Guangdong: Administrative Reforms – Cutting Red Tape

Guangdong: Administrative Reforms – Cutting “Red Tape”

British Consulate General Guangzhou

August 2013

Summary

It is now a year since Guangdong began piloting administrative reforms aimed at boosting economic growth. Aiming for ‘small government, big society and efficient markets’, the province is trying to:  lower the threshold for business registration, reduce administrative procedures, and increase government outsourcing. The rhetoric from the administration is positive but it is still too early to judge the true impact of the reforms, as it appears that in some cases bureaucratic red tape is not actually being reduced but simply transferred to other parts of the system.

Detail

What’s behind the move?

The “planned economy” (1957-1992*) left China with a complex system of administrative procedures which were used to control its socioeconomic system. These proscriptive procedures made it incredibly difficult and time-consuming to establish new businesses e.g. one private investor in Guangzhou told us he required 108 stamps from 53 departments and 20 different bureaus before his real estate project could be implemented. Each step in the process also provides an opportunity for corruption.

The authorities in Beijing have recognised the problem and are seeking to reduce this administrative burden in order to boost economic growth (and reduce the opportunities for corruption). Using a tried and trusted model, the State Council (China’s Cabinet) has tasked Guangdong province with piloting various reforms and then feeding back to the centre their experiences and conclusions. If successful, these reforms may then be extended to other provinces, or potentially the whole country.

What’s been happening?

Guangdong  set itself a series of specific targets to be achieved by 2015:

  • An across the board reduction in administrative procedures by 40%, with a separate target of improving procedural efficiency by 50%

  • Reducing administrative procedures for investment projects by 70%, including enabling investors to complete 90% of applications online

  • Cutting the time it takes for Business licensing to no more than 4 working days, with the possession of specific permits (e.g. hygiene and safety) no longer being a prerequisite for a business licence

  • Government outsourcing to external organisations to be increased; with at least 5 external organizations serving every 10,000 people

  • Supra-departmental organs to be created at both municipal and provincial levels to streamline procedures and improve efficiency

One year into the three year pilot and the cities on the Pearl River Delta (PRD), including: Shenzhen, Guangzhou, Zhuhai, Foshan and Dongguan, are already seeing the impact of these changes. In Shenzhen, the threshold for business registration has been significantly lowered. Entrepreneurs with all the required paperwork can now expect to get their business licences within 3 working days (compared to months before the reform).  In addition, the authorities have dropped the requirement for proof of registered capital. Immediately following the introduction of the changes, Shenzhen saw a surge in new business registrations, with 107,145 new businesses registered from March to June 2013, 133% higher than over the same period last year. The majority of them were SMEs.

Local governments are also speeding up the outsourcing of services. In Guangzhou, the government is in the process of outsourcing the following public services: public health education, vocational training, legal aid services.  The value of these contracts is said to be RMB 320 million (approximately £33m), which is more than 6 times the amount outsourced in 2008. In Foshan, a statutory body has been established to facilitate the development of external organizations which the authorities anticipate will take on the responsibility for services currently delivered by government. 

Comment

The Provincial Government has given municipal governments a great deal of flexibility in delivering this pilot. Cities are encouraged to experiment with different policies to work out the best local approach. With no “one size fits all” approach, the Guangdong authorities can (theoretically) have the benefit of seeing what works and then rolling out the most successful of the pilots that have proven their worth.

On the surface everything appears to be going smoothly, but we are hearing that the most challenging part of the reform implementation is dealing with the vested interests and resistance from the existing structures within the administrative system as people see their privileged positions under threat. Seeing that these reforms will effectively mean limiting the power of government while increasing the influence of the market and civil society, government apparatniks are seeking to hinder progress, and in the process protect their own positions. Governor Zhu Xiaodan has said publicly that this is the greatest challenge to successful implementation of the reform plan.

However, the Governor is fighting a battle on two fronts.  The mantra of “private sector good – public sector bad” is now running up against the reality that many of the external agencies which are being tasked with the delivery of services don’t appear to be any more efficient or accountable than the government departments they are replacing.  In some of the pilot cities, there have been reports of agencies misusing public money, and reports of corrupt practice taking place in collaboration with the government officials supposedly there to oversee the effective delivery of services. In these cases, “the red tape” – and the opportunities for abuse it provides – hasn’t been cut but has simply been transferred to a potentially less accountable third party. It is therefore essential for the reforms to really work (and for them to retain public confidence) that the authorities address these issues.  But if done effectively by the authorities, this pilot has the potential to greatly reduce bureaucracy, red tape, and dramatically change the way public services have until now been delivered in China.  This is a work in progress but we will continue to monitor progress.

*It was officially announced at the 14th National Congress of the Communist Party in 1992 that China aimed to construct a ‘socialist market economy with Chinese characteristics’.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.

Countries: China
Topics: Getting Started, Legislation & Regulation, and Transport & Logistics
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