China revises law to better manage government money

Under the new version, provincial governments are allowed to issue bonds within a quota set by the State Council, China's cabinet, and approved by the NPC or its standing committee.

Money raised by the bonds can only be used for public services, and not for government operations.

The debts must be included in the provincial budget and supervised by provincial people's congresses.

The central government will assess risk in local debt. If the risk is out of control, it has promised warnings, a fast response and punishment for those responsible.

Finance Minister Lou Jiwei told a press conference here that local governments across the country had about 12-trillion-yuan debts by the end of last June.

"As far as I know, the size of local government debts has not increased notably in the past year and the risks are under control," he said.

The revised law has helped clarify several important principles on how to manage local debts, setting rules and dividing liabilities, he said.

Fully budgeted government funds

The old Budget Law was adopted when the country was still strongly influenced by planned economy concepts and at an early stage of applying budget management. It had only a very general definition of what the government budget covered, leaving huge room for interpretation by governments.

The revised law, on the other hand, defines the government budget in four parts: the general budget, the budget for government-managed funds, the budget for state-owned assets and the budget for social insurance funds.

For years, China's government budgets only included the general budget, largely made up of tax revenue and spending on public services and government operations.

The revenue gained through transactions in use rights of state land, accounting for a large part of local government revenues, and finances of state-owned enterprises were not budgeted nor supervised by legislatures.

Under the revised law, the revenue from land transactions is covered by the budget for government-managed funds, while the financial situations of state-owned enterprises are supervised through the budget for state-owned assets.

In 2013, the central government for the first time included these four parts in its annual budget submitted at the NPC annual session.

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