਀㰀䴀䔀吀䄀 渀愀洀攀㴀䜀䔀一䔀刀䄀吀伀刀 挀漀渀琀攀渀琀㴀∀䴀匀䠀吀䴀䰀 㠀⸀  ⸀㘀  ㄀⸀㄀㤀 ㄀㤀∀㸀㰀⼀䠀䔀䄀䐀㸀 Zhu sets his record straight
By Wu Zhong, China Editor

HONG KONG - In a rare move, former Chinese premier Zhu Rongji has lashed out at "mistakes" in current government policy, indirectly criticizing his successor Wen Jiabao.

Speaking at the Tsinghua School of Economics and Management in April, Zhu, who served as premier from 1998 until 2003, took aim at education, housing, taxation and relations between the central and regional governments.

With the Chinese Communist Party set to select a new central leadership next year at the 18th National Congress, the remarks come at a sensitive time. Some observers say Zhu is trying to influence this process.

Reading his speech carefully, however, it seems more likely that Zhu intended to clarify that problems facing the country are nothing to do with the reforms he introduced.

Zhu, now 83, said before stepping down that he would never comment on any government work after retirement. He had indeed kept this promise - until now.

On April 22, Zhu met with teachers and students at Tsinghua University to mark its 100th anniversary. Zhu, an alumnus of Tsinghua, served as founding dean of its School of Economics and Management for seven years.

Zhu's sharp-tongued speech was filmed by some students, and copies quickly began to privately circulate among officials and academics in Beijing. Overseas media learned of it only in early June when Phoenix Weekly, a print publication of Hong Kong's pro-Beijing Phoenix TV, published excerpts.

Housing prices
On the problem of skyrocketing housing prices, Zhu said, "Recently there appears a fallacy in both the overseas and domestic media, asserting that the current real estate problem stems from the tax sharing system [initiated and implemented by Zhu] because the central government takes the lion's share of the country's taxation revenue and regional governments are so poor that they have to rely on property development for fiscal incomes. This is bullshit!"

To support his argument, Zhu gave a breakdown of revenues between central government and regional governments for 2010. This was the first time such figures have been made public.

According to him, China's fiscal revenue totaled 8.3 trillion yuan (US$1.28 trillion) last year, of which 4 trillion yuan directly went to regional government coffers. Then, following the tax sharing system, the central government gave the regional governments another 3.3 trillion yuan from its own share as rebates.

"As a result, the regions got 7.3 trillion yuan in total. Still not enough? Still poor? Now regional governments have plenty of money," Zhu said.

Zhu said that current policy was to blame for rising housing prices. "The crux of the problem is that our housing reform policy is wrong ... All property revenues go to regional governments and they are even allowed to mark such revenue as extra-budgetary income." This means the funds are not subject to scrutiny and supervision of local legislatures.

"This is horrible. Such incomes in fact are made by exploiting people by pushing land prices so high. This is absolutely not a consequence of the tax sharing system."

In recent years, a number of economists have seen this problem and proposed that Beijing take the power back from regions in land deals. Some have suggested that the Ministry of Land and Resources be empowered to scrutinize and approve any change of land use for the purpose of property development. Others have proposed that Beijing demand all revenues go to state coffers first and then get paid back to the regions concerned.

So far none of these policies has been adopted by Beijing. This is likely due to either fear of accusations China has returned to a central command economy, strong resistance from the regions, or both.

Tax sharing system
Deng Xiaoping launched the economic reform and opening up in 1979 to decentralize China's economy. But as regional governments gained greater say on local economic affairs, the central government had less and less revenues at its disposal.

Zhu's first move, after he was appointed as vice premier in charge of economic affairs in 1991, was to reform the taxation system so that the central government could have more money. After months of tough negotiations and bargaining with economically important provinces on how much they should contribute to the state coffers, Zhu eventually introduced the tax sharing system at the end of 1993.

According to the system, each province would contribute a certain proportion of its taxation revenues to state coffers. While the proportion of contribution varies from province to province, on average the central government nominally could have a 60%-70% share of the nation's fiscal revenues while the rest would go to the regional governments.

Afterwards, the central government would give back some funds to regional governments according to agreed proportions. The reform boosted the central government's revenues from 4.35 billion yuan in 1993 to 2.17 trillion yuan in 2003 when Zhu retired.

Zhu apparently feels proud of the tax sharing system, seeing it as one of his great achievements. In his Tsinghua speech, he also angrily lashed out at a book that is still officially banned in China, Zhongguo Nongmin Diaocha (An Investigation of China's Peasantry) by the husband-and-wife authors Chen Guidi and Wu Chuntao. The book blamed the tax sharing system for hardship in rural areas, arguing that because of the system local governments lacked funds to support compulsory education, family planning and social security and welfare.

Patting a copy of the book he brought with him, an excited Zhu said those who accused the tax sharing system of emptying local governments' coffers and inflicting hardships on peasants were "ignorant! Totally ignorant!"

Then he toned down his rhetoric, saying, "On the way here, my daughter reminded me not to lose my temper. I failed to restrain myself. But this was absolutely not to [defend] myself, but to [defend] the third-generation central collective leadership," headed by former president Jiang Zemin, of which Zhu was a key member.
Taking a step back, Zhu said, "Surely we had shortcomings mainly in the arrangement of the rebates [to regional governments]."

According to the tax sharing system as introduced by Zhu, the state would take a large proportion of the revenues and then give rebates to regions. However, the rebates were given back indirectly and not in a lump sum, rather taking the shape of subsidies on infrastructure, education, welfare and other sectors. This has given central government authorities much greater powers.

"Tax rebates are not done well. Regions have to curry favor with relevant ministries to beg for their rebates. There are shortcomings in the tax sharing system, which however I am not entirely responsible for. For, I had said long ago that the taxation reform was far from over and should be deepened."

What Zhu failed to mention was that the arrangement for tax rebates to the regions had become a hotbed of official corruption, as central government officials often took bribes before returning funds to the regions.

Automobile industry
Zhu also criticized the current transport policy, taking aim at the automobile industry. He recalled a speech he made during a visit to Beijing Public Transport Corporation in 2003. "I said then that for China to solve transport problems in cities, the fundamental way was to boost the development of public transport.

"This was my last public speech [as premier]. I pleaded not to spend public funds on buying cars ... I pleaded to boost the development of bus transport and public transport. Had my advice been followed, there would not have been such problems today ... There would have been no such traffic jams in Beijing," Zhu said at Tsinghua.

"There is an 'honor' for China now that I really don't take as an 'honor'. China leads the development of the global automobile industry. I cannot help but wonder, when on earth did we begin to lead the development of the global automobile industry? The world laughs because they regard us as their market.

"I never stood for giving fiscal subsidies to boost the automobile industry. I am always for strengthening compulsory education in rural areas," Zhu said.

In vivid language, Zhu described the widening wealth gap in China. He said he noticed that at an auto show in Shanghai, the price tag of a luxury car was more than 100 million yuan. "Quite a few entrepreneurs even own private aircraft. But in the countryside, people in some places still do not have enough to eat. So many years after the Liberation [the founding of the People's Republic in 1949], rural residents still remain so poor."

Then he commented on problems with education.

Education
A few years ago, to show the government's concern and care for children, China began promoting the so-called "Egg plus Milk Project" in some inland rural areas to provide, free of charge, primary and secondary school pupils from poor families with an egg and a glass of milk for breakfast.

But Zhu said, "Even now many pupils in rural schools still cannot get a glass of milk and an egg. In Qinghai province, only 800 pupils can enjoy this as pilots of the project. There are 30,000 primary and secondary school students in Qinghai."

"What happened to our compulsory education? Many [rural] students have dropped out of school and gone to work in cities," a distressed Zhu added.

As early as 1993, Beijing set a goal to gradually boost government spending on education to the equivalent of 4% of the nation's gross domestic product (GDP). However, the goal still remains on paper, so that the "Outlines of Mid- and Long-term Education Reform and Development Plan", approved by the State Council at a meeting chaired by Premier Wen Jiabao on May 5, 2010, had to set 2012 as the deadline for achieving this goal.

Zhu criticized the outlines as "full of empty talk". But he refrained from elaborating.

It was under Zhu that China began to "industrialize" tertiary education, allowing schools to charge students high tuition fees to help ease the government's financial burden. Regional governments saw this as a new "money tree" and enrolled more and more students by expanding existing schools or establishing new ones at a "big-leap-forward" pace.

Now unaffordable "housing, higher education and medical care" have become major sources of public complaints. The fast expansion of higher education has also caused other problems such as poor teaching quality and academic frauds.

However, in his speech, Zhu distanced himself from the "industrialization" of tertiary education. He said, "I don't advocate for building up so many universities. To do what? When I entered Tsinghua in 1947, there were only 2,000 students. Now the number is in the tens of thousands. It is OK for Tsinghua to have tens of thousands of students. But now even Jilin University has 75,000 students. There are now a lot of academic frauds, even professors fabricate, plagiarize from papers by others. What would happen it this continues? ... You'd better concentrate efforts to do a good job in promoting compulsory education."

Then, taking the recent earthquake in Japan as an example, Zhu stressed the importance of civic education in China. "Japanese people have lost so much during this big earthquake that even we felt frightened. But Japanese people in general were not afraid. They remained very polite and public-spirited. This could never have happened in China. If such a big earthquake happened in China, there would have been big chaos. Improving [our] national character must start with civic education.

"If you don't devote great efforts to civic education, many problems will arise. Now many people [in China] are interested only in personal gain," Zhu said.

However Zhu's speech is interpreted, it is certain that President Hu Jintao and Premier Wen Jiabao will be unable to take significant moves to address them as they step down next year. Therefore, hopes have to be placed on their successors, tipped to be Xi Jinping and Li Keqiang.

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