The new social and economic order in 21st century China: can the government bring a kinder, gentler mode of development?

This paper addresses the new turn in China‘s development paradigm and assesses its prospects, focusing particularly on whether the government will be able to improve rural public services, and reverse the trend of growing inequality. This assessment is done through the lens of fiscal policies, the primary instrument for the government in implementing the new paradigm.

Entering the 21st century, the Chinese government has called for building a ”Harmonious Society“ under a new "scientific development paradigm that emphasises more balanced, sustainable growth, with development that will "put people first”. Premier Wen Jiabao‘s Report to the National People‘s Congress on March 5, 2004 called for reorienting China‘s development strategy to one that emphasises balanced, sustainable, and people-centered growth, strengthening social protection, and solving fiscal problems of the rural sector. The author argues that because the government has delayed institutional reform in the public sector, the central government‘s capacity to achieve stated social objectives is weak. Under the current intergovernmental arrangements, on average, local governments do not have the wherewithal to implement the Harmonious Society Policy, nor do they have unambiguous incentives for doing so. Under these circumstances, even though the central government has the will and the ability to provide funds, it will find it difficult to channel them toward delivering services at the grassroots levels of Chinese society.

Concluding points include that:

• this inability of the central government to implement policies in support of the national vision of a Harmonious Society points to a fundamental weakness in the foundation on which China is building its hopes for the 21st Century
  
• more worrisome is that the gap between government promises and its capacity to deliver is very large and growing rapidly on the many components of the Harmonious Society Programme - on the environment, on health care and education reforms, and on tilting toward the ethnic minority regions
  
• the challenges are great - the government has shown willingness to acknowledge problems and seek solutions, but the current piecemeal approaches, however, will unlikely suffice
  
• the ratcheting up of promises by top leaders in the past 2-3 years carries significant political risks, since they are building expectations that the machinery of government may not have the capacity to deliver.