Beijing’s Budget Balancing Act – Andrew Batson

From The Wall Street Journal:

China’s premier is trying to get his nation’s $2.6 trillion economy to change course. That requires him to maneuver very deftly. Wen Jiabao, delivering his annual report on the work of the government to the legislature yesterday, promised a significant boost in state spending on social services, as well as a smaller budget deficit. That combination demonstrates the balancing act his administration is performing as it tries to spread the benefits of China’s booming economy more widely in the country — without disrupting that growth. The administration of Mr. Wen, who took office in 2003, has been trying …

……Because of that history, China’s spending on social services remains extremely low by global standards. Spending on health care by central and local governments totaled just 131.16 billion yuan in 2006, or about 0.6% of GDP. According to the World Bank, developed nations spend an average of 6% of GDP. For China to achieve a similar level, it would have had to spend 1.26 trillion yuan last year.

Health-care spending is indeed set to increase this year, but China can’t make up such a big gap all at once. The government is following its usual path of trying out new programs in one or two provinces, working out the kinks and then rolling them out to a broader swath of the nation.

One important consequence of the new wave of social programs is a stronger role for the central government in providing, or at least funding, social services. That is a reversal of the previous tendency for local governments to shoulder most of the burden. In one example, the Ministry of Finance said that “policy changes will result in the central government replacing local governments as the main source of funding for prevention and treatment of major communicable diseases.”

And through crackdowns on the confiscation of land and on environmental pollution — problems that have spawned serious social unrest — the central government is also gradually curbing the power of local authorities. [Full Text] (subscription only)

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