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The Political Economy of Earmarked Transfers in a State-Designated Poor County in Western China: Central Policies and Local Responses*

Published online by Cambridge University Press:  16 December 2009

Mingxing Liu ,
Juan Wang ,
Ran Tao  and
Rachel Murphy
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Abstract

In order to improve the effectiveness of redistributive policies, in 2002 the Chinese government increased fiscal transfers and imposed more stringent regulations on the use of earmarked funds. This article evaluates the impact this had on K county in a north-western province. The case study finds that the misappropriation of earmarked transfers did decrease but this did not necessarily indicate an improvement in the local government's compliance in the usage of transfers. Instead, the county governments found ways to sabotage central policies by exporting fiscal burdens to the subordinate bureaus that received the earmarked subsidies. In some bureaus this was done by reducing the amount of funds allocated for operating expenses. In others it involved increasing staff numbers. These findings provide a basis for evaluating the effectiveness of using earmarked funds and internal supervisory mechanisms to achieve policy objectives in an authoritarian regime.

Type
Special Section on “Reinventing the Local Party-State: Between Budgetary Squeeze and Reform”(Edited by Frank. N. Pieke)
Information
The China Quarterly , Volume 200 , December 2009 , pp. 973 - 994
Copyright
Copyright © The China Quarterly 2009

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35 Interviews with officials in the finance bureau of K county government, 21 November 2005.

36 Interview with an official in the education bureau of K county, 5 July 2006. In of fact, the education bureau did not know there was such a specific EMS until one official in the bureau participated in an education fund auditing initiated by the provincial education department. The director of county education bureau then came to the county governor asking for the fund to be allocated to the bureau.

37 Interview with an official in the education bureau of K county, 5 July 2006.

38 Chinese government official website portal, http://www.yn.xinhuanet.com/lianzheng/2006-09/04/content_7951330.htm, 4 September 2006. Local matching fund requirements may also lead to the diversion of funds from earmarked transfers. In some localities, local governments use funds designated for specific projects to serve as the “matching funds” that must be presented in order to apply for other grants. Once the funds for the new special-purpose project are in hand there is the possibility that this money will be diverted to other uses. For example, in 2002 K county received an earmarked transfer of 5 million yuan for an environment improvement project. This had been raised through national bonds that required 10% of the total project costs to be met through local matching funds, so the local government in K county diverted 500,000 yuan from other earmarked funds to this project.

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