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3. Effective Governance
3.1 Democratic Representation
3.2 Lack of Corruption
3.3 Efficient Administration
In-Country Assessment Information

Corruption is pervasive in the land taking process, bidding for land use rights, and in property transfer procedures. In some cases, mediators have to be employed to deal with government officials. Because tax burdens are heavy, some small businesses find a way to build a good relationship (guanxi) with key tax officials so that tax burdens can be reduced. That often involves dinners, entertainment, vacations, or gifts. If companies do not have good relations with tax officials, tax bureaus may send inspectors to check a business’s tax payment records. Usually they are able to identify some faults and charge fines. Similarly, one also has to build and maintain good relations with local officials in bureaus of industry and commerce, bureaus of health, bureaus of environmental protection, and others.

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3. Effective Governance – Very Weak

 

Goal – A popularly elected government free of corruption and functioning efficiently and transparently enough to guarantee economic freedom to individuals and support equitable property markets

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3.1 Democratic Representation

Core Question: Does the country have free and open elections for the leadership and can citizens engage in free enterprise? No – Very Weak, the state still directs most economic activity and the Communist Party, while allowing some response to market forces, still maintains ultimate authority over economic decisions.

3.1.1 Voice & Accountability
3.1.1.1 Are citizens able to elect their government and do they enjoy freedom of expression, association and a free media? No – Very Weak – Percentile Rank – 5.2 Trend ↓

Sources:Governance Matters 2010, World Bank, www.govindicators.org

3.1.1.2 Are citizens free to form political and civic organizations free of state interference and surveillance? No – Very Weak – Score 1.18 out of 10, the formation of political organizations is forbidden. The registration of civic organizations is subject to difficult procedures. Overall Ranking – 136th out of 167

Source:The Economist Intelligence Unit Democracy Index 2010
http://graphics.eiu.com/PDF/Democracy_Index_2010_web.pdf;

Assessment by Unirule Institute of Economics

3.1.2 Public Information
Overall Ranking – Very Weak; Score 60 out of 100 (2009)

3.1.2.1 Are there regulations governing conflicts of interest in the executive and legislative branches of government?

Yes – Executive Score 49 out of 100 – Very
Weak; Legislative Score 31 out of 100 – Very
Weak. The enforcement is also very weak. Party decisions take precedent over regulations.

3.1.2.2 Can citizens access legislative processes and documents? No, Very Weak. Citizens cannot hear legislative debates and do not have access to the legislative processes and draft legislation.

Source:Global Integrity Report – http://report.globalintegrity.org/China/2009;

Assessment by Unirule Institute of Economics

3.1.3 Market Intervention
Overall Ranking – Very Weak 140th out of 179 Trend ↓

3.1.3.1To what extent does the government intervene in the private sector including state-owned industries? Score 87 out of 100 with a higher score indicating less intervention. There has been a trend toward re-nationalization, and interventions have increased since 2003.

3.1.3.2 To what extent does the government control prices? Score 75.3 out of 100 with a higher score indicating less control. The government sets ceilings for the price increase of some goods. State-owned enterprises monopolize essential sectors such as railways, civil aviation, petrol industry, coal mining, etc.

Source:Index of Economic Freedom 2011 – Heritage Foundation
www.heritage.org/index/Country/China;
Assessment by Unirule Institute of Economics

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3.2 Lack of Corruption

Core Question: Is the public sector transparent and free of corruption? No – Weak, anticorruption efforts in China are at a crucial juncture, with certain progress already made but facing a long road ahead.

Transparency
3.2.1 What is the perceived level of corruption in the country? Ranking – 78th out of 178; Score 3.5 out of 10 – Weak, Trend = The government continues to deny the necessity of building checks and balances into political and administrative systems, to the detriment of further taming unchecked power and the related corruption.

Source:Corruption Perception Index 2010, Transparency International www.transparency.org/policy_research/surveys_indices/cpi/2010/results;

Assessment of Unirule Institute of Economics, 2011

Integrity Mechanisms
3.2.2 A National Integrity System is a framework where the principle institutions that contribute to integrity, transparency and accountability in a society can address corruption in a systematic way. Does a National Integrity System exist? Weak. There are anti-corruption bureaus under people’s protectorates, courts of audit, and party discipline committees but a proper and effective anti-corruption framework has yet to develop.

Source:National Integrity System Assessment, Transparency International http://archive.transparency.org/policy_research/nis/nis_reports_by_country

Extralegal Payments
3.2.3 How often do companies report that officials and/or companies expect additional payments to “expedite” services or gain business? Pervasive. According to a 2003 survey of the World Bank72.5% of firms say they are expected to make unofficial payments – High Occurrence – Very Weak.

Source: Enterprise Surveys, World Bank 2003, http://www.enterprisesurveys.org/Data/ExploreEconomies/2012/china

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3.3 Efficient Administration

Core Question: Are quality services and qualified civil servants available to the public through the efficient use of public money? Yes – Strong, there has been improvement in recent years. More and more officials are increasingly accountable for their decisions.

Size of Government
3.3.1 What is the size of government relative to GDP? Around 31%-33% during recent years – 25 to 30% considered optimum – Weak, 19.9% in terms of the budgetary revenue as a ratio of GDP. However, if including budgetary revenue, government funds, extra-budgetary revenue, land transfer revenue, and social security funds, the size has reached 31%-33% during recent years, which reflects a truer size of government.

Source:Index of Economic Freedom 2011, Heritage Foundation

www.heritage.org/index/Country/China;

Annual Report of Institute of Finance and Trade, Chinese Academy of Social Sciences, 2010.

Civil Service
3.3.2 What is the quality of the civil service? Strong – Score 71 out of 100

Source: Global Integrity Report – http://report.globalintegrity.org/China/2009

Government Effectiveness
3.3.3 What is the overall effectiveness of the government? Strong – Percentile Ranking – 59.8 Trend =

Source:Governance Matters 2010, World Bank, www.govindicators.org

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In-Country Assessment Information

FQ17: What is the actual experience of small businesses in dealing with the government, particularly the number and complexity of required procedures and the prevalence of extra payments to facilitate services such as licenses or permits?

Small businesses have very little protection from government appropriation of property. While overt payments are decreasing, officials often expect to be treated to dinner or presented with a gift or entertainment. Some small companies report having to make extra-legal payments to go through simple administrative procedures.Tax burdens imposed upon many small businesses are heavy. Therefore, many small businesses find a way to build up a good relationship (guanxi) with key tax officials so that tax burdens can be reduced.If companies do not have good relations to tax officials, tax bureaus might send tax inspectors to check on the business and its tax payment records. Normally they will identify some faults and charge fines.Similarly, one has also to build up and maintain good relations to some officials in bureaus of industry and commerce, bureaus of health, bureaus of environmental protection etc. Some companies invite credit officials to dinners, entertainment, or vacations, and present gifts to credit officials.Small businesses also have problems with dealing with city governments when it comes to property transactions. City governments monopolize the primary land market. They reserve parcels of land after the land taking, construct infrastructure there, and resell these parcels for profit. They are price makers. Although the use rights of such land are transferred through a system of tender, land auction, and land listing, urban governments control land supply to increase the selling prices. Such a system involves plenty of cheating and insider control problems. Also, government collects many taxes and fees from the real estate sector. This contributes to the increase of the property prices, which is detrimental to the development of small companies.

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