China's Budget

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China’s budgetary system

Year III
Finance and Banking

Balea Calin
Dobrovolschi Natalia

2012

Content

Introduction………………………………………………………………..pg 3 Traditional Budget Accounting…………………………………...……… pg 3 1.Taxonomy of Chinese Accounting……..…………….......................... pg 3 1.1 The Domain of Budget Accounting……….…………...………... .pg 3 1.2 Chinese units……………………………………………………... pg 4

2. Public Financial Management Process……………………..……….. pg 4

Conventional Budget Accounting …………………………………………pg 5
1. Overall and Unit Budgets…………………….…………………….. pg 5 2. Characteristics of the Chinese Budget Accounting System ….….…..pg 6 2.1 Accounting as a Budget Tool…………………….…………….. pg 6 2.2 Characteristics…………….…………………….……………… pg 7

The 1994 Budget Law………………………………..…………………… pg 8
1. Scope…….……………………………………………………….....pg 8 2. Institutional structure…………………………………………….....pg 8 3. Budget policy……………………………………………………….pg 9 3.1 General Policy…………………………………………………. pg 9 3.2 Separate Revenue System……………………………………....pg 9 3.3 Dual Budgeting System………………………………………...pg 10 3.4 Functional Classification of the Budget………………………...pg 10 3.5 Increased Budgetary transparency………………………………pg 11 3.6 Increased Effectiveness in resource utilization………………….pg 11

Further development………………………………………………………..pg 12

With almost 1,331,349,519 million people, China has 22 percent of the world population. Among them are 1,800,000 accountants working in the almost 500,000 administrative agencies and public service institutions in the public sector, and many more are in state enterprises. The rapid and sustained growth of the Chinese economy produced by economic reform since 1979 ironically has resulted in a weaker public sector beset with fiscal woes. As recently as the early 1980s a World Bank report (Dernberger 1991,532) was able to state: “The principal instrument of financial control over the [Chinese] economy is the state budget, through which about 30 percent of GDP flows.” Falling revenues and rising expenditures led to a 480percent rise in the central government budget deficit, from 11.5 billion yuan in 1990 to 66.7 billion yuan in 1995. In 1995 the central government issued 153 billion yuan of debt (2.9% of GDP), almost a sevenfold increase since 1990. The central government’s ratio of debt issues to expenditures rose from 21 percent in 1990 to 52.8 percent in 199 . Deficit financing seems to have become the norm. Clearly, managing the public finances of China is an enormous challenge, but it is critical to the government’s capacity to influence the course of the economy and sustain the pace of reform.

In pursuit of economic reform, China has initiated a series of steps to change its public budgeting system. A new budget law, promulgated in April 1994, has been in effect since January 1, 1995. As governmental accounting in China is heavily influenced by budget concepts and practices—indeed it is commonly called “budget accounting”— efforts are currently underway to formulate a new set of accounting standards.

TRADITIONAL BUDGET ACCOUNTING

1. Taxonomy of Chinese Accounting
In recent years accounting in China has undergone major reforms as a result of its conversion from a centrally planned economy to what it calls a socialist market economy. A new set of accounting standards has been implemented for business enterprises operating in both the private sector and the public sector.

2.1 The Domain of Budget Accounting
The term “budget accounting” is a reflection of China’s official ideology of socialism. China’s constitution adopted in 1982 (Lieberthal 1995; Zheng 1992) contains the following relevant provisions: Article 6. The basis of the socialist economic system of the People’s Republic of China is socialist public ownership of the means of...
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