Reforming the System of Fiscal Management

Since 1980, the central government has carried out, with regard to Guangdong Province, a fiscal contract system epitomized by the policy of "delineating [central and provincial] revenues and expenditures; fixed quotas of revenue remission; no change in five years." From 1985 on, the center continued to apply the method of general contracting vis a vis Guangdong making the province remit revenue to the state at fixed quotas while making certain adjustments in the quotas in accordance with the unified regulations regarding "drawing distinctions between different kinds of taxes." During the same period, the province also made certain corresponding reforms in the municipalities' and districts' system of fiscal management. This means that from 1981 on, a fiscal management of "delineating [provincial and lower-level] revenues and expenditures and contracting to different levels" had been implemented. Then, from 1985 on, the new system of "drawing lines of distinction between kinds of taxes, auditing and fixing revenue and expenditure standards [for the local levels], and contracting to different levels" was implemented. The specific contents of this new fiscal system included: (1) A special system in which the locality was permitted to retain all of its revenue [for development purposes] was implemented in the Special Economic Zones of Shenzhen and Zhuhai Municipalities, and in the Shantou (Swatow) Special Economic Zone; (2) with regard to Guangzhou Municipality, a policy of "fixing a base figure, with revenues remitted at a fixed quota, with the incremental surplus revenue shared [between] the province and the locality on a percentage basis." The ratios for the disposition of the portion of revenue over and beyond the fixed base figure would be: 40 percent to be remitted to the provincial treasury; 60 percent to be retained by the municipality; (3) with regard to five municipalities, namely, Foshan, Jiangmen, Shaoguan, Zhanjiang, and Maoming, a method of contracted incremental increases was implemented. This means that the amount of revenue to be submitted upward would be gradually increased, and at the following incremental rates: Foshan, Jiangmen, Shaoguan and Maoming (7 percent per year) and Zhanjiang (6 percent per year); (4) a method of "fixed amount subsidy" was implemented with regard to Shantou (Swatow) municipality and to the districts of Shaoqing, Weiyang, and Meixian, and Hainan administrative district; (5) with regard to the Hainan autonomous prefecture and the three minority nationality autonomous counties in "Yuebei" (Northern Guangdong), a method of "fixed amount subsidy" with a 10 percent annual increase was implemented. In addition to the above, a similar policy of fixed amount subsidy with an annual increment of 5 percent was implemented for a number of other hard-hit counties where revenues did not match expenditures.