1
The Status Quo and Trends in the
Development of Public Services in
China
Background discussion paper to inform the
Regulatory Reform review of China
September 2007
This paper was prepared by the National Development and Reform Commission
2
TABLE OF CONTENTS
THE STATUS QUO AND TRENDS IN THE DEVELOPMENT OF PUBLIC SERVICES IN CHINA ..... 3
THE DEFINITION OF PUBLIC SERVICES................................................................................................. 3
1.
The status quo and problems of China’s public services .................................................................. 3
1.1.
Overall low-level public services in China .............................................................................. 3
1.2.
Uneven development in public services ................................................................................. 5
1.3.
Unsound public services systems and mechanisms ................................................................ 5
2.
The policy orientation and trends in the development of China’s public services ............................ 6
2.1.
Public services-oriented government-building and policies .................................................... 6
2.2.
Institutional reform and improvement of public services ........................................................ 8
2.3.
Situation of the market-oriented public services reform ......................................................... 9
2.4.
The development situation of China’s privately owned public services ............................... 10
Tables
Table 1.
Proportion of government expenditure on public goods (%) .................................................. 3
Table 2.
Structure of expenditure for developed countries and some developing countries ................. 4
Table 3.
An international comparison of China’s spending on public services ..................................... 4
Table 4.
Comparison of public services indicators between China and developed countries ............... 5
Table 5.
Main performance of market-oriented public services ............................................................ 9
Charts
Chart 1: The change of NGO/NPO numbers between 1988 and 2004 ...................................................... 10
Chart 2: Sub-category situation of people-run non-enterprise units .......................................................... 11
3
THE STATUS QUO AND TRENDS IN THE DEVELOPMENT OF PUBLIC SERVICES IN
CHINA
THE DEFINITION OF PUBLIC SERVICES
The term public services is broad in scope and covers “strengthening of urban and rural public
facilities, the development of employment, social security services and education, technology, culture,
health, sports, public information and other public undertakings, in order to protect and create conditions
for public life as well as participation in socio-economic, political and cultural activities” (from a
graduation ceremony speech on “Establishing and implementing the scientific view of development” by
Premier Wen Jiaobao on 21 February 2004).
1.
The status quo and problems of China’s public services
1.1.
Overall low-level public services in China
A.
From the perspective of total governmental spending on public services
The provision of public services in China is generally at a low level, and reflects the fact that the rate
of growth in the provision of public services lags behind that of fiscal expenditures; the rate of public
services development is lower than that of overall economic growth; and the supply of public services in
both quantity and quality lags behind actual public demand. In terms of expenditure on education, science,
health, social security, defence, geological exploration and basic public sectors, China spends far less than
developed countries as well as some developing countries.
Table 1. Proportion of government expenditure on public goods (%)
Period
Allocation for public goods
Others
“
first 5-year plan
”
42.14
57.84
“
second 5-year plan
”
42.14
57.84
“
seventh 5-year plan
”
39.83
60.17
1991
43.92
56.08
1992
45.59
54.41
1993
44.02
55.98
1994
46.91
53.09
1995
46.28
53.72
1996
48.57
51.43
1997
44.96
55.04
1998
43.25
56.75
Source:
China Statistical Yearbook, the China Statistical Press.
4
Table 2. Structure of expenditure for developed countries and some developing countries
Country / Region
Year
Public goods (%)
Others (%)
United States
1997
79.38
20.62
Japan
1993
65.93
34.07
UK
1995
66.80
33.20
Singapore
1997
78.59
21.41
Canada
1997
75.08
24.92
Australia
1997
72.39
27.61
Thailand
1997
81.78
28.22
Malaysia
1997
71.01
28.99
Korea, South
1997
62.12
37.89
Source:
China Statistical Yearbook, china Statistical Press.
B.
From the perspective of input on various public services areas
From the perspective of different areas of public services, there exist in varying degrees problems
related to insufficient support for public services. In the field of education, insufficient governmental
support is the main cause of the shortage of education funding. Data indicates that in 2000, the ratio of
China’s spending on education compared to GNP was roughly 2.9% lower than that of most countries in
the mid-1990s, and did not reach the 4% level stipulated in the “China Reform Programme” for 1993. In
1996, China’s public expenditure on education accounted for the lowest proportion of GNP among the 9
most populous developing countries. In the field of health, China’s public expenditure accounted for 2.1%
of GDP from 1990 to 1997, but averaged 6.0% in the high-income countries during the same period. In the
field of public utilities, inadequate infrastructure and urban sanitation problems also exist. For example, the
current Beijing municipal sewage system treatment capacity meets only meets 40% of demand whereas the
same figure at the national level is only 10%. To achieve improvements in emissions standards, the
government has plans to invest an average of RMB 200 billion annually through 2050, which will total
more than RMB 1 trillion.
Table 3.
An international comparison of China’s spending on public services
Public services indicator
China
EU
countries
High-income
countries
Middle-income
countries
Low-income
countries
Ratio of public education expenditure
as a proportion of GNI (%)
3.41
5.3
5.4
4.6
3.2
Ratio of public pension expenditure as
a proportion of GDP (%)
2.7
(1996)
13.3
(1995)
7.2
(1995)
4.9
(Brazil, 1996)
Ratio of public health expenditure as a
proportion of GDP (%)
2.0
6.7
6.0
2.5
1.2
Ratio of central g
overnment’s total
fiscal expenditure as a proportion of
GDP (%)
9.3
40.0
30.2
20.5
17.0
Source: World Bank, "World Development Indicators: 2001", the China Financial and Economic Publishing Press.
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Table 4.
Comparison of public services indicators between China and developed countries
Public services indicator
UK
France
Germany
Sweden
Denmark
China
Human development index
(HDI, 2001
)
0.930
(13)
0.925
(17)
0.921
(18)
0.941
(3)
0.930
(11)
0.721
(104)
Public health expenditure
as a proportion of GDP
(%)
(
1998
-
2000
)
5.9
7.2
8.0
6.2
6.8
2.0
Public education
expenditure as a
proportion of GDP
(%)
(
1998
-
2000
)
4.5
5.8
4.6
7.8
8.2
2.1
R&D expenditure as a
proportion of GDP
(%)
(
1996
-
2000
)
1.9
2.2
2.5
3.8
2.1
1.0
Total social security
expenditure as a
proportion of GDP
(%)
(
1996
)
22.8
30.1
29.7
34.7
33.0
3.6
Source: 1.UNDP Human Development Report (2003); 2
. World Bank “World Development Report 2003”, “World Development
Indicators: 2001”; and
3
. ILO “World Labour Report 2000.
1.2.
Uneven development in public services
Regional imbalance. Due to China’s special conditions, development in the eastern and western
regions is unbalanced, which results in a regional imbalance in public services, and the eastern is superior
to the western regions overall. For example, in 2002, per capita expenditure on education, science and
health in Shanghai was RMB 960 180; and per capita expenditure on social security and relief was RMB
204 128. On the other hand, the above two indicators were RMB 187 119 and 7 919 for GuiZhou in the
same year, accounting for 19.49% and 3.9% of the levels recorded for Shanghai.
Urban and rural imbalance. China’s long standing urban-rural “Dualistic Social Structure” leads to a
huge gap between cities and countryside in per capita income as well as in public services. Shortfalls in the
provision of public services in rural areas are serious. In 2005, China’s nominal income gap between cities
and countryside was 3.22:1. As regards basic public services, including compulsory education and basic
medical insurance, the urban-rural income gap was 5-6:1
Imbalances in types of basic services. Compared to education and health problems, more attention
needs to be drawn to the insufficient supply of social security, public safety and environmental protection.
1.3.
Unsound public services systems and mechanisms
Since the reform, China’s shortage of public services is no longer a problem of insufficient quantities
and structural imbalances. The problems result from imperfect mechanisms.
Firstly, there are no standardized divisions of labour and accountability in the supply of public
services, which is de facto causing the weakening of public services indicators.
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Secondly, there is no sustainable financial support mechanism for public services. The majority of
expenditures are still focused on economic construction.
Thirdly, the urban-rural dualistic social structure is further widening the gap between the cities and
the countryside.
Fourthly, the formation of pluralistic social participation and the system for monitoring public
services has not yet taken place. At present, in China’s public services sector, multi-ownership structures
on service suppliers appear. The administrative department acts as the producer, purchaser and regulator of
public services. In addition internal monitoring of administrative departments and commercial monitoring
against different ownership structures lag behind public services development.
2.
The policy orientation and trends in the development of China’s public services
2.1.
Public services-oriented government-building and policies
A. Goals of public services-oriented government-building
To continue managing economic regulation and market supervision, but also paying more attention to
fulfilling social management and public service functions including increasing emphasis on basic
education, public health, environmental protection, social security and social assistance for the
unemployed. Such efforts are compatible with the public service system of a socialist market economic
system.
To strengthen financial accountability, the government must enforce a public finance system and
improve public services infrastructure, while taking public services as an objective, harmonization as key
focus, and standardization as principle, in order to provide a solid foundation and secure system for the
development of an all-round prosperous society and a harmonious socialist society.
To promote an administrative monitoring system while establishing and completing a well-covered,
highly efficient and fair public services system.
B
The results of two major conferences, and policy documents on the definition of "public
service".
In February 2004, the 16
th
National Congress of the Communist Party of China requested an
“improvement of government economic regulation, market surveillance, societal management and public
services functions.”
In October 2005, the 5
th
Plenum requested governments at all levels to strengthen social management
and the public services functions, but not to directly intervene in business activities.
On March 5, 2005, in the “Government’s Working Paper”, Premier Wen Jiaobao pointed out the need
to “strive to build a service-oriented government, improve government’s management capacities, and
integrate services with management, in order to better serve the infrastructure, enterprises and the public.”
In October 2006, the “Resolution on Major Issues Regarding the Building of a Harmonious Socialist
Society” was adopted at the conclusion of the 6
th
Plenary Session of the Sixteenth Central Committee of
the Communist Party of China. “Further improvements to the basic public services system and significant
improvements to government administrative and service levels” were included among the nine major goals
and tasks to build a harmonious socialist society by 2020.
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C. Open policy in different fields of public services
In order to alleviate the insufficient supply in public services, the Chinese government promulgated a
series of policies to encourage the involvement of non-state capital and to accelerate market-oriented
reform.
Firstly, they encourage social organizations and non-governmental, non-commercial enterprises to
provide public services. In August 1996, the Communist Party Central Committee and State Council
officially issued a “Circular on Strengthening the Management of Social Organizations and Non-
governmental, Non-commercial Enterprises”. The organizations mentioned above were together managed
by the Home Affairs Office. It clarified their legal status and provided vast space for the development of
public services.
Secondly, they introduce market principles into public services. In the field of infrastructure, public
transport and urban health, many market-driven mechanisms, such as user-fees, licensing, outsourcing
contracts, and vouchers systems have appeared in large numbers. In December 2002, the Ministry of
Construction issued an “Opinion on Accelerating the Market-driven Development of Public Utilities”,
explicitly regulating the openness of public utilities, promoting social funds, and foreign capital investment
in public services development. Regarding commercial projects like water, gas or heat supply, public
transport, and waste-water treatment, process of public bidding were adopted to select private companies.
Daily maintenance and contracts for municipal facilities, landscaping, sanitation and other non-profit
making items were selected by contracting.
Thirdly, they promote the development of civil education. In February 1993, the Communist Party of
China (CPC) Central Committee and State Council issued “The Outline of China’s Education Reform and
Development”. It recommended changing the situation of state schools, and gradually building a system
giving priority to state schools managed with the rest of society. It also promoted policies on “strong
promotion and great support, correct guidance, and effective management.” In December 2002, the
committee of 9
th
National People’s Congress passed the "People's Republic of China Private Education
Promotion Law". It established regulations on intellectual property, financial returns, and the internal
management of schools. The launch of those policies legally secured the development of civil education
management, and stimulated the rapid development of private education in China.
Fourthly, a competitive environment for health services will be promoted. In 2000, the State Council
issued the policy document “Guidance on Urban Medical and Health System Reform” encompassing eight
ministries. It clearly divided the health system into profit and non-profit categories. In terms of principles,
it allowed for private medical institutions in accordance with the principle of "allowing for independent
price setting and paying taxes as required" to support return on investment based on efficient operations.
This allowed for a large influx of private capital into the medical market. The same year, the Ministry of
Health and three other ministries issued “Opinions on the Implementation of Classified Management of
Urban Medical Institutions”. It clarified how to undertake different financial, fiscal and management
models for profit and non-profit medical institutions. Furthermore, it loosened the policy restrictions in
order to actively encourage social forces to establish medical institutions.
Fifthly, cultural sectors gradually opened up to non-state investment. In August 2005, the State
Council officially issued “Decisions Regarding Non-state Investment in Cultural Industries”, in which it
mentioned the industries that were welcomed and supported for non-state investment, and required the
Ministry of Culture, the State Administration of Radio, and the Press Administration of China to formulate
concrete measures, define an industry catalogue including industries that were encouraged, permitted,
restricted or forbidden by China, and further guided non-state cultural enterprises towards sustainable
development. The decision has a significant meaning in that it allows for the full mobilization of the whole
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society to participate in the cultural construction and provides further guidance and regulation for non-state
investment in cultural industries. Following it, cultural industries will be gradually formed with public
ownership as the mainstay, together with public-private structures, so as to increase the overall competence
of China’s cultural industries.
Sixthly, they restructure scientific research institutes in an orderly way. In 1999, the CPC Central
Committee and State Council released a “Decision on Strengthening Technological Innovation,
Developing High-technology and Industrialization” (CPC [1999] No. 4), which contributed to the
restructuring of scientific research institutes. At the same time, they issued “Regulations on the distribution
of high-technology company shares”. In 2003, the State Council issued “Opinions on In-depth
Restructuring and Reform of the Ownership of Scientific Research Institutes” (State Council [2003] No. 9)
and other related policies, in order to further stimulate the restructuring of institutes based on ownership
reform. A series of policies including an orientation policy, a supporting policy, a promotion policy and a
standardization policy, helped structure orderly progress. In January 2006, Premier Wen JiaBao at the
National Conference on Science and Technology indicated that “China needs to continuously promote the
restructuring of scientific research institutes, management systems, national security systems and scientific
macro-management systems.” The restructuring of scientific research institutes was mainly targeted at
market-oriented and applied technology-based research institutes. Support was needed for those institutes
to become profit-making enterprises or to consider “market-oriented restructuring” that would contribute to
reform.
Seventhly, they encourage non-state owned economy to enter the field of social undertakings. In
2005, State Council officially issued “Several Opinions on Encouraging, Supporting and Guiding the
Development of Individual and Private Economy and Other Non-state Sectors of the Economy” (State
Council [2005] No. 3), and formed a sound policy from seven perspectives such as market entry, tax and
financial support, social services, governmental monitoring, and policy guidance etc. In terms of “market
access”, it permits investment by non-state investment in public undertakings and infrastructure, on
improving licensing, standardizing bidding, and supporting non-state investment to become actively
involved in investment, construction and operations, such as urban supply of water, gas and heat, public
transport as well as waste water treatment. Under the precondition of standard attornment, eligible public
undertakings and infrastructure may attorn towards non-state owned companies their ownership or
operation rights. Non-state owned companies are encouraged to participate in the restructuring of
ownership and operational measures of municipal public companies. Additionally, permission is also given
for the non-state investment in social undertakings, by supporting, guiding and regulating non-state
investment in education, research & development, health, culture and sports both for profit and for non-
profit. While liberalizing market access, the government should enhance its supervision and societal
monitoring in order to protect the public interest, to support non-state investment to participate in the
restructuring of publicly owned social undertakings, and to encourage non-state investment to contribute to
society through taxes or other related policies.
2.2.
Institutional reform and improvement of public services
At present, taking institutional reform as core work, China is in the process of restructuring its public
services. It is making redefinitions and readjustments to the range of measures related to governmental
public services. Strengthening and improving public services mainly include three aspects:
Firstly, it clarifies the range of supply of public services provided by government, and to separate
service provision from regulatory functions.
9
Secondly, it introduces non-state investment thus departing from the situation of state-led public
service provision, and encourages the coexistence and competition among public services providers. To
optimize and maximize the protection of public services, the Chinese government focuses on the
adjustment and improvement of relevant regulation, price controls for public services and the auction of
licensing.
Thirdly, it provides more freedom for consumers to choose among service providers, and to evaluate
or monitor those providers so as to form a new public services system, under government control, but with
the participation of associations and civil society.
2.3.
Situation of the market-oriented public services reform
A Forms of market-oriented public services reform
Table 5.
:
Main performance of market-oriented public services
Internal government reform
Introduction of corporate management
Creation of a quasi-market environment
Changes in macroeconomic policy instruments
Decentralization
Government authorization
Intergovernmental agreements
Outsourcing contracts
Licensing
Subsidies
Voucher
Commissioned by the Act
Government divestment
Sale
Donation
Liquidation
Government fading-out
Private remedies
Withdrawal
Deregulation
B
Progress on the public services reform
Currently, outsourcing contracts have been widely employed in China’s public services provision, e.g.
in public sector logistics services, public bidding for environmental services, etc.
Licensing has been mainly used in infrastructures. In some regions and industries, it is well
developed. For example, private capital has been introduced into network-based utilities, which was
previously under sole government control.
Since opening reforms in users charges through price adjustments are ongoing in public services.
Taking the examples of gas or water supply, especially water supply in agriculture, the scope of necessary
reforms remains significant. The implementation of user fee policies is just at the beginning of reforms.
The public sector must consolidate their own reforms such as budget reform with independent enterprise
auditing, as well as the introduction of competition mechanisms, so as to effectively improve the level of
public services.
10
A “voucher system” is being tested in ZheJiang Rui’an and Changxing, mainly by promoting
“education vouchers” in China’s education field. The goal is to solve problems of equity, and to promote
private or professional education.
The promotion of these reforms is gradually breaking the government’s monopoly in public services
thus accelerating progress in key elements of public services provision. The development situation is
generally good. However, due to China’s overall low level in public services, many accumulated problems
remain to be resolved. The task of reform is still very arduous.
2.4.
The development situation of China’s privately owned public services
Since reform and opening up, China’s social groups, foundations, people-run non-enterprise units and
other non-governmental organizations (NGO) or non-profit organizations (NPO) have been developing
steadily. By the end of 2004, various civil society organizations throughout the country had grown to more
than 289 000, in which social groups accounted for 153 000, foundations for 936 and people-run non-
enterprise units for 135 000. To date, these new groups are still developing at an annual growth rate of 10%
- 15%. Civil society organizations have already spread throughout the country in various fields, such as
poverty reduction, culture, education and environment. The following table describes the change of
NGO/NPO numbers between 1998 and 2004.
Chart 1
:
The change of NGO/NPO numbers between 1988 and 2004
0
50000
100000
150000
200000
250000
300000
350000
Ye
ar
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
SocialGroups
People-Run Non-Enterprise Units
Foundations
Among the 135 100 NGO/NPO, 69 068 related to education, 27 509 related to health, 10 736 related
to labor, 9 658 related to social welfare and charity, 5 824 related to technology, 3 139 related to culture,
3 441 related to sports, 1 275 related to social intermediaries, 546 related to legal services and 3 985 related
to others (see sub-category in the following chart).
11
Chart 2
Sub-category situation of people-run non-enterprise units
52%
20%
8%
7%
4%
2%
3%
1%
3%
0%
Education 69068
Health 27509
Labor 10736
Civ il Administration
9658
Technology 5824
Culture 3139
Sport 3441
Social Intermediary
1275
Legal Serv ice 546
Others 3985
Various non-profit organizations are geographically extensive and raise social funds amounting to
several billion Yuan annually. These funds are used in poverty reduction, disaster relief, culture and
education, social welfare, community service and other charity areas. Their activities make up in part for
insufficient government investment, by meeting expectations regarding public participation and provision
of public services, and support social harmony and prosperity in different fields such as education,
technology and culture.
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