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Tax sharing system
Deng Xiaoping launched the economic reform and opening up in 1979 to decentralize China's economy. But as regional governments gained greater say on local economic affairs, the central government had less and less revenues at its disposal.
Zhu's first move, after he was appointed as vice premier in charge of economic affairs in 1991, was to reform the taxation system so that the central government could have more money. After months of tough negotiations and bargaining with economically important provinces on how much they should contribute to the state coffers, Zhu eventually introduced the tax sharing system at the end of 1993.
According to the system, each province would contribute a certain proportion of its taxation revenues to state coffers. While the proportion of contribution varies from province to province, on average the central government nominally could have a 60%-70% share of the nation's fiscal revenues while the rest would go to the regional governments.
Afterwards, the central government would give back some funds to regional governments according to agreed proportions. The reform boosted the central government's revenues from 4.35 billion yuan in 1993 to 2.17 trillion yuan in 2003 when Zhu retired.
Zhu apparently feels proud of the tax sharing system, seeing it as one of his great achievements. In his Tsinghua speech, he also angrily lashed out at a book that is still officially banned in China, Zhongguo Nongmin Diaocha (An Investigation of China's Peasantry) by the husband-and-wife authors Chen Guidi and Wu Chuntao. The book blamed the tax sharing system for hardship in rural areas, arguing that because of the system local governments lacked funds to support compulsory education, family planning and social security and welfare.
Patting a copy of the book he brought with him, an excited Zhu said those who accused the tax sharing system of emptying local governments' coffers and inflicting hardships on peasants were "ignorant! Totally ignorant!"
Then he toned down his rhetoric, saying, "On the way here, my daughter reminded me not to lose my temper. I failed to restrain myself. But this was absolutely not to [defend] myself, but to [defend] the third-generation central collective leadership," headed by former president Jiang Zemin, of which Zhu was a key member.
Taking a step back, Zhu said, "Surely we had shortcomings mainly in the arrangement of the rebates [to regional governments]."
According to the tax sharing system as introduced by Zhu, the state would take a large proportion of the revenues and then give rebates to regions. However, the rebates were given back indirectly and not in a lump sum, rather taking the shape of subsidies on infrastructure, education, welfare and other sectors. This has given central government authorities much greater powers.
"Tax rebates are not done well. Regions have to curry favor with relevant ministries to beg for their rebates. There are shortcomings in the tax sharing system, which however I am not entirely responsible for. For, I had said long ago that the taxation reform was far from over and should be deepened."
What Zhu failed to mention was that the arrangement for tax rebates to the regions had become a hotbed of official corruption, as central government officials often took bribes before returning funds to the regions.
Zhu also criticized the current transport policy, taking aim at the automobile industry. He recalled a speech he made during a visit to Beijing Public Transport Corporation in 2003. "I said then that for China to solve transport problems in cities, the fundamental way was to boost the development of public transport.
"This was my last public speech [as premier]. I pleaded not to spend public funds on buying cars ... I pleaded to boost the development of bus transport and public transport. Had my advice been followed, there would not have been such problems today ... There would have been no such traffic jams in Beijing," Zhu said at Tsinghua.
"There is an 'honor' for China now that I really don't take as an 'honor'. China leads the development of the global automobile industry. I cannot help but wonder, when on earth did we begin to lead the development of the global automobile industry? The world laughs because they regard us as their market.
"I never stood for giving fiscal subsidies to boost the automobile industry. I am always for strengthening compulsory education in rural areas," Zhu said.
In vivid language, Zhu described the widening wealth gap in China. He said he noticed that at an auto show in Shanghai, the price tag of a luxury car was more than 100 million yuan. "Quite a few entrepreneurs even own private aircraft. But in the countryside, people in some places still do not have enough to eat. So many years after the Liberation [the founding of the People's Republic in 1949], rural residents still remain so poor."
Then he commented on problems with education.