Saturday, September 26, 2009

SASAC's Budget End-Run

According to a story in today's Economic Observer Online, China's SASAC (国资委) is trying to shake things up a little.

Currently, only the Finance Ministry (财政部)has the authority to compile public budgets in China. SASAC's only role when it comes to money is to collect dividends from the SOEs that it controls and hand them off to the Finance Ministry.

A few years ago, when SASAC's role of "dividend handoff" was established, it followed a bitter battle between SASAC and the Finance Ministry for control of these monies. SASAC's reasoning was that, as controlling shareholder of these SOEs, it should naturally control the dispensation of dividends to which it is entitled. In the end, the Finance Ministry was simply too powerful, and managed to relegate SASAC to its handoff role. Though it controls the shares of China's largest and most important SOEs, SASAC has no source of revenue and must depend on the Finance Ministry for its own budget.

Now SASAC is at it again. They have apparently been circulating a draft resolution among local government SASACs that would give SASAC the authority to independently draw up the budget for central state-owned enterprises (独立编制央企预算). This is not an inconsequential sum. In 2008, central SOEs submitted over 500 billion yuan ($73.5 billion) in dividends to the central government.

A Finance Ministry official who was asked for comment expressed his surprise that such an action was being considered. Apparently SASAC circulated a draft in the Finance Ministry last week, but the draft "on the whole, had no major problems" -- the implication being that it contained no such provision for SASAC to take over budget preparation for the SOEs.

Central SASAC is not just pulling this idea out of the air. Apparently some local SASACs have been doing this already. Shenzhen's SASAC has, since 1995, controlled the budgets of local SOEs, and only recently has the local finance department even been invited to take part in the budgeting process for SOEs.

This story illustrates a couple of interesting aspects about governance in China. One is the constant battle over resources that takes place at the ministerial level. Money is power, and China is no different from any other country whose various departments fight over resources. The other is the variety of policies being implemented by local governments. Foreign observers so often talk of China as if it is a monolith, but this story illustrates that, when you open the box, there are a lot of moving parts, some of which don't rub each other very well.

Only time will tell whether SASAC is successful in its attempt to increase its span of control. One thing we can be sure of is that the Finance Ministry will not let this happen without a fight -- a fight they will probably win.

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