China’s National People’s Congress established in 2002 the Budget Work Committee (预算工作委员会) as a working organ of its Standing Committee (人大常委会). The Budget Work Committee’s mandate is to assist the National People’s Congress and its Standing Committee to review proposed budgets and budget adjustments as well as monitor the implementation of the budgets. Even with the establishment of such a body within the National People’s Congress, the road to real budget oversight—not just glimpse of plans that have been decided—will be a long one. While the People’s Congresses are described by the Chinese Constitution as highest organs of state power, in reality, they are politically very weak bodies. With more access to detailed budget information, delegates to People’s Congresses and members of the Budget Work Committee may be able to ask more questions, perhaps even to challenge the appropriateness of some choices. However, they are likely to remain informed observers, not decision makers, in the budget process.

In March 2003, China’s 10th National People’s Congress (十届全国人大) approved the establishment of the State Asset Management Commission (SAMC, 国有资产管理委员会), an agency which will have the sole responsibility for the management and operation of the state-owned non-financial enterprises controlled by the central government. In the past, such management authority was shared by more than eight government ministries, which resulted in turf wars and an overall lack of accountability for the performance of state-owned enterprises (“SOEs”). Amid the growing number of failing SOEs being sold, there are also increasing concerns over the lack of governmental supervision of such sales and the stripping of state-owned assets. The creation of the SMAC represents a major attempt to rationalize the regulatory structure governing SOEs by concentrating regulatory authority and eliminating vested bureaucratic interests. It is expected that provincial governments will follow Beijing’s lead in setting up similar agencies at the local level.

Will the creation of a centralized management body like the SAMC do much to alter how SOEs are run, or at least to stop the stripping of assets by insider managers and well-connected businessmen, often in collusion with local officials? One must have doubts. While the consolidation of bureaucratic responsibility over SOEs may lead to more focus in their operations since they will only need to respond to one master, the questions remain as to who watches the master and whether the SMAC will impose financial discipline on SOEs.

In fact, SMACs themselves have been faulted for not being transparent or accountable enough. In Shanghai, which has been allowed to experiment with its own version of the SMAC since 1993, some city legislators have proposed to bring the Shanghai SAMC under the oversight of the city’s legislature. Qiu Yizhong (邱益中), a delegate to the Shanghai Municipal People’s Congress (上海市人民代表大会), had this to say about the current setup of the Shanghai SMAC: “As the representative of all holders of state-owned assets, the Shanghai SAMC should be accountable, at least in theory, to the true owners of such assets, the 13 million Shanghai people. But…the Shanghai SAMC answers to no one”. According to Mr. Qiu, there is no oversight body monitoring the performance of the Shanghai SAMC. Shanghai neither has effective standards to evaluate the financial performance of its state-owned assets, nor does it have a system in place to hold the SAMC and its staff accountable for failure to preserve or increase the value of such assets. As a result, “even if an enterprise stops operating for a year, its books can still look fabulous….The current evaluation standards do not truly reflect the state of operations of an enterprise,” said Mr. Qiu. In January 2003, Mr. Qiu, along with ten other Shanghai legislators, became the first in the country to introduce a bill calling for direct legislative oversight of the Shanghai SAMC. Their bill proposed the following changes: (1) establish by law the oversight authority of the Shanghai Municipal People’s Congress over the Shanghai SAMC so that the People’s Congress may exercise the right to review major decisions regarding the management and operations of Shanghai’s state-owned assets and to review asset dispositions, earnings and budgetary issues; (2) further clarify the scope of responsibilities of the Shanghai SAMC and grant the agency comprehensive management authority to manage personnel, assets and operations of SOEs in Shanghai; (3) establish a budgetary management system under which the People’s Congress would review budgetary targets set by the Shanghai SAMC either annually or on a case by case basis; and (4) adopt benchmarks, such as increases in cash flow, rates of return on assets and specified budgetary targets to evaluate the financial performance of state-owned assets. The legislators’ move reflects what appears to have been decided by Shanghai Communist Party and government leaders. An expert who participated in the Shanghai SAMC reform project revealed that the Shanghai government had decided some time ago to bring its SAMC within the oversight framework of the Shanghai Municipal People’s Congress.

(Source: 21st Century Economic Report 《21世纪经济报道》, February 24, 2003)

“With respect to the civil aviation industry, a competitive market is already in place. Why does the government still need a hearing to set a competitive market price? Furthermore, price wars have been rampant in the past few years. The government has in fact acquiesced to the airlines’ practice of openly discounting tickets. What then is left for the hearing to discuss? Is it about setting a reasonable range for prices to fluctuate within, as stated by some officials? The question is, with so many airlines, each having its own cost structure, the ability to control costs and management capabilities, how could the representatives attending the hearing decide what a reasonable price range should be? Even if they manage to come up with such a price range, it is unlikely to benefit consumers, let alone encouraging healthy competition among airline companies.” (Excerpt from “Airline Price Hearing is Like a Five-Flavored Bean” 《机票价格听证像个怪味豆》 by Wen Jing (文钊), China Business & Trade Times 《中华工商时报》, April 15, 2003)

“The debt ratios for domestic airlines are all between 70%-80%, which means that most of the airlines’ assets are state-owned. [Editor: China’s airline creditors are mostly state-owned banks.] If a foreign airline is unprofitable, its banks may not lend it more money and it may go under. But Chinese airlines do not have to worry about banks not extending them credit. Even if they lose money, they can continue to buy airplanes. That’s why we see the strange situation where some airlines continue to operate when they are 120% in debt. This is because everyone knows that the government will not let airlines go under. Chinese airlines only have to worry about having enough cash flow to maintain their daily operations. That is why they are able to wage price wars at levels below cost. … Therefore, whatever change is made to airline pricing, until the asset structures of Chinese airlines undergo fundamental changes, the CAAC is not going to completely relinquish its control of airline pricing. Thus, ‘openness within limits’ will be the essence of the current pricing reform.” (Excerpts from “Two Key Issues Likely to Emerge from Airline Price Hearing” 《机票价格听证会浮现两大焦点》 by Xiong Manrong (熊满蓉), GD-HK Information Daily 《粤港信息日报》, April 17, 2003)

“The reason behind the SDRC hearing is most likely the desire to prevent further loss of state-owned assets. The airline companies kept discounting prices in order to win over customers, without regard to cost, which inevitably led to the loss of state-owned assets. The flip side is that the airlines already have capacity which has been underutilized for quite some time. The airlines still have to deal with interest payments or leasing fees and their airplanes still need to be serviced. Don’t these all lead to loss of state-owned assets? … Diversification of ownership is the fundamental reform measure necessary to resolve the efficiency problem facing China’s airline industry. Given that it is hard to predict when such a measure would be adopted, the government should at a minimum not use pricing to restrict the airlines’ ability to compete. (Excerpts from “Price Hearing: A Procedure the CAAC Can’t Avoid” 《票价听证：民航躲不过的程序》 by Gu Jun (顾钧), China Youth Daily 《中国青年报》, April 24, 2003)

“Only when the airline price hearing is convened by an independent, neutral and authoritative body can we positively assure that the hearing would not be a mere formality and that there is hope for any substantive reform… In our country, the power to approve capital investment and to set pricing is highly desirable and is usually reserved for government planning and management agencies. In areas like telecommunications and civil aviation, such power is shared with the agency in charge of the specific industry. In recent years, pursuant to the Price Law 《价格法》, planning and management agencies at all levels are holding hearings before setting prices, which is a sign of progress. However, we must realize that such hearings have their objective limitations. In terms of such fundamental decision as to whether the CAAC should maintain its control on pricing or to adopt market pricing, it is inappropriate to have the pricing authority itself preside over the hearing. Otherwise, the government will be suspected of being one’s own judge and judging before hearing. And hearings as such are unlikely to have any substantive impact on policy-making. Worse yet, the public will reject such hearings as a mere formality.” (Excerpt from “Thoughts on Our Country’s Hearing Process” 《关于我国听证会制度的思考》 by Zhou Hanhua (周汉华), Southern Weekend, May 8, 2003)

The airline price hearing was originally scheduled to be held in April but was delayed till July 15, 2003 due to the SARS epidemic. The hearing was broadcasted live on national TV but members of the public were not invited to speak or to observe the hearing.

The airline price hearing was the most recent step in the emergence of public hearings in China in recent years. The first type of hearings mandated by Chinese law was the administrative hearings in cases involving the imposition of heavy administrative sanctions or penalties on citizens. The second was the legislative hearings convened by the People’s Congresses (China’s legislative organs) to discuss proposed laws. Price hearings are a third and new form of hearing mandated by China’s Price Law (1997) which requires that government agencies hold hearings when setting prices or rates for public services. Since 2000, government agencies at both the national and local levels have held price hearings ranging from setting rates for public transportation, taxi fares, water, gas, heat and power supplies, hospital fees, park admissions and even tuitions for public schools. In January 2002, the State Development and Planning Commission (国家发展计划委员会) held a price hearing on railroad passenger fares, the first such event organized by the central government. The hearing invited academic experts, officials at the relevant government agencies and representatives from government-recognized organizations such as the All China Consumers Federation (中国消费者协会). Members of the public selected from open sign-ups were also allowed to observe, but not speak at the hearing. The hearing was aired live on China’s central television station.

The introduction of public hearings in China is yet another indication of the growing belief that there should be more citizen input into the government’s decision- making process. However, by the standards of most Western democracies, the procedures for public hearings in China still fall considerably short in terms of full transparency and freedom of participation. In the case of the airline price hearing, in addition to the questions concerning the role of the government in regulating airline pricing and the reasonableness and feasibility of the proposed price range, issues such as the appropriate party to convene the hearing, the extent citizens are allowed to participate and the uniformity of hearing procedures are just beginning to be explored.