — It was the Icarus of the solar power industry. And,
on Wednesday, it fell to earth.
 The main subsidiary of Suntech Power, one of the world’s largest
makers of solar panels, collapsed into bankruptcy in a remarkable
reversal for what had been part of a huge Chinese government
effort to dominate renewable energy industries.
 The bankruptcy is a sign of the worldwide consolidation of the
solar industry, which has been crippled by a glut of products on
world markets and Western tariffs on Chinese products. It also
signals China’s unwillingness to continue to subsidize struggling
manufacturers in the industry, which is contributing to the steep
decline of its green energy pursuits.
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Conclusion
 Due to the nature of the local governments in
China, Chinese economy has a very strong selfexpanding mechanism, but the quality of GDP
need to be considered.
 China’s per capita income and people’s looks
fast improving living standard is in nominal.
 The potentials for crisis in Chinese economy
will be mainly in two aspects: excess
production capacity and over investment in
infrastructure, both may result in financial
crisis.
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Question:
There were a few times that China
faced the financial collapse very
closely, why did it not happened?
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5.2 Infrastructure Construction and Push
for Industrial Development
 Infrastructure construction and pushing
industrial development are two major tools
for both central government and local
government to stimulate the growth of
economy.
 During the past thirty five years process of
development, Chinese economy was in a
situation of demanding for both.
China’s investment in infrastructure after 1998
maintained at around 8% of GDP.
The main infrastructure China had developed
in the past decade:
Highways
Railroads and Big Bridges
High Speed Train
Water System
Telecommunications
Electricity
Industrial parks
Highways
According to the strategic plan for
highway development in 2005, by 2020,
China will establish a national highway
network, totaling100,000 kilometers,
about the length in the United States
today.
China has maintained its second place
in the world in terms of expressway
lengths since 2001.
The National Highway System
Bohai Rim
Yangzi
River Delta
Pearl River Delta
China reported 65,000 kilometers of highways
designed for fast traffic by the end of 2009,
second only to the United States.
The
Hangzhou
Bay Bridge
Completed in 2008,
the 36km long
Hangzhou Bay
Bridge is the
longest oceancrossing bridge in
the world spanning
across the
Hangzhou Bay on
the East China Sea
and crossing the
Qiantang River at
the Yangtze River
Delta.
Suzhou
Shanghai
Jiaxing
The Hangzhou
Bay Bridge
Hangzhou
Ningbo
The Hangzhou Bay Bridge
Jintang Bridge in Zhejiang, China with a length
of 26,540 meters, connecting Jintang Island and
Zhenhai, Ningbo.
The High
Speed Train
Plan in China
The Chinese
government
recently
announced
plans to invest
$1 trillion
dollars to build
42 new highspeed train lines
and expand its
rail system to
more than
68,000 miles by
2020.
The Wuhan-Guangzhou
High Speed Train
The increase of China’s road length, and other
transport constructions, thousand kilometers
Rail road
Highway
River
Airline
Oil pipe
1991
57.8
1041.1
109.7
559.1
16.2
1993
58.6
1083.5
110.2
960.8
16.4
1995
62.4
1157.0
110.6
1129.0
17.2
1997
66.0
1226.4
109.8
1425.0
20.4
1999
67.4
1351.7
116.5
1522.2
24.9
2001
70.1
1698.0
121.5
1553.6
27.6
2003
73.0
1809.8
124.0
1749.5
32.6
2005
75.4
3345.2
123.3
1998.5
44.0
2007
78.0
3583.7
123.5
2343.0
54.5
2009
85.5
3860.8
123.7
2345.1
69.1
2011
93.2
4106.4
124.6
3490.5
83.3
2013
103.1
4356.2
125.9
4106.0
98.5
2014
111.8
4463.9
126.3
4637.0
106.3
Two more important tools for local
government to promote industrial
development in China:
Construction of Industrial Parks and
lend it out to firms at a cheap rate.
Within every city, there is at least one
industrial park. There are totally more
than 7000 industrial parks in China.
Capital subsidy to preferred industries
such as high tech, clean energy, new
materials.
5.3 Case: Decline of the World
Largest Solar Power Company:
Wuxi Suntech
China has over 400 photovoltaic (PV) companies and
produces approximately 23% of the photovoltaic
products worldwide. In 2007 China produced 1700
MW of solar panels, nearly half of the world
production of 3800 MW, although 99% was exported.
As of 2012, China generates about 7 GW of power,
with recent announcements that target an additional
10GW of power by the end of 2013 with a target of
21GW of power by the end of 2015.
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2011 World top 10 photovoltaic producers
2011
Ranking
Market
share
Solar Module
Company
2010
ranking
Country
1
5.8%
Suntech
1
China
2
5.7%
First Solar
2
USA
3
4.8%
Yingli Solar
4
China
4
4.3%
Trina Solar
5
China
5
4.0%
Sungen Solar
6
China
6
2.8%
Sharp
3
Japan
7
2.8%
Sunpower
8
Philippines
8
2.7%
Hanwha Solarone
7
South Korea
9
2.3%
Jinko
>10
China
10
1.9%
REC
10
Norway
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Suntech （尚德）
Suntech Power Holdings Co., Ltd，has been
struggling since .
NYSE: STP - 8 Mar 11:09am ET: 1.29+0.07 (5.74%)
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Road to Suntech fraud paved with warnings
Published 8:52 AM, 7 Aug 2012, Updated 12:35 PM, 7 Aug 2012
Samuel Shen and Stephen Jewkes
A major lender to China's Suntech Power Holdings, a solar panel maker
which has been stung by a $690 million fraud linked to its expansion in Italy,
financed the expansion despite warnings from a business ally to avoid Italy's
scam-ridden solar sector.
US-listed Suntech, the world's largest supplier of solar panels, has lost 40
per cent of its market value since revealing on July 30 that €560 million
($A650 million) in bonds involved in securing the bank financing may never
have existed.
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o September 2001 Suntech founded. Solar expert Dr.
Zhengrong Shi founds Suntech in Wuxi, China.
o December 2005 Initial Public Offering on NYSE.
Suntech debuts on the New York Stock Exchange.
o April 2006 Suntech wins Olympic arena contract.
Suntech supplies modules for Beijing Bird Nest Stadium
for 2008 games.
o December 2006 Production expansion, Production
capacity expands to 300MW, ranking Suntech as the
third largest global solar manufacturer.
o December 2007 Nellis Air Force Base plant complete.
Suntech is the lead module supplier for the largest
photovoltaic solar plant in the Western Hemisphere.
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o April 2008 Suntech named solar energy development
company of the year. Frost & Sullivan recognizes
Suntech for excellent products and performance.
o March 2009 Suntech cells set efficiency record.
Suntech Pluto efficiency reaches 19% for
monocrystalline cells and 17% for polycrystalline cells.
o January 2010 Suntech announces 1st U.S.
production line. Suntech selects Goodyear, Arizona for
its first U.S. factory.
o March 2011 2 Gigawatt production milestone.
Suntech achieves a record 2 gigawatt solar cell and
module production capacity.
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Dr. Zhengrong Shi
Founder, Executive Chairman and Chief Strategy Officer
Dr. Zhengrong Shi is the founder, Executive Chairman of the board of
directors and Chief Strategy Officer. Prior to founding the company in
2001, he was a research director and executive director of Pacific
Solar Pty., Ltd., an Australian PV company engaged in the
commercialization of next-generation thin film technology, from 1995
to 2001. From 1992 to 1995, he was a senior research scientist and
the leader of the Thin Film Solar Cells Research Group in the Centre
of Excellence for Photovoltaic Engineering at the University of New
South Wales in Australia, the only government-sponsored PV industry
research center in Australia. Dr. Shi is the inventor for 15 patents in
PV technologies and has published or presented a number of articles
and papers in PV-related scientific magazines and at conferences. Dr.
Shi received a bachelor’s degree in optical science from Changchun
University of Science and Technology in China in 1983, a master’s
degree in laser physics from the Shanghai Institute of Optics and Fine
Mechanics, the Chinese Academy of Sciences in 1986, and a Ph.D
degree in electrical engineering from the University of New South
Wales in Australia in 1992.
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Three main reasons for Suntech decline
Government subsidy resulted too fast
expansion.
EU and US market shrink and protection.
Company management failure.
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Questions for Lecture 5:
1. How should we view the behavior pattern of
local governments in China, and what could
be the way to make the system more
efficient?
2. Is there any cultural reason in environment
pollution in China?
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End