From News, page 3, issue 338, Oct 22, 2007
Translated by Zuo Maohong
Original article: [Chinese]

Central ministries and commissions are in for a spending spree.

The bureaucracies have some 400 billion yuan to dispose of in two months. That's all the time they left to use up funds made available to them under the 2007 budget, and so far only 60% has been spent.

The rush to spend comes after a warning from the Ministry of Finance, which states that a failure to execute expenditures on time may lead to a cut in next year's funding.

This has long been a problem for the government, as past years' national audit reports revealed.

The Ministry of Finance has recently shown unprecedented drive in facing the problem,calling for funding cuts and reprimanding bureaucracies that made unrealistic budget applications.

The ministry's move indicates a shift in budget reform emphasis, opines Ma Caichen, fellow at the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences.

Up till the end of August, meteorological agencies spent just under 55% of their budgets, lagging far behind the 75% perscribed by the ministry.

The agencies are now under strict order from the Central Meteorological Administration to spend 2.5 billion yuan before the end of the year.

The Ministry of Health has also given like orders to its agencies, setting the deadline for the end of November.

In fact, most ministries and commissions face similar problems. This does not mean that there's no demand for funding, on the contrary, there are plenty of incidences where funds are needed but not available.

Delay in Budget Implementation

Since the middle of last year, Dalian Changhai Credit Guarantee Corporation has been waiting for interest payment from the state treasury.

The accumulated 15-month interest payment arose from secured loans arranged by the government to promote the reemployment of laid-off workers. The interest is subsidized by the government but the disbursement of funds is seriously delayed.

In another case, Beijing Language University obtained a 4.5 million yuan subsidy from the Ministry of Education in 2002. The money is meant for paying interest on a loan to fund the university's canteen renovation.

However, the planned project has yet to move beyond the structural design stage and no loan has been taken, leaving the fund made available has stayed idle for the last four years.

"Why should the treasury provide funding if it's not needed" says Zhu Zhigang, deputy director of Ministry of Finance, at a budget implementation management workshop.

Zhu says that science and technology, healthcare, environmental conservation, and public interest agencies performed worst in executing budget expenditures.

He believes the problem stems from poor implementation and glut of funds.

The ministry suspects that some central agencies had in the past exaggerated funding needs by submitting poorly studied projects and unrealistic plans, which cannot be accomplished after funding approval.

In 2006, agencies under the central government have a combined budget surplus of 57.4 billion yuan, of which, 53.7 billion yuan is actually meant for projects' expenditure.

By the end of 2006, the total surplus for of all central agencies rose by 10% on a year-on-year basis, and in some agencies, up to half of the balance made up of unused funds.

How to Spend?

Delayed spending affects the progress of current year's budget implementation as governmental agencies are bogged down by executing previous year's projects, says Liu Guoyan, fellow researcher with the National Development and Reform Commission's Macro-economy Institute.

However, Liu cautions that a sudden surge in spending to meet the deadline could lead to a wanton waste of funds.

Indeed, the stern warning from the Ministry of Finance has caused knee-jerk reactions among various governmental agencies. In the rush to spend, some agencies have started procuring materials in advance, despite being out of line with other project progress.

A source from the Ministry of Agriculture laments that it is a difficult balancing act to spend speedily yet effectively.

Economist Ma Caichen says irrational spending aimed solely at balancing the account could back-fire. He says that surplus funds resulted from unrealistic projections should be left untouched to avoid waste, and adds that a responsible government should justify its spending to tax payers.

The Ministry of Finance is stepping up efforts to improve budget planning. The drafting of 2008 budget has started nine months ahead of schedule; previously, the planning took only four months.

The move allows more time for various agencies to study budget applications carefully prior to submission.

Delay in implementation is also linked to the budget approval procedure. Grass roots agencies usually receive funding in April, as their applications need multi-level approvals from the National People's Congress (NPC) and Chinese People's Political Consultative Conference (CPPCC).

As a result, first quarter of the year passed without any expenditure being implemented.

To solve the problem, Ministry of Finance has requested a greenlight from the NPC to release the first quarter's budget in advance. The advance funding would be based on previous year's actual spending during the corresponding period. The proposal is still under deliberation.

The ministry will also scrutinize each budget application more closely in the future, and poorly prepared submission will be sent back for revision.

Eight years have passed since budget reforms were first launched.