Why local governments need performance evaluation: intermediary institutions in the performance-based budgeting process in China

Performance-based budgeting (PBB) focuses on how to use performance indicators and measurement information during the budgetary process so that the public sector and governments can manage public resources more efficiently and effectively. Since the 1980s, PBB has been popular in public budgeting reform around the world. However, there is no universally accepted definition and practical model of PBB. In China, for over 10 years now, there has appeared a role for special Performance Evaluation Intermediary Institutions (PEIIs) in the PPB and these have become an important participant in the budgetary process. This research will firstly introduce the characteristics and development of PEIIs in China. Secondly, it will try to reveal why local governments increasingly depend on PEII in the PBB process. There are three main reasons: the first is to make up for governments’ limited technical capacity in performance evaluation; the second is to increase the credibility of performance evaluation among stakeholders; and the third is to move debate about resource allocation from within government to wider external forums. Finally, this research presents and discusses three findings: firstly, the better capability the PEIIs have, the bigger impact the PEIIs can have; secondly, that trust between the PEII and the local financial department is a very important success factor; and thirdly, the characteristics of local governments and financial departments affect the role and impact of PEIIs.