China Law and Governance Review
    A Publication of China Law and Development Consultants
June 2004 Issue No. 2   
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Governance
What's New in Government Reform and Public Administration

Local Governments Pay High Prices for Talent: Releasing Sharks into the Fish Tank?
Over the past decade, China has attempted to establish a modern civil service system by introducing elements of a more responsible government and long-term political reform. In civil service recruitment, while Party affiliation remains paramount in judging an applicant’s qualifications, merit-based examinations have also been introduced in the recruitment process, especially for entry-level positions. The latest experiments came from a number of local governments which set up special programs to recruit technical talent on short-term contracts with pay levels many times higher than those of regular civil servants. These experiments have attracted much attention in a system where life tenure and low pay with generous perks are usually associated with what it means to be a government worker.

The monthly base salary of a civil servant in China starts at a paltry RMB110 (US$13.75), supplemented by seniority, rank and title adjustments, with the highest monthly salary tops at RMB1,050 (US$131) for government ministers. However, according to a spokesperson from the Ministry of Personnel (人事部), generous perks and benefits, including free or low-priced housing and other in-kind subsidies, make up a large portion of Chinese civil servants’ income, although such benefits vary by region and differ among government departments. Cao Yuanzheng (曹远征), a senior economist at the Bank of China (中国银行), believed that Chinese civil servants’ low base salaries and the small pay differential gave them little incentive to work hard. “Without sufficient incentives while at the same time possessing much power, [the civil servants] are very likely to abuse their power”, warned Cao. In addition, although civil servants in China undergo annual evaluations and may in theory be dismissed for poor performance, the fact that very few are ever dismissed on performance grounds means that they essentially enjoy life tenure, making personnel redundancy a major problem for the government. Based on statistics released by the Ministry of Personnel, between 1996 and 2002, 17,857 out of 5,000,000 civil servants were dismissed, representing a rate of less than 0.06% per year. On the other hand, 28,626 civil servants voluntarily left their government jobs during the same period, many of whom lured by higher pay in the non-government sector. Their departure left many government departments in need of personnel in specialized areas such as finance, law, taxation, foreign languages and information technology. (Sources: Caijing Magazine《财经杂志》, December 3, 2003 and Southern Weekend 《南方周末》, December 15, 2003)

In June 2002, the provincial government of Jilin (吉林省) became the first in the country to issue regulations which allowed the hiring of so-called “government employees” (政府雇员) outside the ranks of civil servants at salaries many time higher. In July 2003, through a series of competitive examinations, two highly-qualified information technology specialists were hired as “government employees” (政府雇员) for an Internet system development project of the provincial law enforcement agency. Their annual salaries of RMB100,000 (US$12,500) each were nearly eight times the average annual salaries of regular civil servants in the provincial government (Under Jilin’s plan, the most senior-level government employees would receive as much as RMB198,000 (US$24,750) in annual salaries). The new government employees carry no administrative titles and exercise no administrative power. Nor are they counted toward any government hiring quotas. More significantly, they are hired under contracts ranging from one to three years which may be terminated earlier due to poor performance and they do not enjoy any benefits or perks typically associated with the civil service positions. (Source: Xihuanet Jilin 新华网吉林频道, October 7, 2003) Following Jilin’s lead, other local governments soon launched similar programs. In August 2003, the city of Wuxi, Jiangsu Province (江苏省无锡市) announced that it would hire four senior contract consultants at an annual salary of RMB500,000 (US$75,000) each. (Yangzi Evening Post《扬子晚报》, August 26, 2003) In Hunan Province (湖南省), four foreign language specialists were sought by the government to assist in negotiating contracts with foreign companies. (Beijing Youth Daily《北京青年报》, August 1, 2003) In September 2003, the city of Zhuhai, Guangdong Province (广东省珠海市) began recruiting government employees with annual salaries ranging from RMB40,000 (US$5,000) to RMB100,000 (US$12,500). (Beijing Youth Daily, id.) In November 2003, Shanghai hired 11 specialists on contract from Hong Kong, two as “government employees” to take over existing civil service positions. (Xinhuanet 新华网, November 24) Since the beginning of 2004, the municipal governments of Guangzhou, Guangdong Province (广东省广州市) and Changsha, Hunan Province (湖南省长沙市) both started their own government employee programs. (Southern Metropolis Daily《南方都市报》, February 23, 2004 and Sanxiang Metropolis Daily《三湘都市报》, February 24, 2004)

When Jilin first introduced the government employee program, their official justification was that it was an emergency measure supplementing the government’s shortage of talent in certain specialized areas. But one high-level Jilin official soon coined the phrase, the “Shark Effect” (鲶鱼效应), by likening the new hires to sharks being released into a fish tank: “To avoid being eaten by the sharks, the sardines have to move faster”. (China Newsweek《新闻周刊》, January 19, 2003) Other local governments have been equally direct about the reason behind their new programs: The head of Zhuhai’s personnel bureau wanted to use the program to “attract the best talent to the government” (Beijing Youth Daily, id.) while the Mayor of Changsha hoped that the program would bring a “breakthrough to the traditional civil servant hiring and retention system” (Sanxiang Metropolis Daily, id.). Will such government employee programs have the desired “shark effect” to motivate Chinese civil servants to work more efficiently or trigger fundamental changes to the country’s civil service system? Both the media and the public seemed quite divided on the issue. The following are excerpts of some of the views on both sides:

“Government employee programs represent a new and flexible recruiting mechanism compared to China’s conventional administrative management system. … It should be viewed not only as a supplemental measure utilized on an emergency basis, but as a breakthrough to the existing government hiring practices. Ideological qualifications used to be paramount for government recruits. Government employees, however, must first and foremost possess professional skills which ordinary civil servants do not have.” (Xinhua Jilin, October 17, 2003, quoting Li Dezhi (李德治), Assistant Dean to the School of Public Administration at Jilin University (吉林大学行政学院))

“The emergence of government employee programs has shocked the Chinese mentality of officialdom worship (官本位意识). Government employees can make a living based on their skills and do not need to depend on being promoted through the ranks. They do not have to deal with the complex personal relationships within the government, which will help to change the way the government functions and improve efficiency. … By introducing market elements and contract relationships, the programs also provide a solution to the problems of narrow exits for government workers, life tenure and irrational movement of personnel.” (21st Century Jobs《21世纪人才报》, January 6, 2004)

“The significance of implementing government employee programs goes well beyond ‘fulfilling the government’s special need for certain talents’. … From the day they are hired, government employees will always remember that they are ‘employees’ and can be fired at any time. The portion of their salaries which are many times higher than those of regular civil servants should be viewed as their high ‘cost of unemployment’”. (Market Journal《市场报》, July 18, 2003)

“The highest annual salary of RMB198,000 (US24,750) offered by Jilin Province equals the total amount of salaries earned by a regular civil servant for 20 years in poor areas like ours. That is simply shocking! ... Given the increasing employment pressure in our country evidenced by headlines such as ‘Beijing University Graduate Selling Meat’ and ‘Ph.D. Unemployed’, wouldn’t these unemployed ‘graduates’ and ‘Ph.D.s’ be qualified to do the same work for the government? … Since government employees ‘do not have administrative functions, do not exercise administrative powers and are not part of the government’s administrative hiring quota’, they also do not pose any threat to the status quo of the existing civil servants. In other words, they are like cars running on two separate tracks, one not affecting the other. The difference in their salaries and the permanency of their positions will not necessarily translate into the [eventual] dismissal of the civil servants because government employees performed better. Nor does it mean that civil servants would lose their ‘iron bowl’ or that their bonuses and promotions would be affected in any way. How can anyone be so sure that such a setup would have any ‘shark effect’ on civil servant? If there is any ‘effect’, it would be the loss of self-esteem by the civil servants.” (www.hn.rednet.com.cn 红网, December 15, 2003)

“Government employee positions are so far limited to technical and other professional personnel. While they meet the government’s need for highly qualified technical specialists, they do not represent a general trend and therefore unlikely to have any ‘shark effect’.” (China Taxation News《中国税务报》, December 29, 2003, quoting an official from a central government ministry)

“More people are skeptical as to whether the high salaries offered by Jilin would be enough to attract the best talent. Some experts believe that even though the investment seems substantial from the government’s perspective, it is not much compared the expertise of those the government needed the most, especially senior experts in the computer field who could easily command far more than RMB200,000 (US$25,000) in big cities like Beijing.” (Xinhuanet Jilin, October 17, 2003)

“Some civil servants find the government employee programs ‘hard to swallow’. They maintain that plenty of talent can be found within the ranks of civil servants and that their abilities are constrained by the limitations of the system. In their eyes, this is yet another example of ‘wasting talent’ by abandoning the talent from within while seeking ‘foreign aid’ elsewhere.” (China Youth Daily《中国青年报》, January 3, 2003)

“What can a [government employee] accomplish? We know that most of the government workers’ jobs involve carrying out orders from their superiors. Major decisions are made by municipal Communist Party committees and leaders in city governments. As a government employee, no matter how capable you are, the nature of your work is limited to providing services and advice, not decision- making. … It does not make any sense to pay those without the responsibilities more than those with the responsibilities.” (Internet posting on the People’s Forum at www.people.com.cn (人民网人民论坛), February 5, 2004)

“A government employee needs to work with the civil servants and his superior in the government department he is assigned. What if disputes or conflicts arise? How should they be handled?” (Chinese Times《时代潮》, Issue No. 3, 2003)

Whether the new government employee programs can bring about the “shark effect” remains to be seen; however, their increasing popularity may embolden local governments to explore the possibility of applying the same concept to their general civil service recruitment and retention practices. In February 2004, the municipal government of Shenzhen, Guangdong Province (广东省深圳市) became the first in the country to announce plans to convert a portion of the civil service positions at its government offices and institutions (机关事业单位) into contract positions. (Southern Daily《南方日报》, February 16, 2004) On the other hand, given the central role of the Communist Party in controlling civil service recruitment (including the hiring of the new government employees), it is unlikely that such programs would lead to significant changes. As stated by one official from China’s Ministry of Personnel, the civil service system in China strives to “uphold the basic principles of the Communist Party, instead of being politically neutral; adhere to the rule of Party management of the cadres, instead of transcending Party lines; and maintain a recruitment standard that requires combining ability with political virtues (with the latter being paramount), instead of emphasizing personal ability.” (China News Agency《中国新闻社》, August 17, 2003) In addition, the primarily technical nature of the new government employee positions and the short duration of their appointments also raise questions as to whether they could really make a difference in the way the government operates.

 

Governance: Jiangsu Taxi Drivers Struggle to Keep Operating Permits

In September 2003, the transportation bureau of Zhangjiagang, Jiangsu Province (江苏省张家港市) issued a controversial policy to phase out existing individual taxi operating permits and to auction off new permits only to those with an ownership of 50 or more taxis and a one-time capital injection of RMB12 million (US$1.5 million). The policy was a reversal of an existing practice which allowed individual taxi drivers to hold operating permits. During the early 90’s, Zhangjiagang had for a period of time issued operating permits to individual taxi drivers for a token sum and later allowed these permits to be renewed for eight-year terms upon payment of RMB40,000 (US$5,000).

By the time the new policy was announced, approximately one-fifth of the taxis in Zhangjiagang were operated by individual drivers, most of whom had spent as much as RMB200,000 (US$25,000) on expiring permits sold on an active secondary market. Their only chance of recouping such investments was through renewing the expiring permits. Under the new policy, which became effective in January 2004, the local transportation bureau no longer renews individual taxi operating permits when they expire. Instead, drivers must now be employed by one of several local taxi companies which qualify to bid for the new taxi operating permits through public auction. As individual operators, these taxi drivers can earn an average of RMB5,000 (US$625) per month, while as employees at the local taxi companies, they must pay their employers a management fee of more than 10% of their monthly earnings. Given that the local taxi companies generally shift all operating expenses and liability to individual drivers, the new policy, according to one local taxi driver, did nothing more than enabling taxi companies to use their monopoly over operating permits to extort a management fee from the drivers. The transportation bureau maintained that its policy was a simple redistribution of public resources aimed at promoting large-scale operation and efficient management for the local taxi industry. Many taxi drivers in Zhangjiagang, however, suspected a more sinister motive: a number of the city’s top transportation officials have been holding key management positions at the largest local taxi company, known among taxi drivers as the “little treasury” for the same officials.

Angry at seeing their investments evaporate overnight and at the sudden change in the “rules of the game” which potentially benefit government officials personally, Zhangjiagang taxi drivers sent their representatives to petition both the provincial government and the central government in Beijing for relief. Thirteen taxi drivers also challenged the legality of the new policy in court, arguing that it unfairly discriminated against individual taxi drivers and contradicted a number of higher level regulations which permitted individual taxi operations. Their efforts were met with repeated harassment, including detention of several of the petitioners, by the local police. The 13 plaintiffs had to abandon their legal challenge on the date of the trial when their complaint was inexplicably altered by local court personnel. (Sources: China Youth Daily, December 23, 2003 and Economic Observer《经济观察报》, February 16, 2004)

The debate over privatization versus state enterprise monopoly of China’s fast growing taxi industry has been a hot topic in many Chinese cities. Since 1998, the government of Wenzhou, Zhejiang Province (浙江省温州市), one of China’s most reform-oriented cities, became the first in the nation to issue taxi operating permits to individual drivers and allowed such permits to be freely transferred at market prices. In 2003, the Beijing municipal government abolished the commission system which forced taxi drivers to pay an exorbitant fee to taxi companies, the only ones permitted to operate taxis in Beijing. The situation in Zhangjiagang, however, touched on issues beyond the debate of government monopoly or even the lack of respect for private property. As one commentator observed, “When so many local governments have for so long both acted as referees to the ‘rules of the game’ and as representatives of special interests to participate in the game, the interests of the public inevitably suffer. The public will increasingly lose faith in the government, resulting in the ultimate loss of credibility and authority by the government”. (The New Beijing, January 1, 2004)

 

  Governance: Budget Review by Guangdong Province Delegates: 2004 Update
In our January 2004 issue, we carried a story about the Guangdong People’s Congress’ delegates being able to review for the first time a detailed provincial government budget during their annual session in January 2003. The Southern Weekend 《南方周末》reported in February 2004 that during the second session of the 10th Guangdong Province People’s Congress (广东省第十届人民代表大会), delegates were again presented with a detailed 2004 budget. The new budget covered the RMB22.51 billion (US$2.81 billion) spending plans for the 115 provincial-level government agencies in Guangdong. This time, the Guangdong delegates were able to ask provincial finance officials about specific line items and to question the appropriateness of certain expenditures at special budget discussion sessions. In one instance, a number of delegates complained about a proposed RMB36.48 million (US$4.56 million) expenditure for five government-run preschools operated solely for children of the provincial government workers. “The public should finance the civil servants, but not their sons,” commented one delegate. Unsatisfied with the explanation provided by finance officials that the government subsidy to the preschools was justified under the current policy, the delegates submitted a bill requesting the government to decrease and eventually eliminate such expenditures.

Overall, the Guangdong delegates seemed pleased with the improved presentation of the 2004 budget, especially in terms of additional explanations provided regarding some line items. Such explanations were not present in the 2003 budget, which made it difficult for delegates to understand the budget. On the other hand, two issues which were raised during the 2003 budget review process continued to draw criticism from the delegates. Like the 2003 budget, the 2004 budget arrived shortly before the annual session, giving delegates very little time to engage in meaningful review. Little progress seemed to have been made since 2003 with respect to establishing a provincial legislative budget oversight committee to review the budget in advance. The current budget also came affixed with a “Confidential/Return after Review” stamp, despite calls from delegates during the 2003 annual session to make the government budget plan a public document. Many delegates urged that portions of the government budget for 2005, to the extent that they are “closely related to the interests of the public” (e.g. education, health, employment and social insurance and state land management), be made available for public examination.

The level of scrutiny by the People’s Congress of the government budget in Guangdong, although still very limited, puts Guangdong in the forefront of governance reform in China. The fact that budgetary review remains a prominent feature on the Guangdong legislative agenda reflects the government’s willingness to allow the provincial people’s congress to become more involved in the budget review process. In the words of one observer, “The [Guangdong] People’s Congress is gradually getting a taste for what it really feels like to be an organ of state authority”. (Source: Southern Weekend, February 19, 2004)

 

 


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