Opinion & Commentary
Law forcing Chinese to smoke indicates deeper problem
The farce and corruption of many local officials in China is held in check only by the decency and common sense of ordinary Chinese citizens. In March, officials in Gong’an country in China’s Hubei province issued an order forcing civil servants to smoke at least 23,000 packs of locally produced cigarettes, or else face a fine if they failed to meet their targets. On Wednesday, the order was withdrawn due to overwhelming public outrage. Although this short drama was absurd and ultimately harmless, it offers us a glimpse of dysfunctional reality in the many Chinese counties that are governed by mandarins beyond the reach of superiors in Beijing.
Local governments can impose taxes and duties on locally produced products such as bricks and bicycles. In Gong’an county officials relies on locally produced cigarettes for their revenue. Products produced in other counties are beyond reach of their grabbing hands. The edict was issued to help the local tobacco industry in the face of competition from cigarettes produced elsewhere. Even the discovery of cigarette butts from other counties was a finable offense.
This smoking edict farce is relatively trivial but it indicates the cynicism and corruption that is rife amongst China’s 45 million local officials. It also points to another problem that is rarely spoken about although it is just as serious a problem for Beijing: economic fragmentation.
In 1979, local governments were responsible for half of all public expenditure while the central government oversaw the other half. By 1993, the central government controlled 22% of spending while local governments assumed 78% of the fiscal role. Beijing then decided to recentralise, ostensibly with some success. By 2004, local government’s share of government revenues was pegged back to 45%.
But this created a funding problem. Local governments are still responsible for around three-quarters of all government spending, pushing them to seek extra-legal sources of funding (such as illegal taxes and other unauthorised levies.) Most serious are the land confiscations for little or no compensation. An audit in 2003 found that around 40 million households had suffered in this fashion.
The current situation – combined with an absence of the rule of law - also encourages the establishing of local economic kingdoms and resulting fragmentation. This increases raw output but also exacerbates waste and inefficiency because there is widespread and unnecessary duplication of products. For example, a television produced in one county is banned in a dozen others within Hubei province. Local protectionism has spiked and local trade wars only serve the interests of local officials and coddled state-owned-enterprises (SOEs). The number of barriers erected between counties - in the form of quotas, regulatory hurdles, fees – is mindboggling. Furthermore, local authorities frequently force local firms to favour hiring local residents, while obstacles are erected for ‘foreign’ workers in the form of fees and permits. In terms of capital markets, local authorities frequently interfere with the outflow of capital and restrict the investment and acquisition of local SOEs by non-local ones.
This ‘autarchic’ mindset can be seen in the distortion to a whole host of markets for various products. For example, regulations in 18 provinces ban the sale of alcohol produced in other provinces. Another is the use of fees to protect local car manufacturers. Those purchasing cars made in other provinces have to pay additional costs for registration and inspection. Recent figures indicate that the total of these protective levies was 160 billion yuan even though the whole automobile industry only made 4 billion yuan in profits in that whole year. The Gong’an county smoking order might be an unusual edict but it was yet another attempt to prop up a local industry in order to extract more revenues. Gong’an county residents are just fortunate that the edict was so absurd that it had to be reversed.
Occasionally, something as ridiculous as the smoking edict makes the local news and causes sufficient outrage for it to be overturned. It is a small but rare victory to common sense. Usually, while Beijing looks on helplessly, Chinese citizens suffer in silence and are forced to make the best out of things despite the pettiness of local officials.
Dr John Lee is a Foreign Policy Fellow at CIS and a Visiting Fellow at the Hudson Institute in Washington, DC. The second edition of his book Will China Fail? was released in June.
