China Law Blog

"Sofa",as a local chinese poster would say...

It is very interesting to observe the power play between Beijing and the Local government.

In chinese there's an idiom that says "ɽ¸ß»ÊµÛÔ¶" which means literally "The mountain is high and the emperor is far away" (Thus we can do whatever we want).

With the advent of modern communication technology though, this phrase is becoming less relevant.

This is one of the most important (and little remarked) results of the Law on Property. The Law on Property stated that "collective land" (i.e. land theoretically owned by the village and managed by the village committee) was to be used only for agriculture and farm residence and land used for industrial purposes would have to be "state land" (i.e. land theoretically owned by all of the people and managed by the central government).

This means that all land transfers from agricultural to industrial land now have to be approved by the central government, and this gets rid of a huge source of peasant disputes since the central government doesn't have an incentive to underprice the land.

The other two interesting things about the change in the land system is that Beijing will now supervise land through agencies which don't run through the provincial/local chain of command. This has always been the way that military has worked (for obvious reasons), but this is recently been tried in the financial arena (with the People's Bank and the securities regulators). What is interesting is that there has been talk of applying this system to the judiciary.

China isn't alone in this. The reason that US District Court, Federal Reserve, and Federal agency boundaries do not follow state lines is so that the Federal government has agents on the ground that don't aren't influenced by states or local officials.

Also, it is less a case of technology than of taxation. Madeline Zelin wrote a book on how the Yongzheng emperor in 1760 tried and failed to create a system of taxation that would fund the national government. This failure set the course of Chinese history for the 19th century, since without national taxes, you can't easily raise a national army or create a national bureaucracy that is independent of local interests.

In the early-1990's, Zhu Rongji succeeded where Yongzheng failed and put together a system in which the national government would directly get tax revenue.

"Also, it is less a case of technology than of taxation"

I do think that modern technololgy enabled the reform in taxation, though. You must admit without the computers and internet and faxes etc communication and book keeping will be that much more difficult.

I really don't think so. Computers, the internet, and faxes reduces the costs of taxation, but the value-added tax that Beijing put in has been used by other countries for centuries.

The main thing is people. You need to have tax collectors and supervisory officials who are loyal to the center and you make them loyal to the center by making sure the center has control over their salaries and jobs. This leads to a chicken and egg problem. If you don't have a good tax system, you don't have the money to control the officials that will give you a good tax system.

zuraffo --

I used to use the emperor/mountain quote fairly often on here, but stopped doing so as I became more convinced that the emperor at least knows what is going on.

Twofish --

You have it exactly right, but will the center be heeded on this?

Twofish --

I agree with you re the need for people loyal to the center and I like your analogy to the US and your bringing China's court system into the discussion.

The center will lose only if either it doesn't have the power or it doesn't have the will. In the case of land sales, it has the power and it has the will.

The bigger problem is whether or not the basic problem with local finance will be solved, and I think it will. The basic pattern in Chinese government in the 1990's was that the center would crack down on revenue raising method X, causing local governments to try revenue raising method Y. They tried to borrow money until the central government crackdown on that, then they tried to raise money in fees, and then they went into land sales.

What makes this different is that local governments are going to be compensated from any losses by revenue from the central government. Because the central government has a new taxation system, they can now move resources from rich provinces to poor provinces in a transparent way that no previous Chinese government in history could.

It has come to my attention from a top property law firm in Beijing that no new foreign property transactions have been approved in tier 1 cities since the start of June. Can anyone out there confirm this? Apparently this new restriction does not apply to second tier cities. Again can anyone confirm?
My company seems to have been wasting the best part of a year trying to push through a deal in Beijing which the Vendor now says cannot happen following consultation with MOFCOM. Again, any thoughts from the experts?