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Reform in Public Service Sector Faces Tough Challenges

China will soon conduct an overall and intricate reform of its public service units (PSUs), which constitutes a milestone in its task of transforming government functions from economic construction to public service.

According to Li Shenglin, Vice Minister in charge of the National Development and Reform Commission (NDRC), the aim of the reform of China's PSUs is to develop a streamlined, highly efficient public service system that fits into the market economy and satisfies the needs of the public. It will enable the Chinese Government to gradually shift its focus from the concept of economic construction to "working for the interest of people" and to establishing a "public service system."

China's PSUs are social service organizations set up by government departments or other organizations using government funding, which are mainly engaged in activities in the fields of education, science and technology, culture and public health. The PSUs are a major source of jobs and share a large part of the social service functions of the government and other enterprises.

Over the past 25 years, the Chinese Government has conducted a series of reforms focusing on streamlining government institutions and changing the government functions. The reform of PSUs is yet another major task that China will face following the reform of state-owned enterprises and a streamline of government departments.

Because the reform of PSUs involves the interest of nearly 30 million staff members working in more than 1.3 million institutions in the fields of education, medical care, research and development, cultural activities, entertainment and sports, it will be a very complicated process, far more challenging than the reform of state-owned enterprises.

Overall Reform of PSUs

The Chinese Government is considering and studying an overall reform of its PSUs, NDRC Vice Minister Li Shenglin disclosed on March 23 at the International Seminar on International Experience with Public Service Reform and China's PSU Reform, jointly held in Beijing by NDRC, OECD and the World Bank.

As the move may affect nearly 30 million employees on the government payroll, it has aroused the emotions of people nationwide, soon after the information was announced. How to reform PSUs is the topic on everyone's lips.

Though trial reforms have been made on a small scale in PSUs over the past decade, little progress has been made. This time the Chinese Government is very cautious about the overall reform of PSUs. Li's speech at the international seminar was regarded as China's official attitude toward the overall implementation of PSU reform.

Why the Reform?

PSUs can be divided into three categories in terms of their duties:

First, government administration, mainly engaging in supervision and management, qualification authentication and other activities;

Second, social development, mainly engaging in science, education, culture, public health and public infrastructure construction; and

Third, market intermediary, mainly engaging in consultation and coordination activities for enterprises.

Most of these PSUs are affiliated to government organs, and provide public service. Statistics show that China now has more than 1.3 million PSUs, employing nearly 30 million staff members and managing nearly 300 billion yuan ($36 billion) worth of state-owned assets. Over 70 percent of scientific research personnel and over 95 percent of teachers and doctors work for various PSUs. The government spends more than 30 percent of its budget on this sector.

The frame of China's market economic system has been formed through 25 years of reform and practice. However, PSUs that developed under the planned economic system no longer fit into the growing market economy, due to heavy overstaffing and inefficiency. Since a lot of PSUs exert the power of government, they mix government jurisdictions and thus incur poor administration, low efficiency and bloated budget expenditures.

In addition, various PSUs are subordinate to different government departments, thus exacerbating government monopolies in certain public service sectors and leading to market segment and waste of resources. With the constant improvement of China's market economic system, various malpractices existed in PSUs over the past years and contradictions that are not suitable for a market economic system are appearing daily.

"Heavy overstaffing and low efficiency of PSUs formed under the traditional planned economic system no longer fit into the growing market economy, which seriously restrained the coordinated development of economy and society," said Li.

Professor Xu Guangjian, Vice President of the School of Public Administration at Renmin University of China, said that there are three disadvantages in PSUs. First, most of them have not yet completely got rid of the operational mode of the planned economy and lack reasonable distribution of human resources, technologies and funds. Some of them offer poor services. Second, due to state financial support, most of them have a lazy and dependent nature, and thus lack vitality and market competitiveness. Because of poor management, the situation often arises where "there is work but nobody will do it" and "there are so many people but they have nothing to do." Third, many PSUs are increasingly short of funds, due to their rapid increase of staff members and limited government financial input.

"To ensure the efficiency and effectiveness offered by public service sectors, it is imperative to redefine the role of government. This is the reason of the reform of PSUs," Xu told Beijing Review.

How to Reform

China should reduce the total number of PSUs and readjust their structure. This is the first and crucial step to propel PSU reform, said Fan Hengshan, Director of the Economic Restructuring Office of the NDRC, who believes the concept of the reform in this case is to dismantle those units which can be done away with, while those that can't should be transformed into government departments or enterprises. He said the number of PSUs that totally depend on state financial support must be reduced and those that require state funding should be transferred to other investors through auction.

As the NDRC is one of the main organizations to coordinate the reform of PSUs, Fan's reform concept is regarded by the media as a sound guiding concept.

Professor Xu Guangjian stressed that the key to public service reform is to raise efficiency, improve mechanisms and separate administrative management from social undertakings. As the PSUs feature Chinese characteristics, the reform has no available model to follow. Also, "as China's national conditions are different from that of other countries, we cannot copy Western models to reform our public service sectors," Xu said.

"The reform of public service sectors is a system overhaul, which involves many aspects and has high risks. Therefore, experiments must be made in some units, which if successful, can then be gradually spread throughout the country," Xu added.

Starting in 2000, China carried out trial reforms of both enterprise restructuring and personnel restructuring in some public service sectors engaged in scientific and hi-tech research and other operational undertakings. This means the PSUs were changed into enterprises and their staff members became employees of the enterprises, thus breaking the "iron bowl" mentality (lifelong dependence on the government) of the civil servants in public service sectors. This trial reform has proved successful. Currently China has more than 8 million civil servants in 300,000 or so PSUs working under the new system. This has provided experience and reference for the overall implementation of PSU reform.

"The reformed PSUs should be non-profit organizations mainly engaged in social undertakings and public welfare undertakings, and should be independent from government and other enterprises," he said.

Vice Minister Li Shenglin said that the NDRC is working on the blueprint for the reform of PSUs, which is expected to be put into practice in the second half of this year.

Tough Challenges

Liu Baoying, Director of the Specialized Technological Talents Administration Department with the Ministry of Personnel, said there are five tough issues that need to be resolved to deepen the reform of public service sectors.

First, systems and institutions. The reform of PSUs must coordinate and combine systems with institutions.

Second, personnel system restructuring. This is a difficult point and also a prerequisite of PSU reform. The reform of public service sectors requires that posts be set up according to needs and employ people according to posts. As to how many posts should be set up and how to set up in terms of the number of posts, conclusions must be made after conducting overall studies and analysis of the posts in different PSUs.

Third, distribution mechanism. This is the key to PSU reform. Studies should be stepped up to improve the distribution system of "to each according to his/her work," which is based on the principle of distribution according to contributions. A failure to establish such a system is very likely to dampen workers' enthusiasm, which may lead to failure of the PSU reform.

Fourth, arrangement of those made redundant. Some people will definitely lose jobs during PSU reform. The solution of this problem will be the biggest challenge.

Fifth, social security system. Only by establishing a unified and efficient social security system can the allocation of human resources through social channels be realized, thus stimulating the vitality of public service sectors.

At present, what the PSU staff members are mostly concerned about is personnel reform, distribution system and social security system.

PSU workers have varied opinions when talking about reform. Some of them with a stable income have no sense of crisis.

Others worry about a future without financial guarantees, so they resist reform.

Fan Hengshan pointed out that the reform of PSUs is a complicated operation with high stakes and cannot be completed overnight.

He said the reform process should proceed in tandem with other complementary reform measures such as social security.

(Beijing Review May 3, 2004)

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