chapter  1
22 Pages

Globalization and public sector reform in China


Introduction Reform of the public sector has become an issue of great concern to the Chinese leaders as they realize that efficient public administration is a key to securing the regime’s governing capacity and ultimately long-term survival in a globalized world. The public sector in China is large, comprising 65.5 million people and efforts to reform the system as well as to change the work habits and routines of the personnel staffing of the administrative organs are of an enormous nature. Reform in this area is also constrained by the complexity of the Chinese public sector. At one level the public sector in China is not a unitary system. It can in fact be divided into three institutions: Party and state organizations (dangzheng jiguan) comprising twelve million people; public service units (PSUs or shiye danwei) with 27 million employees; and state-owned enterprises (SOEs or qiye danwei) employing 26 million staff and workers. Each component has its own personnel management system and personnel and budget allocations. But behind this division and fragmentation, the Chinese Communist Party remains in ultimate control. Some studies have been done on reform of Party and state organizations and public service units, but very little is available on reform of state-owned enterprises in the overarching context of public sector reform. There are also no scholarly attempts to discuss the linkages between the various components of the public sector in China. Our book aims to remedy this lacuna in extant research. Clearly, how China conducts this reform will have an important bearing on the political and social development and stability of the country. It will also provide interesting comparative perspectives for public sector reform in other major emerging economies, including India. The following chapters are based on papers presented at a conference on “Globalization and Public Sector Reform in China and India,” held at the Copenhagen Business School, September 23-24, 2011. The papers pertaining to China have subsequently been revised and updated in the fall of 2012. They provide an overview analysis of the character of the Chinese public sector as well as a number of case studies of the issues at stake in reforming the three main components of the public sector. They show that the Party-state has different and at times conflicting reform goals. There is

no doubt that the civil service system will continue to form the core of the bureaucracy. Reform in this area aims to strengthen the professional capacity of civil servants while maintaining their political loyalty. Civil servants will be subjected to streamlining and institutional merger, but there is no intention of reducing their status and their key role in government at central and local levels. Public sector units, on the other hand, will be subject to a reform which will transfer a large number of them to enterprise status leaving their employees without their former tenured job security and associated pension and social security benefits. Finally, the state-owned economy has been subject to an ambitious corporatization process. However, the result of this has not been comprehensive privatization. In fact the strategic sectors of the economy, such as steel, telecom, aerospace, power generation, oil and gas, are still dominated by a group of huge state-owned enterprises. Thus the reform process seems to have resulted in consolidation of state dominance in certain sectors, whereas other sectors have been exposed to market forces, and less favorable supply of state benefits. This disparity has not made it easier to implement reform. In most of the world the public sector expanded after World War Two until the early 1980s. As economies grew and societies became more differentiated and complex, the state’s functions of regulation, allocation, and redistribution grew correspondingly (Bertucci and Jemiai 2013). This was clearly the case in the US and in Western Europe and in particular in the Scandinavian countries. In East Asian countries such as South Korea, Japan and Singapore economic development was stimulated by an interventionist developmental state (Brødsgaard and Young 2000). In communist countries central planning necessitated the existence of a strong state that could take care of resource mobilization and allocation. In China the state also grew in terms of scope and task. This was especially the case after the Cultural Revolution during Hua Guofeng’s interregnum and the first few years of the reform period, when large numbers of cadres were rehabilitated. During the 1980s and 1990s the critique of big government and big spending was the dominant theme of public policy and debate throughout most of the developed world, providing the intellectual framework for the emergence of the New Public Management Agenda of reducing direct state intervention. The Thatcher and Reagan regimes and the ascendancy of neo-liberalism further strengthened the idea of downsizing government personnel and functions in order to reduce fiscal deficits and create more efficient public management.1 In addition, many European countries tried to fulfill the criteria for membership in the European Monetary Union in the 1990s. An important criterion was the ratio of total government debt to GDP and government borrowing to GDP. Therefore these governments were pressed to initiate various public cost containment programs (Bender and Elliott 2003). Moreover, international financial institutions such as the International Monetary Fund (IMF ) and the World Bank advocated measures to reduce state intervention in economic affairs in the developing world (Fukuyama 2004). In essence this was the prescription the IMF suggested to solve the Asian Financial Crisis in 1997-98.