76065 The World Bank PREMnotes 2013 NUMBER 23 Special Series on Performance, Monitoring, and Evaluation in China Christine Wong Amidst all the hoopla about China’s rise, it is useful to remember that China is a developing country whose transition to a market economy is not yet complete, with institution building still underway. The uneven pace of progress is reflected in the state of its public sector, but in some respects, China’s public sector looks formidable. Most often mentioned is the government’s treasure chest of US$3 trillion in foreign reserves. Even more enviable, government revenues have grown at annual rates of over 20 percent for a decade (China Statistics 2011), fuelling a steep fiscal expansion at a time when so many countries are being forced to undergo painful consolidations. The government’s reputation was further burnished in the post-Lehman global financial crisis, when, after a brief—though sharp—downturn in 2008, China became the first major economy to return to robust growth, propelled by a stimulus program that was, in relative terms, by far the biggest in the world. The bold stimulus and quick economic recovery seemed to show off an effective public sector able to implement national policies swiftly. China’s public sector is impressive in other ways While having the capability and flexibility to too. Over much of the past decade, the govern- move large sums of funding as needed, the Chi- ment has directed a large program to build infra- nese government has not been quite as successful structure, expanding the road system by 639,000 in improving public spending efficiency or pre- km during 2006–10 alone, including 33,000 km venting leakage into private pockets. The govern- in expressways. At the same time, it also engaged ment’s audit office reports significant waste, and in a considerable program to reorient public press reports have also documented waste in the spending. Under the banner of “building a har- infrastructure sector, particularly regarding roads monious society,� Beijing has pumped resources and in cities. Persistent food safety problems also into expanding social safety nets and improving point to consistent regulatory lapses. public services. Big new programs have been rolled Strengthening public sector performance is out. To reduce the burden on farmers, all rural seen by the leadership as a critical component of fees were eliminated in 2003, and agricultural the reforms needed to ensure an effective and cred- taxes abolished in 2006. Free education is now ible government that can lead China in the 21st offered to 140 million rural children, and 835 century. In 2008, in his address to the National million rural residents are covered by the new People’s Congress, Premier Wen Jiabao called health insurance schemes. Urban citizens, too, on the government to introduce a performance are beneficiaries of expanded health insurance management (PM) system. coverage and free basic education, with some ben- This note offers a brief scrutiny of China’s efits being gradually extended to rural migrants. public sector to assess its performance, monitor- These policies have been supported by subsidies ing, and evaluation. The juxtaposition of macro- from the central government, which has raised economic prowess (the ability to allocate large fiscal transfers to local governments eightfold, to resources) and limited public sector capacity at ¥3.5 trillion (US$541 billion1) in 2011. By any the microeconomic level (the capacity to manage measure, this is an impressive effort to reshape the those resources efficiently) is a product of the nation in a more democratic image. country’s incomplete transition. In the course FROM THE POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK of its 34-year-long transition, China has had to China is a unitary country, and its Constitu- revamp almost all aspects of its public sector and tion formalizes all power in the central govern- finances—tax policy, tax administration, revenue ment. However, the administration is highly sharing, expenditure assignments, budgeting, and devolved. The central government is small, with the provision of public services. These reforms 60,000 civil servants in core ministries/depart- have been uneven. While the government has built ments sitting atop a bureaucracy with 41 million a robust system for revenue collection, reforms to employees (excluding the armed forces and state- build an effective system for expenditure manage- owned enterprises). The Ministry of Finance ment lag far behind. Around the world, public sec- (MOF), for example, has 1,000 employees who tor reforms are protracted and difficult; in China, make the central government budget, allocate they are often hampered by existing structures, transfers, and set the expenditure framework for parts of which are holdovers from the planned the subnational governments. Other ministries economy of the past. are similarly sized, including even ministries This scrutiny begins with an institutional such as the National Development and Reform background that explains the overall structure of Commission. relationships in Chinese government and is fol- To implement policies, the central govern- lowed by a review of efforts to build a PM system ment employs a system of extensive delegation that begins with delegating authority to prov- over the past decade. Finally, this note also assesses inces and depending on them to carry out their the reforms and their likely trajectory. responsibilities. The provinces in turn delegate to their municipalities and depend on them to Institutional Background deliver on their assigned responsibilities, and so China is organized vertically into five levels of gov- on downward through the hierarchy. At each step, ernment. Under the central government, there are the relationship is bilateral—each level “manages� about 44,000 subnational governments (figure 1). only the next layer of subordinate units and tries Figure 1. Structure of Government in China (2010) central government (population: 1.34 billion) 4 provincial-level municipalities: 22 provinces and Beijing, Shanghai, Tianjin, 5 autonomous regions and Chongqing (average population: (average population: 46.5 million) 21.1 million) 333 muncipalities (average population: 3.8 million) 2,856 counties, county-level cities, and urban districts (average population: 443,000) 40,906 townships/towns/�street communities� (average population: 17,500) Source: Chinese Statistical Yearbook 2011, http://www chinastatistics.net/china-statistical-yearbook-2011-m-23.html. 2 PREMNOTE SEPTEMBER 2012 to hold them accountable for performance. The years of basic education, and national regula- result is a nested, hierarchical pyramid, where tions call for local governments to raise the share policies and resources are transmitted downward of expenditures on education annually at a rate level by level, and the majority of public employ- higher than overall growth of budget revenues. ees are located at the bottom, where services are Even staffing levels and rules for hiring and firing delivered. The Chinese Communist Party plays a are set by the central government, as are wage rates vital role in bolstering the central government’s and pension entitlements, even though they are capacity to hold lower levels accountable, mostly funded locally (World Bank 2002, 2007). through its control of the personnel appointment On the revenue side, taxing powers are con- system (McGregor 2010). centrated at the central level, and local govern- ments can neither levy taxes nor set tax bases or The asymmetric fiscal system rates. Since 1994, when revenues were recentral- China’s fiscal system follows a bottom-heavy ad- ized but expenditure assignments unchanged, ministrative structure, and it is among the most transfers have funded a majority of local govern- decentralized countries in the world in terms ment expenditures. of expenditures. The central government itself spends less than one-quarter of the national bud- Level-by-level hierarchical governance get, and this share fell to 17 percent in 2011. The and the long chain of accountability rest is distributed among the four levels of subna- In China, policies and resources flow from top to tional government, with the largest share at the bottom, from one level to the next, through an county level. This is because in China, nearly all iterative process until they reach the level where public services, including some of the most vital services are delivered. This institutional frame- and costliest, are assigned to local governments at work can be described as an elongated account- the lower levels, including basic education, health ability “triangle� linking policy makers, service care, social security, and infrastructure. Table 1 providers and citizens, with the insertion of one shows the distribution of budget expenditures, or more levels of local government intermediating where counties and districts, the fourth tier of between policy making and service provision (fig- government, account for the majority of expen- ure 2).3 For basic education, for example, which ditures on education and health. is assigned to the county and urban district-level However, this distribution of expenditures governments, the policies emanate from the top is not matched in either expenditure author- and travel through the province, municipality and ity or revenue assignments. Local governments’ county or district, before reaching the schools. In authority for budgetary spending is sharply China, since the vast majority of public services circumscribed. The major decisions on service that touch people’s lives—education, health, and provision—schooling, health care, and social wel- social security—are assigned to fourth-level govern- fare—are made by the central government and ments, the “chain of accountability� is unusually sometimes mandated by law, with guidance norms long (World Bank 2007). for service standards. For example, the Education For this chain to work, China’s system of Law mandates the tuition-free provision of nine management relies on strong accountability rela- Table 1. Distribution of Budgetary Expenditures by Level (2007, % total) Social security Capital All budgetary and spending expenditures Education Health employment (2006) Central 23.0 5.5 1.7 6.3 27.9 Province 17.7 15.0 17.2 24.9 18.5 Municipalities 22.2 18.8 26.2 27.7 28.8 Counties/ 31.7 53.0 51.9 36.2 districts 24.8 Townships 5.4 7.7 3.0 5.0 Source: Author’s compila ion. Note: The 24.8 under capital spending is the combined total for counties and townships. SEPTEMBER 2012 PREMNOTE 3 Figure 2. Accountability Relationships for Public Service Provision higher-level policy makers upward framework/regulations framework/regulations accountability for service providers for participation (objectives/targets, monitoring, fiscal upward accountability transfers, (targets, financing, appointments) monitoring, appointments) downward accountability (“state power� consultation) local policy makers service providers citizens/ public service users direct downward accountability (participation) Source: Adapted from World Bank (2007), figure 1-1. tionships across all levels of government, which the long fiscal decline left public services largely require mechanisms for monitoring and evalua- underfunded throughout the 1990s, and when tion (M&E) that can provide timely and accurate resources were inadequate for meeting the costs information on policy implementation to alert of assigned tasks, the government could not—and policy makers to the need to make adjustments did not—hold agents accountable for performance. and to hold local governments and service provid- Rather than cutting back on commitments, the ers accountable for results. central government urged local governments and service providers to find their own solutions, The damaging effect of fiscal decline such as levying user charges and using state assets Under the planned economy, China had a co- to generate supplementary revenues. To provide herent, if less than efficient, set of mechanisms incentives, it gave spending units (SUs) virtually for managing the numerous (and multilevel) free rein to manage their “self-raised� funds, in agents—the plan, material allocations, revenue effect devolving managerial authorities to the SUs. sharing, and party controls. The transition to a Over time, extrabudgetary revenues came to market economy set in motion changes existing fund a growing share of public services. In educa- arrangements and triggered the fiscal decline tion, funding from budgetary allocations fell from that lasted until 1996, during which government 75 percent in 1986 to less than 55 percent during revenues fell from over 30 percent to 10 percent 1995–2002. The rest came from fees, levies, and of gross domestic product (GDP), and the central other incomes raised by the schools themselves. government’s revenues to just 3 percent. For public hospitals, budgetary funds accounted Two legacies from this period have particular for only 11 percent of total revenues—user charges relevance for building an M&E system today. First, and profits from selling drugs funded the rest 4 PREMNOTE SEPTEMBER 2012 (World Bank 2005). The growing reliance on ditures and government officials and reported extrabudgetary funds reduced the government’s primarily to the government at the same level—the control over SUs as well as the SU’s accountability public had little knowledge of the audit findings. to the government. Even though the government A breakthrough came in 1996, when the has greatly increased budgetary injections over NAO reported to the National People’s Congress the past decade, extrabudgetary revenues remain (NPC) for the first time. Reacting to the NAO’s important for public service providers and local findings of the misuse of government funds governments alike, since the incentives remain by many central ministries to speculate on the strong for raising “own revenues� to fund bonuses stock market, the NPC authorized the NAO to and salary top ups. broaden its audit to include the implementation The second legacy was the damage wrought of the central government budget for 1998. The on central-local fiscal relations. Under China’s NAO’s criticisms of poor budgeting practice and devolved administration, services are delivered by loose financial management prompted the NPC to local governments, and the costs of provision were demand immediate changes in budgeting proce- embedded in the revenue-sharing arrangements. dures, which helped push the MOF to accelerate Through the long fiscal decline, revenue-sharing budget management reforms. The findings also arrangements were revised and transfers reduced, led the NPC to grant the NAO further authority leaving local governments increasingly exposed to monitor budget implementation. (Wong 2009). With many local governments In addition, although the report of the 1998 unable to meet the costs of service provision, the budget was not published at the time, Auditor- intergovernmental fiscal system was no longer General Li Jinhua held a press conference in June able to support national policy implementation 1999 to report some of the findings. The press (World Bank 2002). Today, many local govern- conference created so much public interest that ments still face fiscal gaps and remain distrustful it set off an “audit storm,� as reporters fanned out of central mandates (Wong 2010). nationwide to dig up stories of government abuses. These annual press conferences are so popular Building a Performance that in 2004, the Auditor-General became the first government official to be elected as one of Management System “Ten Notable Economic Persons of the Year� by in the New Century CCTV, China’s premier television channel. The By the late 1990s, the central government had public thirst for information in turn led the NAO few levers left to hold lower-level governments to gradually loosen restrictions on the disclosure accountable for their actions, and a new system of audit results. of M&E had to be built from the ground up. This task comprises two aspects that are sometimes Budget management reforms in conflict: regaining control over the basics, and In China’s past planned economy, the budget was shifting from a reliance on command and control mostly a bookkeeping function. With cessation of mechanisms to a mix of carrots and sticks that are economic planning, the budget became the gov- more likely to work in an economy that is now ernment’s primary tool for allocating resources, much more decentralized. and major reform was needed to build a budget management system capable of supporting this The National Audit Office new role. These reforms began in the late 1990s, The audit function is a critical component of an when tax revenues finally began to recover. Since M&E system. The National Audit Office (NAO) then, a broad package has been introduced that was created by the post-transition Constitution includes reforms in budget preparation, budget (1982), which called for setting up audit offices classification, treasury management, government at the national, provincial, municipal, and county procurement, and the installation of new infor- levels. Today the national network comprises more mation systems. The centerpiece of the budget than 3,000 audit offices with 80,000 auditors preparation reform was the introduction of de- (Yang, Xiao, and Pendlebury 2008). The audit partmental budgets that would clearly identify all offices were initially set up as internal auditing resources and expenditures for each government departments; they audited government expen- department—this was the first step in building a SEPTEMBER 2012 PREMNOTE 5 system in which the SUs could be held account- project evaluation. These are presumed to be the able for performance. responsibilities of agencies downstream. In 2005, A treasury single account was created to man- the NDRC set up the National Key Construction age the government’s cash receipts and payments. Projects Monitoring Office, with special agents Before this reform, expenditure monitoring was deployed in each province, to monitor selected one of the weakest links in the budget process. projects for policy and legal compliance, disburse- Although much effort was spent on ex ante alloca- ment of funds, project progress, tendering, and tion, actual expenditures could not be monitored, construction quality (Zhao, Li, and Li 2011). and diversion and other abuses were exposed only However, a study found that the NDRC’s role in by the occasional audits. To support treasury project approval has significantly shrunk since a reform and improved budgeting, the MOF began regulatory change in 2004 confined its oversight work on a new government financial management of investment approval to projects funded from information system. Standardized procedures public resources, which is a minor portion of for government procurement were introduced public investment today (Wong 2012). to improve cost efficiencies and reduce the scope for corruption, including many of the procedures Local experiments in used by international organizations for tendering performance management large-scale purchases of equipment and services. In the bottom-heavy administrative system in With these reforms, China finally began to put in China, local governments play a key role in PM. place the basic infrastructure necessary to build a Since the mid-2000s, following the call for reform modern system of budget management. at the top, many local governments have imple- The MOF has also worked hard to reverse the mented PM practices. reliance on extrabudgetary funding, which had Some of the most advanced experiments grown to half of total fiscal resources in the late have been undertaken in the southern province 1990s. But on this front, the government has had of Guangdong. Facing departmental requests for little success. Despite clamping down on fees and budget appropriations that far exceeded resources levies and imposing new reporting requirements, available, officials in Nanhai (a county-level city extrabudgetary revenues remain large and outside in the Pearl River Delta) sought help from exter- of budgetary allocation. In aggregate, they are still nal consultants. In 2004, a team of experts was half of total fiscal resources. At the county level, recruited from universities and administrative the latest NAO audit found that extrabudgetary units to review a few budget proposals. By assess- funding accounted for 60 percent of total funding ing the feasibility of proposed activities, ranking (National Audit Office 2011). them according to policy priorities and querying the budgets, the expert team helped whittle down The National Development appropriations. and Reform Commission Building on this success, Nanhai now applies The National Development and Reform Com- the process when vetting all discretionary budget mission (NDRC) is the successor to the State proposals. Officials report that as a result of this Planning Commission, which previously led the process, SUs have learned to prepare better (and formulation of the five-year plans that provided more realistic) proposals. They have also learned strategic guidance for economic development to better manage their use of funds knowing that and also formulated the investment plan and allo- performance in this round will affect their future cated resources for its implementation under the funding. planned economy. Today, the NDRC has retained In the provincial capital, Guangzhou, a new substantial control of public investment through PM approach was adopted that called for ex post its control of project approvals for large-scale, stra- evaluation of spending programs. In 2005, the tegic projects. By convention, the NDRC, along government submitted two spending programs with line ministries, organizes and undertakes for evaluation—in 2006, it required evaluation project appraisal and project selection. Once the of programs from 48 of the municipality’s 57 project is selected and implementation is under- eligible departments. By 2007, the municipality way, however, there is little systematic oversight evaluated virtually all programs ex post, but the in project implementation, facility operation, or workload proved excessive. In 2008, evaluations 6 PREMNOTE SEPTEMBER 2012 were rolled back to 172 programs selected for size given to municipal departments and counties. For and impact. Evaluation results are reported to the Guangyuan, a county at the next level, the list of local people’s congress, which provides feedback economic development targets included (Fiscal to budget appropriations (Ma and Wu 2011). Research Institute Study Team 2005):4 Shanghai has also experimented with ex post i. GDP growth of 12 percent; evaluation of spending programs, under what they ii. total investment of ¥4.6 billion; call results-oriented performance budgeting. For iii. exports of US$70 million; these programs, the Finance Bureau met with the iv. foreign direct investment of ¥875 million; affected departments to adjust the budgets based v. more than 180 km2 of farmland protected on evaluation results—this led, for example, to from water and soil erosion; increasing employment subsidies for relocated vi. eight centers for cancer prevention; residents and rural labor under the Bureau of vii. rural roads with asphalt and concrete surfaces Labor and Social Security (Zhao, Li, and Li 2011). covering 360 km; Altogether, seven provinces and municipali- viii. highways linking rural townships of 180 km; ties have set up specialized performance appraisal and institutions, including Zhejiang and Heilongjiang ix. per capita minimum living stipends of not provinces. Several municipalities and districts less than ¥50. are reported to be using methodologies modeled Responsibility for meeting these targets falls on the U.S. government’s Program Assessment ultimately on the person performing the task. For Rating Tool. example, performance compacts signed by schools are typically subdivided, assigning responsibility Performance management for meeting school funding requirements and through the personnel system student advancement rates to the principal and For the most part, local governments imple- responsibility for student enrolment rates and ment PM through the personnel system. Since test scores to teachers (Liu 2007). the 1990s, government employees have been In these examples, many of the targets are evaluated on various forms of “post responsibility unrealistic and beyond the power of individuals systems� and more recently “objective responsibil- to achieve. Principals and teachers have limited ity systems� (ORSs). The ORS is elaborate, often influence over school funding and student test involving a large number of targets (objectives), scores, and government officials over GDP growth with numerical weights for scoring. Governments and investment. Unrealistic and inappropriate at higher levels set targets for lower-level govern- targets undermine the effectiveness of the ORS. ments. Local governments pass the targets on The rigid personnel system, which includes life- to the relevant departments, and in turn to the long tenure—dismissal is extremely rare—further responsible officials, whose promotion prospects limits the usefulness of personal accountability are tied to their scoring on the ORS (Burns and measures for M&E. Zhou 2010). Recently, many local governments have signed performance compacts with service The Ministry of Supervision providers for specific social outcomes. and the Central Party Discipline One troubling aspect of the ORS is its close Inspection Commission resemblance to the target setting practiced under Since Premier Wen’s call in 2008, the Ministry the planned economy. Back then, the State Plan- of Supervision (MOS) and the Central Party Dis- ning Commission set macroeconomic targets for cipline Inspection Commission (CPDIC), which economic growth, grain and steel output, and jointly and at the highest level manage the conduct others. These were disaggregated into sectoral and of civil servants and fight corruption, became ac- regional targets and proliferated as they worked tive in monitoring performance in government.5 their way downward through the economy. The Both have set up offices in the provinces and are current version of the ORS goes through a similar reportedly leading the PM work in many locali- iterative process of disaggregation and subdivi- ties. In 2011, they were officially assigned to lead sion. In a typical example, in 2004, Sichuan the coordination of PM reforms nationwide; at Province handed down 68 performance targets; this time, an interministerial working group was at the municipal level, these were subdivided and created comprising nine ministries and agencies SEPTEMBER 2012 PREMNOTE 7 including the Central Party Organization De- governments. Moreover, the distorted incentives partment, the Central Party Post Establishment created under fiscal decline continue to operate to Office, the NDRC, and the MOF. The working undermine the MOF’s efforts to rein in extrabud- group is under the directorship of Vice Minister getary revenues and regain control over aggregate Wang Wei of the MOS. fiscal discipline (Wong 2009). The audit function Current Status and Prospects Over the past 15 years, the NAO has achieved for Performance Monitoring remarkable success by leveraging its interaction and Evaluation in China with the NPC and the press to push for PM The process of building a performance-oriented reforms. In the process, it has also won for itself management system takes time, and in China, greater influence and an expanded mission. At it began only a decade ago. An impressive array the national level, the NAO has gradually won of reforms has been introduced, with initiatives the right to publish its annual audit reports since from central ministries and agencies as well 2003. However, at the subnational levels, progress as local governments. However, these reforms has been much more limited. Constrained by have proceeded unevenly and often separately, continuing political interference in audit selection with little coordination. With the creation of an and disclosure, only a minor portion of findings interministerial working group in 2011, a more are released to the public. Further elevation of coordinated approach may soon emerge. Going NAO’s role, especially to expand its influence at forward, reforms face two big obstacles: systemic the subnational levels, will require stronger sup- constraints and resistance to changing the PM port from the central government. “culture.� They are linked, and both are legacies The scale and effectiveness of the audit of the planned economy and symptomatic of the function are also constrained by resources and i the country’s ongoing transition process. inadequate staff capacity. In general, staffing levels are too low and staff lack the skills required Systemic constraints to performance- to undertake performance evaluation. Few have oriented management training in economics and other research and At present, there are some components of China’s evaluation methods. As a result, to date, audits economic system that, though much improved have largely focused on financial compliance and over the past decade, are still too weak to provide have not branched into economic assessments, a solid foundation for supporting PM. performance, or value-for-money audits. The fiscal system The statistical reporting system A sound public finance system is a prerequisite China has an extensive data reporting system that for a well-functioning public sector. With the was built under the planned economy.6 It gener- transition to a market economy, China has had ates a large volume of statistical information that to revamp all aspects of its public finances. It compares well with other countries in terms of has achieved significant progress in rebuilding coverage, periodicity and timeliness, but less well the government revenue mechanism; budget in terms of quality. Two aspects of the system af- and treasury reforms have also helped improve fect data quality and hamper the capacity of the public expenditure management. However, these National Bureau of Statistics (NBS) to act as an reforms are still unfolding, and their adoption at effective force to strengthen M&E: fragmentation subnational levels has been uneven. of the reporting system and the NBS’s weak con- The biggest challenge lies in strengthening trol over data reporting by subnational bureaus. the intergovernmental fiscal system (IFS). Under The NBS is nominally the lead agency for data China’s devolved administrative setup, the IFS is collection and coordination in China, but statisti- extraordinarily important for policy implemen- cal data are also compiled by many other agencies. tation and accountability relationships, and the For example, all fiscal data are collected by the IFS has distorted reforms throughout the public MOF and the State Administration of Taxation. sector. Despite increased transfers, the current The People’s Bank of China is similarly respon- IFS is unable to ensure sufficient funding to local sible for collecting all information related to the 8 PREMNOTE SEPTEMBER 2012 financial sector. Data on tourism are collected and market signals, planners devised a whole system of reported by the State Tourism Administration, indicators for ensuring plan fulfilment. and so on. In the areas where data are collected by For the most part, Chinese reforms are not other ministries and agencies, the NBS is simply a yet grappling with performance evaluation in the recipient and has no authority to determine what conventional sense of measuring impact, effec- data are collected and how. tiveness, or relevance. Instead, they have focused The national statistical reporting system is mostly on rules and targets. Except for the ORS organized in the same pyramid as government cases, little information is available on the stan- administration. There are statistical bureaus dards used for measuring performance. Even in at each level of government that aggregate the the most advanced cases, such as in Guangdong, data and send them upward. Even though the success was measured in reduced appropriations, subnational bureaus are under the guidance of which was assumed to be, though not necessarily the NBS and work to NBS rules and standards, so, due to cost savings. they are funded mostly by governments at the Staff capacity constraints may be a factor same level, which also make the personnel ap- behind the slow change in PM culture, and skill pointments. The local bureaus are required to shortages in the NAO mirror those in other parts report to local governments before submitting of government. Investing in capacity building their data upward through the statistical system, would help accelerate the shift from the input- and the quality of data reporting may be affected output mentality to focus on results, either by when local officials have to strive to meet personal hiring new staff with the appropriate skills, performance targets. providing training to existing staff to strengthen Reform of the statistical system is hampered their skills in economic or financial analysis or by by the NBS’s lack of bureaucratic clout, since it is making greater use of external evaluation teams, one step below ministerial level and thus below as done by some local governments. to many of the ministries from which it receives data. As a result, the content of data has changed Prospects for building a performance- only slowly. Reporting is mostly by administrative oriented management system in China units, and largely focused on inputs and outputs. Because of its size, institutional setup and transi- Much of the information needed for performance tion history, China is in a league of its own and monitoring is either absent or unreliable. For faces a unique set of challenges in building its PM example, data on birth and mortality rates, life ex- system. Even more than other countries, it needs pectancy, immunization rates, attended deliveries, an effective M&E system to support its multilevel and nutritional status are often marred by weak administration. To build one will require sub- quality control and strong incentives at facility stantially rebalancing authorities, starting with or local government levels to report specific levels repairing the IFS and the central-local account- or trends. In education, the data on school enrol- ability relationship. ments are considered so unreliable that Ministry The pressures are growing on government to of Education officials make great efforts to collect improve performance, as rising prosperity, a freer additional information when they inspect coun- press, and the Internet have combined to make ties during the certification process for “achieving� citizens more knowledgeable and demanding. universal compulsory education. In 2008, when Premier Wen Jiabao called for introducing a PM system, he was responding to Changing the performance these pressures, as are municipal governments in management “culture� coastal regions that are now vying with each other One of the most important aspects of the transi- to set up citizens’ complaint hotlines, introduce tion from a planned economy to a market economy participatory budgeting, and so forth. is the need to change the management mind-set To strengthen performance, monitoring from command and control to the increasing use and evaluation, China can draw lessons from of carrots and sticks—incentives accompanied by other countries that have gone through the same enforcement mechanisms. This is salient in China process. It can also learn from reviewing its own ef- because some form of PM was widely practiced forts over the past decade, both positive and nega- under central planning, when, having suppressed tive, especially at the local level. With the central SEPTEMBER 2012 PREMNOTE 9 government taking a more active role in promoting 3. This expands on the accountability framework PM, the pace of reform may be accelerating. The presented in the World Bank’s (2004) World Devel- appointment of the MOS and CPDIC to lead opment Report: Making Services Work for Poor People. PM work nationwide can provide momentum 4. The pervasive use of specific targets was also because they have clout over all central and local noted in World Bank (2002). bodies. As their names suggest, though, they will 5. The MOS is responsible for maintaining focus heavily on supervision and discipline, and discipline and honesty in government, and the fighting corruption will likely be a strong theme CPDIC is charged with rooting out corruption of PM reforms under their leadership. This may and malfeasance among party cadres. The MOS be necessary given the wave of public dissatisfac- and the CPDIC are so closely linked that they are tion resulting from the corruption and food safety often referred to as the Central Discipline and scandals that government is currently facing, but Supervision Department. it also raises the risk of reforms in PM backsliding 6. This section draws extensively from Schreyer toward command and control. and Holz (2005). Acknowledgment References This note is condensed from a paper (Wong 2012) Burns, John P., and Z. Zhou. 2010. “Performance written for the Independent Evaluation Group, Management in the Government of the People’s Republic of China: Accountability and Control the World Bank. The author acknowledges helpful in the Implementation of Public Policy.� OECD comments from Keith Mackay, Anna Reva, Gladys Journal on Budgeting 10 (2): 1–28. Lopez-Acevedo, and Nidhi Khattri. China Statistics. 2011. China Statistical Yearbook 2011. Hong Kong. About the Author Fiscal Research Institute Study Team. 2005. “Key Issues in Performance Budgeting and Government Per- Christine Wong is Professor of Chinese Public formance Evaluation Systems.� Reprinted on The Finance and Director of Chinese Studies, School of Network of Social System Engineering (Chinese), Interdisciplinary Area Studies, and Fellow, Lady http://www.SSEweb.net. Margaret Hall, at the University of Oxford. She Liu, Mingxing. 2007. “Assessment of Local Incentives has taught at the University of Washington; the and M&E for Provision of Compulsory Education in Rural China.� Report for the World Bank, Un- University of California, Santa Cruz; University published, January. of California, Berkeley; and Mount Holyoke Col- Ma, Jun, and Shaolong Wu. 2011. “Performance Evalu- lege. She has also held senior staff positions at the ation of Fiscal Expenditures: Motivation, Process, World Bank and the Asian Development Bank and Impact and Challenges—Case Study of Guangzhou consulted widely for the World Bank and several Municipal Performance Evaluation.� In 30 Years of other international organizations. She is currently Performance Measurement in Chinese Government, a member of the Organisation for Economic Co-oper- ed. Hanxuan Chen, Jun Ma, and Bao Guoxian. Beijing: Central Compilation and Translation Press. ation and Development Advisory Panel on Budgeting McGregor, Richard. 2010. The Party: The Secret World and Public Expenditures and the Academic Advisory of China’s Communist Rulers. London: Allen Lane. Committee at the Center for Industrial Development National Audit Office (2011). Results of the National and Environmental Governance, School of Public Audit of Local Government Debts. Policy and Management, Tsinghua University. Schreyer, Paul, and Carsten Holz. 2005. “Institutional Arrangements for the Production of Statistics.� In China in the Global Economy: Governance in China, Notes chapter 5. Paris: OECD. 1. At the exchange rate of ¥6.47/dollar at mid- Wong, Christine. 2009. “Rebuilding Government for year. See also www.worldbank.org/ieg/ecd. the 21st Century: Can China Incrementally Reform 2. Bo was the party secretary of Chongqing, a the Public Sector?� China Quarterly 200. provincial-level city in the southwest, who was ———. 2010. “Fiscal Reform: Paying for the Harmonious Society.� China Economic Quarterly 14 (2). brought low by criminal investigations into his ———. 2012. “Toward Building Performance-Oriented wife’s involvement in the death of Briton Neil Management in China: The Critical Role of M&E Heywood and suspicions of having transferred and the Long Road Ahead.� ECD Working Paper large amounts of illicit funds abroad. Series, No. 27, IEG, World Bank, Washington, DC. 10 PREMNOTE SEPTEMBER 2012 ———. Forthcoming. “Can Humpty Dumpty Be Put ———. 2010. “Fiscal Reform: Paying for the Harmonious Together Again? A Review of Public Investment Society.� China Economic Quarterly 14 (2). Management in China.� In Investing to Invest: ———. 2011. “The Fiscal Stimulus Program and Problems Strengthening Public Investment Management and of Macroeconomic Management in China.� OECD Global Lessons. Washington, DC: World Bank. Journal on Budgeting 2011 (3): 1–24. World Bank. 2002. China: National Development and ———. 2012. “Toward Building Performance-Oriented Sub-National Finance—A Review of Provincial Expen- Management in China: The Critical Role of M&E ditures. Report No. 22951-CHA, Washington, DC. and the Long Road Ahead.� ECD Working Paper ———. 2004. World Development Report: Making Services Series, No. 27, IEG, World Bank, Washington, DC. Work for Poor People. New York: Oxford Univ. Press. ———. Forthcoming. “Can Humpty Dumpty Be Put ———. 2005. China: Deepening Public Service Unit Reform Together Again? A Review of Public Investment to Improve Service Delivery. Washington, DC. Management in China.� In Investing to Invest: ———. 2007. China: Public Services for Building the New Strengthening Public Investment Management and Socialist Countryside . Report No. 40221-CN, Global Lessons. Washington, DC: World Bank. Washington, DC. ———. Forthcoming. “Paying for Urbanization: Chal- Yang, Suchang, Jason Z. Xiao, and Maurice Pendlebury. lenges for China’s Municipal Finance in the 21st 2008. “Government Auditing in China: Problems Century.� In Metropolitan Government Finances in and Reform.� Advances in Accounting, Incorporating Developing Countries, ed. R. Bahl, J. Linn and D. Advances in International Accounting 24: 119–27. Zhao, Min, Kouqing Li, and Zhan Li. 2011. “The Result- Wetzel. Cambridge, MA: Lincoln Institute for Based Management System of Public Sectors in Land Policy. China: Problems and Reform.� Unpublished paper. Wong, Christine, and Richard Bird. 2008. “China’s Fiscal System: A Work in Progress.� In China’s Recommended further readings Great Transformation: Origins, Mechanism, and McGregor, Richard. 2010. The Party: The Secret World Consequences of the Post-Reform Economic Boom, of China’s Communist Rulers. London: Allen Lane. ed. Loren Brandt and Thomas Rawski. New York: Schreyer, Paul, and Carsten Holz. 2005. “Institutional Cambridge University Press. Arrangements for the Production of Statistics.� In World Bank. 2002. China: National Development and China in the Global Economy: Governance in China. Sub-National Finance—A Review of Provincial Expen- Paris: OECD. ditures. Report No. 22951-CHA, Washington, DC. Wong, Christine. 2009. “Rebuilding Government for ———. 2007. China: Public Services for Building the New the 21st Century: Can China Incrementally Reform Socialist Countryside . Report No. 40221-CN, the Public Sector?� China Quarterly 200. 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