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Index

A Audits Administration for Industry and for local government finances, 171 Commerce, tax registration and, 100 by SAT, 103–4 Administrative assessment, of tax of VAT, 103, 103n42 administration, 83 Augmented debt Administrative Measures for the General GDP and, 8, 181 Anti-Avoidance Rules, of SAT, 81n10 IMF and, 118n1 Administrative reviews, for SAT, 106, local government finances and, 181 106n44 Age dependency, 28t B social security and, 17–18, 143 Bad loans, 284 Agricultural Bank of China, 281 Bai, C. E., 194–95, 195n1 Agriculture Balanced-budget rules, 186–87 taxation of, 78n5 Balance of payments, 27t Air pollution, 10 PBC and, 20, 198 taxation on, 66–67 SDR and, 275 Alcohol, taxation of, 61 Balance of Payments and International Alibaba, 24, 285 Investment Position Manual Alipay, 285–86 (BPM6), by IMF, 343, 343n7 AMCs. See Asset management companies Bankers' acceptances, 295–96 AML/CFT. See Anti-money laundering Bank for International Settlements (BIS), and counterterrorism 254–55 Annual Report on Exchange Arrangements Banking system. See Financial sector and Exchange Restrictions (AREAER), Bank of China, 281 21, 216, 216n5, 260, 263 Barnett, S., 70 Ant Financial, 285 Base erosion and profit shifting (BEPS), 96 Anti-money laundering and Basel III, 241 counterterrorism (AML/CFT), 271 Benefit formula, for pensions, 144, 145t, Arbitrage 155, 159 capital flow liberalization and, 228, Benefit tax principle, recurrent property 242 tax and, 70 nontraditional lenders and, 292 BEPS. See Base erosion and profit shifting WMPs and, 292 BIS. See Bank for International Settlements AREAER. See Annual Report on Blinder, A. S., 193 Exchange Arrangements and Bond markets, 300–302 Exchange Restrictions corporate, 209, 301 Arrears collection, by SAT, 104–5 inflation and, 209 Asset management companies (AMCs), RMB in, 253–54 282, 291 See also Local government bonds private sector and, 284 Bond yields, 209 Association of Southeast Asian Nations, interest rates and, 20, 197, 199–201, 124 200t, 201t Atkinson, A. B., 61 reserve requirement and, 198

355

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Bottom-up baseline expenditure de facto integration and, 216n6, 224f, forecasting, in MTEF, 17, 122, 128, 233 129, 131, 139 de jure measures of, 216, 218f BPM6. See Balance of Payments and depreciation and, 233 International Investment Position domestic and international impact of, Manual 238, 239t Brazil exchange rates and, 230f, 232–33 DGI and, 353f FDI and, 217, 217n7, 218, 223–24, local government finances in, 188 226t, 232, 237 SOEs in, 312t financial sector and, 233–34 tax revenues in, 37f foreign exchange markets and, 223, Brazil, Russia, India, China, and South 233 Africa (BRICS), 223, 225f future options for, 232–43 Budget Law history of, 217 local government finances and, 19, inflow surges with, 240–42 164, 171–75, 291 liquidity buffers for, 234 MTEF and, 16 macroprudential policy and, 234, revisions to, 181, 182t–185t, 185 241–42, 241n28 transparency and, 19 monetary policy and, 233 Businesses net errors and omissions with, 228, compliance risk management for, 113 229f lump-sum taxes for, 102 outflow surges with, 242–43 property tax on, 70 PBC and, 233, 234 See also Corporations; Private sector; present situation with, 216–29 State-owned enterprises quotas and, 235 Business turnover tax, 29, 33, 36 removing controls for, 234–40 VAT from, 33, 60, 60n11 residency-based controls for, 240 risks of, 240–43 C RMB internationalization and, Canada 221–23 DGI and, 353f schemes to ease portfolio investment environmental taxes in, 63f controls, 218, 221t M1 in, 193 supporting policies for, 232–34, Capital buffers 236t–237t for capital flow liberalization, 234 Capital gains LGFV and, 172 in selected countries, 186f Capital flow liberalization, 21–22, 22t, SOEs and, 320t 215–44 taxation of, 44, 53, 57f, 59 arbitrage and, 242 Capital income, taxation of, 43, 49–50, binding of controls for, 223–29 54, 71 capital buffers for, 234 Capital markets, 285 capital inflows and outflows and, RMB internationalization in, 260, 263 223–24, 227f Carbon emissions, 10 cases for and against further measures taxation for, 65–66, 65n12, 66n13 toward, 230–32 trading scheme for, 15, 29 convertibility and, 216–29, 216n6 CBRC. See China Banking Regulatory cross-border portfolio investment and, Commission 220 Central government currency-based controls for, 240 debt of, 350

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MTEF and, 135 Convertibility, capital flow liberalization Pensions for Urban Workers and Staff and, 216–29, 216n6 and, 144 Coordinated Direct Investment Survey, 343 taxes of, 36–37, 77 Coordinated Portfolio Investment Survey, tax sharing by, 8, 37, 39t–40t, 41f, 343 165f–167f, 168, 179t Corporate bond market, 209, 301 Child tax credit, 51 Corporate income tax, 56f–57f China Banking Regulatory Commission current situation of, 55–58 (CBRC), 295 investment projects and, 55, 55n6 PBS and, 347 proposed reform for, 58–59 on WMPs, 296–97 for SMEs, 57–58, 58t China Construction Bank, 281 tax rates for, 55–56, 55n5, 58n8 China Development Bank, 281 Corporate taxation, 33 China Insurance Regulatory Commission, shared by central and local government 304 finances, 37 China Interbank Bond Market (CIBM), Corporations, multinational, 16, 97 263, 267, 268 CPI. See Consumer price index China Securities Regulatory Commission Credit growth, 8, 9f (CSRC), 220, 301 Credit information system, interest rates China Tax Administration Information and, 206, 209 System (CTAIS), 84–85, 107–8 Cross-border portfolio investment, capital China Utility-Based Energy Efficiency flow liberalization and, 220 Finance program, 206 CSRC. See China Securities Regulatory Chinese Academy of Environmental Commission Planning, 62 CTAIS. See China Tax Administration CIBM. See China Interbank Bond Information System Market Currency-based controls, for capital flow City commercial banks, 281 liberalization, 240, 240n24 lending and deposits of, 286 Currency internationalization, 250–52 Clements, Benedict, 149n9 private sector and, 250 Climate change, 10 See also Renminbi Coal industry, 25 internationalization environmental taxes for, 64f, 67–68 Currency swap agreements, 251 Cobb-Douglas production function, 329 PBC and, 270 Communication, improvements in, with RMB, 254 12–13 RMB internationalization and, 270 Communist Party, 13 SOEs and, 25, 318–20, 321 D Compliance risk management Data Gaps Initiative (DGI), of G20, 26, for SAT, 98–99, 98n36, 99n37 333, 337, 345, 353f for small businesses, 113 Debt, 118, 118n1 Consumer price index (CPI), 195, 195n1, of central government, 350 338, 339 in local government finances, 30, 175, SVAR and, 193, 195, 211–12 186–89, 187f Consumer-to-consumer transactions, of SOEs, 314 87n16 See also Augmented debt Consumption Debt-swap program, 172, 208 rebalancing of, 7 Debt-to-GDP ratio, for local government tax, 78n6 bonds, 175n6

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Decision-making phase, for MTEF, Economic indicators, 27t 129–31 Education, 28t De facto integration, capital flow Efficiency liberalization and, 216n6, 224f, dividend, 130 225f, 233 versus equity, 42 Default assessments, by SAT, 105 of tax system, 42 De jure measures, of capital flow e-GDDS. See Enhanced GDDS liberalization, 216, 218f Eichengreeen, Barry, 231 DENG Xiaoping, 3, 217 e-invoicing. See Electronic invoicing Dependency ratio, 17–18, 28t Electronic Broking Services (EBS), 255, Deposits 274–75 of financial sector, 286–88 foreign exchange markets and, 257 insurance for, RMB Electronic invoicing (e-invoicing), 108 internationalization and, 269 Endowments, lump-sum taxes on, 61 of JSCBs, 286 Energy prices, environmental taxes and, rates of, interest rates and, 197 68 of rural banks, 286 Enhanced GDDS (e-GDDS), 336 of state-owned banks, 286 Enterprise Income Tax Law of 2008, 55, Depreciation 81 capital flow liberalization and, 233 Entrusted loans, 295 of RMB, 264–65, 265f–266f Environment Development and policy banks, 281 social indicators for, 28t Development Research Center, 86n15 tax system and, 10 DGI. See Data Gaps Initiative Environmental Protection Law, 66 Digital HR initiative, 107, 109 Environmental taxes, 15, 33, 61, Direct tax reforms, 38–59 63f–64f See also Corporate income tax; current situation for, 62–65 individual income tax energy prices and, 68 Dispute resolution, by SAT, 105–6 proposed reforms for, 65–68 Dividends Equity, versus efficiency, 42 efficiency, 130 Equity markets, 23, 302–4 taxation of, 44, 50, 52–53, 52n4 volatility in, 4f Dollar, 251n1 Exchange rates in IMS, 272 capital flow liberalization and, 228–29, RMB and, 268 230f, 232–33 Dollar, D., 329 RMB internationalization and, 269 Domestic demand, rebalancing of, 6, 7f Excise tax, 78n6 DSGE. See Dynamic stochastic general Expenditure baseline, for MTEF, 128–29 equilibrium Export-Import Bank of China, 281 Dual income tax system, 15, 49–50, 52, 71 Exports and imports, China's share of, Dynamic stochastic general equilibrium 335f (DSGE), 196 Exterior sector statistics, 343–44 loan-to-deposit ratio and, 198 quantitative loan limits and, 199 F reserve requirement and, 198 FDI. See Foreign direct investment Financial Activities Tax, 62 E Financial Crisis Response Group, 234 EBS. See Electronic Broking Services Financial frameworks. See Monetary and e-commerce, 87, 87n16 financial frameworks

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Financial sector for social security, 17–18 AMCs in, 282, 284, 291 tax administration, 16 bad loans in, 284 tax policy, 15–16 bankers' acceptances in, 295–96 tax system and, 36 capital flow liberalization and, 233–34 trends in, 119f–120f city commercial banks in, 281, 286 Fiscal policy objectives, for MTEF, deposits of, 286–88 127–28 development and policy banks in, 281 Fiscal risks, local government finances entrusted loans in, 295 and, 163–78 foreign banks, 281 Fiscal rules, for MTEF, 133–34 fund management companies in, 282 Fiscal space, 125, 125f fund management subsidiaries in, 282 Fixed asset investment, 28 insurance companies, 285, 291, 303 Fixed MTEF, 134 interbank funding in, 299–300 Foreign banks, 281 interest rates and, 201–2 Foreign direct investment (FDI), 87, intermediating products in, 292–93 87n17 Internet banking, 285–86 capital flow liberalization and, 217, investment receivables in, 294–95 217n7, 218, 223–24, 226t, 232, JSCBs, 281, 286 237 lending by, 286–88 reserve requirements and, 228n15 nontraditional lenders in, 288–300, RMB and, 252–53 289f SOEs and, 218, 218n8 rapid change in, 279–305 URR and, 237 reforms in, 29 Foreign exchange markets rural banks in, 281, 286 capital flow liberalization and, 223, shadow banking, 292, 293t, 297 233 state-owned banks in, 286, 291 currency depreciation and, 265 structure of, 279–86, 280f, 283f EBS and, 257 VAT and, 62 RMB and, 270 wholesale funding in, 299–300 volatility in, 4f See also Bond markets; Capital markets; Foreign exchange reserves, 334f Equity markets; Wealth management France products capital flow liberation and, 239 Financial sector governance DGI and, 353f communication and transparency in, e-commerce of, 87 12 environmental taxes in, 63f monetary and financial frameworks for, local government finances in, 188–89 23–24 pensions in, 154n18 rebalancing of, 8–10 Freshwater resources, 28 staffing for, 14 Friedman, B. M., 192–93 Financial Sector Program, of IMF, 14 FSIs. See Financial soundness indicators Financial soundness indicators (FSIs), Fund management companies, 282 347–48 Fund management subsidiaries, 282 Fiscal deficit, 8, 10f Fiscal forecasting, MTEF for, 137 G Fiscal policy frameworks G20. See Group of Twenty for local government finances, 18–19 Gasoline taxes, 64f MTEF for, 16–17, 117–40 GDDS. See General Data Dissemination reforms for, 29–30 System

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GDP GFSM. See Government Finance Statistics augmented debt and, 8, 181 Manual bond yields and, 200 Gini coefficient, 11f, 28 capital flow liberalization and, 21, 218, tax system and, 36 223, 224, 228 Global financial crisis, 5 China's share of global, 250f, 334f domestic demand and, 6 corporate income tax and, 55 local government finances in, 291 debt-to-GDP ratio, 175n6 tax evasion and compliance in, 86n14 environmental taxes and, 62 Global income tax systems, 49–50, 49n3 financial sector and, 24 Globalization local government finances and, 8, 19 RMB and, 260f M2 and, 20, 194–95, 195f tax administration and, 87–88 macroeconomic statistics and, 26 See also Internationalization MTEF and, 118, 128, 133 Global output, China's share of, 2f national accounts and, 338–39, 339n3 Global trade, China's share of, 2f pensions and, 18, 152–54, 152n11, Golden Tax Project (GTP), 84–85, 107–8 156n23 Government borrowing. See Debt Pensions for Civil Service and Public Government Finance Statistics Manual Unit Workers and, 144, 146, 153 (GFSM), 344–45, 344n8 Pensions for Urban and Rural Government-Managed Funds Budget, 124 Residents and, 144, 146, 153, Granger causality test, 193 153n13, 156 Green growth, rebalancing of, 10 Pensions for Urban Workers and Staff Greenhouse gas emissions, 68 and, 144, 153 Group of Seven, corporate income tax recurrent property tax and, 69 and, 55 revisions policy for, 340–41, 340t, Group of Twenty (G20), 11 341f, 342t BEPS and, 96 service sector and, 86n15 Data Gaps Initiative of, 26 social security and, 18, 143 DGI of, 333, 337, 345, 353f SOEs and, 24, 309 MTEF and, 121 tax administration and, 76, 77t, 78, Growth targets 79f credit growth and, 8 tax policy and, 15 local government finances and, 19 tax system and, 36 GTP. See Golden Tax Project GDP per capita, 28t General Data Dissemination System H (GDDS), 336 High-speed rail system, 3 General Department, of IMF, 275 Hong Kong General Funds Budget Mutual Recognition of Funds and, 30 MTEF and, 124 RMB in, 253, 267, 268 pensions and, 157–58 Shanghai-Hong Kong Stock Connect, General Resources Account, 275 220, 267 Germany Shenzhen-Hong Kong Stock Connect, currency internationalization and, 250 30 DGI and, 353f state-owned banks in, 281 e-commerce of, 87 Hukou (household registration) environmental taxes in, 63f reforms for, 29 insolvency framework for, 12f tax system and, 36 pensions in, 154n18 Human resources, for SAT, 83–84, 106–7

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I Inflow surges, with capital flow IMF. See International Monetary Fund liberalization, 240–42 IMS. See International monetary system Information technology Inclusive growth, rebalancing of, 11, 11f for SAT, 84–85, 90, 107–8 Income inequality, 11, 36n1 for VAT, 108 tax system and, 36 Innovation, rebalancing of, 7 Income tax, 15–16 Insolvency framework, 12f dual system for, 15, 49–50, 52, 71 Insurance companies, 285, 291, 303 global systems for, 49–50, 49n3 Interbank funding, 299–300 theory of, 42–43 Interest income, taxation of, 44, 50, See also Corporate income tax; 53–54 individual income tax Interest rate corridor, 207–8 Indexation, of pensions, 155 by PBC, 203–4 India Interest rates, 8 in BRICs, 223, 225f bond yields and, 20, 197, 199–201, DGI and, 353f 200t, 201t local government finances in, 188 capital flow liberalization and, 228 SOEs in, 312t credit information system and, 206, tax revenues in, 37f 209 Indirect tax reforms deposit rates and, 197 policy guidance from, 61 financial sector and, 201–2 to tax policy, 60–70 institutional constraints on, 197–206, See also Environmental taxes; Recurrent 198t property tax; Value-added tax lending rates and, 197, 202 Individual commodity taxation, 61 LGFV and, 192, 208–9 Individual income tax liberalization of, 20–21 annual assessment of, 51–52 loan-to-deposit ratios and, 198–99, current situation of, 43–49 208 income distribution for, 46f on local government bonds, 19, 171n3 proposed reforms for, 49–54 M2 and, 207 rates of, 43t, 44t, 50–51, 52 macroeconomic statistics for, 348–49 share of income by source, 47f maturity mismatch and, 205 social security and, 44, 45f, 47f, 54 measuring effectiveness of, 199 targeted allowances for, 51 in monetary policy framework, 191– tax units for, 50 212, 194f tax wedge for, 46f in perfect regime, 196–97 threshold for, 51 policy recommendations for, 206 for urban households, 48f quantitative loan limits and, 199, 208 Industrial Commercial Bank of China, reserve requirements and, 198, 208 281 risk preferences mismatch and, 205 Inflation RMB internationalization and, 269 bond markets and, 209 shadow banking and, 199 efficiency dividend and, 130 small bank regulatory restrictions and, M1 and, 193 205 money supply and, 191 SOEs and, 192, 208–9 MTEF and, 135 soft budget constraints and, 100, PBC and, 20 202–3 SVAR and, 193, 195 specialized guarantee agencies and, See also Consumer price index 205–6

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SVAR and, 211–12 e-commerce of, 87 volatility of, 194f, 196 environmental taxes in, 63f See also Lending rates MTEF in, 121–22 Intergovernmental relations, with local tax revenues in, 37f government finances, 177–78, Joint Ministerial Committee, 234 185–86, 186f Joint-stock commercial banks (JSCBs), Intermediate targets, for monetary policy, 281 192–96, 193t lending and deposits of, 286 Intermediating products, in financial sector, 292–93 K International balance of payments, 198 Korea International Finance Corporation, 206 capital gains in, 186f Internationalization DGI and, 353f of air pollution tax, 66–67 environmental taxes in, 63f of currency, 250–52 spillovers to, 4f See also Renminbi internationalization tax revenues in, 37f International Monetary Fund (IMF) AREAER of, 21, 216, 216n5, 260, 263 L augmented debt and, 118n1 Labor income BPM6 by, 343, 343n7 annual assessment of, 51–52 capital flow liberalization and, 21, 215 taxation of, 50–52 Financial Sector Program of, 14 Labor market, 27t General Department of, 275 indicators for, 342 macroeconomic statistics coordination pensions and, 153n15 with, 351–52, 351f Land use, by SOEs, 316n12 nondiscriminatory measures of, Laoren, 147 240n25 Large Business Department, of SAT, 93, SDDS of, 25, 333, 336 93n27, 94–95, 95nn30–31 Statistics Department of, 348n11 Law on the Administration of Tax tax administration and, 76–77 Collection, 80 See also Special drawing rights Legislative Affairs Office, of State International monetary system (IMS) Council, 92 dollar in, 272 Lending RMB internationalization and, 271– bad loans, 284 73, 272t entrusted loans, 295 International Transaction Reporting by financial sector, 286–88 System, 343 by JSCBs, 286 Internet P2P, 285 banking, 285–86 Pledged Supplementary Lending, users, 28 301 Investment programming, for MTEF, 137 quantitative loan limits, 199, 208 Investment projects, corporate income tax quotas for, 20 and, 55, 55n6 by rural banks, 286 Investment receivables, 294–95 by state-owned banks, 286 See also Nontraditional lenders J Lending rates, 208 Japan interest rates and, 197, 202 capital gains in, 186f LGFV. See Local government financing DGI and, 353f vehicles

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Life expectancy, 3, 28t tax administration of, 77, 77n3 pensions and, 151, 154, 154n18 tax and nontax revenue in, 165f–166f retirement age and, 154 tax sharing and, 8, 37, 39t–40t, 41f, LI Keqiang, 1–3 165f–167f, 168, 179t Liquidity buffers, for capital flow tax system and, 37–38 liberalization, 234 transparency in, 187 Literacy rate, 3, 28t WMPs for, 291 Loan-to-deposit ratios, 8 Local government financing vehicles interest rates and, 198–99, 208 (LGFV), 168, 170f, 291 Loan-to-value ratio, macroprudential bond market and, 300–301 policy and, 241n28 capital buffers and, 172 Local government bonds, 172n4, interest rates and, 192, 208–9 173f–174f PPPs and, 171 debt-to-GDP ratio for, 175n6 risk weight for, 172 impediments to, 175 soft budget constraints and, 100, interest rate on, 19, 171n3 202–3, 203n4 liquidity and credit discipline for, 176 Local Tax Services, 78, 82 pilot program for, 171, 171n2 Lump-sum taxes regulation and oversight of, 176, 177t on endowments, 61 resolution framework for, 176 for small businesses, 102 Local government finances, 38n2, 169f–170f M audits for, 171 M1. See Monetary target 1 augmented debt and, 181 M2. See Monetary target 2 in Brazil, 188 Macroeconomic statistics Budget Law and, 19, 164, 171–75, challenges for, 348–49 291 IMF coordination with, 351–52, 351f debt in, 30, 175, 186–89, 187f for national accounts, 338–39 distribution of fiscal revenues in, 189t for policymaking, 25–26 fiscal policy frameworks for, 18–19 price statistics, 339, 342 in France, 188–89 recent developments in, 335–48 in global financial crisis, 291 upgrading, 333–51 in India, 188 Macro forecasting, MTEF for, 131–32, intergovernmental relations with, 136–37 177–78, 185–86, 186f Macro-Prudential Assessment Framework, international experience with, 185–89, of PBC, 208 186f Macroprudential policy MTEF and, 16, 19, 120–21 capital flow liberalization and, 234, nontraditional lenders for, 290–91 241–42, 241n28 off-budget expenditures and, 178 loan-to-value ratio and, 241n28 private sector and, 10 reserve requirements and, 241n28 rebalancing of, 8, 10f MAP. See Mutual agreement procedure recent measures to strengthen, 171–75 Market allocation, of resources, 11–12 recurrent property tax for, 33, 69–70 Master-files, for SAT, 96, 96n34 shared taxes with central government, Material Product System (MPS), 335–36, 37, 39t–40t, 41f 336n2 strengthening sustainability of, 175– Maturity mismatch, interest rates and, 78, 177t 205 structural features of, 164–71 Medical insurance, taxation for, 49

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Medium-Term and Standing Lending Middle class, 3, 4 Facilities, 301 Migrants, from rural areas, 3 Medium-term budget framework Ministry of Finance, 14 (MTBF), 126–27, 127f debt-to-GDP ratio and, 175n6 fixed and rolling, 134 GFSM by, 344–45, 344n8 real and nominal, 135–36 local government bonds and, 171, 175, Medium-term expenditure framework 175n6 (MTEF), 122n2 MTEF and, 16, 122, 123, 124, 131– background of, 121–23 32, 133, 136, 137, 138 for baseline estimates of expenditure SOEs and, 308 programs, 138 TCL and, 92 bottom-up baseline expenditure VAT and, 60n11 forecasting in, 17, 122, 128, 129, Ministry of Land and Resources, 70 131, 139 Mirrlees, James, 42 Budget Law and, 16 Monetary and financial frameworks, budget process for, 123–26 19–24 central government and, 135 capital flow liberalization, 21–22, 22t coverage of, 132–33 for financial sector governance, 23–24 decision-making phase for, 129–31 monetary policy framework, 20–21 design choices for, 131–36 RMB internationalization, 22–23 development responsibility for, 136–38 Monetary and Financial Statistics Manual, embedding in budget process, 134–35, by PBC, 345–48, 345n10 135n3 Monetary gradualism, 193 expenditure baseline for, 128–29 Monetary policy framework, 20–21 for fiscal forecasting, 137 capital flow liberalization and, 233 for fiscal policy framework, 117–40 interest rates in, 191–212, 194f fiscal policy objectives for, 127–28 intermediate targets for, 192–96, fiscal rules for, 133–34 193t globally represented for 2008, 121f Monetary target 1 (M1), 193 how it works, 126–31 Monetary target 2 (M2), 20–21, 193 inflation and, 135 GDP and, 194–95, 195f investment programming for, 137 interest rate corridors and, 204 local government finances and, 19, interest rates and, 207 120–21 SVAR and, 195 for macro forecasting, 131–32, 136–37 Money demand, 196, 196n2, 207, multiyear fiscal policy with, 137 207n5 private sector and, 117 Money supply for reconciliation of resource envelopes, inflation and, 191 138 SVAR and, 193 sequencing introduction of, 138–39 in United States, 192–93 stages of, 131, 132f volatility of, 194f, 195–96 time horizon for, 17, 122, 124, 126, MPS. See Material Product System 134, 140 MSCI Emerging Markets Index, 303 top-down forecasting for, 128 MTBF. See Medium-term budget types of, 126, 127f framework Medium-term fiscal framework (MTFF), MTEF. See Medium-term expenditure 126, 127f framework Medium-term program framework MTFF. See Medium-term fiscal (MTPF), 126, 127, 127f framework

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MTPF. See Medium-term program O framework OECD. See Organisation for Economic Multi-lateral Convention on Mutual Co-operation and Development Administrative Assistance in Tax Off-budget expenditures Matters, 97n35 local government finances and, 178 Multinational corporations, 16 MTEF and, 131 tax administration for, 97 Office of the Leading Group on Mutual agreement procedure (MAP), 97 Economic and Financial Affairs, 13 Mutual funds, 30 One-child policy, 29 Mutual Recognition of Funds, Hong Order flow, 274, 274n7 Kong and, 30 Organisation for Economic Co-operation and Development (OECD), 33 N BEPS and, 96 National accounts, macroeconomic capital gains and, 53 statistics for, 338–39 corporate income tax and, 55–56 National Audit Office, 301 environmental taxes and, 62, 65 National Bureau of Statistics (NBS), 80, individual income taxes and, 44, 50 334 MTEF and, 136 labor market indicators and, 342 pensions and, 149 MTEF and, 122 retirement age and, 154n17 price statistics and, 339, 342 social security and, 54 real sector statistics and, 342–43 tax administration and, 106 tax registration and, 100 tax system and, 36 National Development and Reform Outflow surges, with capital flow Commission (NDRC) liberalization, 242–43 MTEF and, 16, 117, 122, 131, 136–37 P SOEs and, 308 P2P. See Peer-to-peer lending National People's Congress Paris Agreement, 10 local government financing and, 185 Partnerships, taxation of, 58 MTEF and, 16, 122, 133 PBC. See People's Bank of China press conferences and, 13 PE. See Permanent establishment Work Program and, 12 Peer-to-peer lending (P2P), 285 National Summary Data Page, 339 Pensions, 155nn19–21 National Tax Administration Standards, baseline projections and sustainability 99 of, 151–53, 152t National Tax Service, 78, 82 benchmarks for, 150f NBS. See National Bureau of Statistics benefit formula for, 144, 145t, 155, NDRC. See National Development and 159 Reform Commission; National discounted expenditure values for, 158, Development Research Council 158f Nitrogen oxide, 66 GDP and, 18, 152–53, 152n11, 153– Nominal MTEF, 135–36 54, 156n23 Nontraditional lenders General Funds Budget and, 157–58 arbitrage and, 292 increasing contributions to, 155–56 in financial sector, 288–300, 289f indexation of, 155 for local government finances, 290–91 international perspectives on, 149–51 risks with, 292, 293t labor market and, 153n15 WMPs as, 289f, 290, 292 life expectancy and, 154, 154n18

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old age schemes for, 18 Performance measurement system, for population aging and, 149–50, 149n9 SAT, 109, 109n46 portability of, 157 Permanent establishment (PE), 97 reform options for, 153–58, 154t, 156t Plan to Deepen Reform of the National and retirement age and, 151, 153–55, Local Tax Administration System, 88 153n16, 156n23 Pledged Supplementary Lending, 301 system of, 144–49, 145t Political economy of reforms and taxation and, 44–49 institutions, 13–14 time horizon for, 149n9 Pollution See also Social security air, 10, 66–67 Pensions for Civil Service and Public Unit social indicators for, 28 Workers, 144–48, 145n2, 145t, water, 10 147n8 See also Environmental taxes contributors to, 155 Population aging, 124, 124n3 GDP and, 144, 153 MTEF and, 118 number of pensioners for, 148f pensions and, 149–50, 149n9 Pensions for Urban and Rural Residents, social security and, 17–18, 143 145t, 146–47, 147n5, 147n6 Population growth, 28t GDP and, 144, 153, 153n13, 156 Portfolio rebalancing, 21–22 number of pensioners for, 148f Poverty reduction, 1, 3, 5, 11 raising benefits for, 156 PPI. See Producer price index universal coverage for, 151 PPPs. See Public-private partnerships Pensions for Urban Workers and Staff, Price statistics, 339, 342 145t, 146, 155n19 Principal Global Indicators, 342 contributors to, 149f, 151 Private sector expenditures per pensioner for, 148f AMCs and, 284 GDP and, 144, 153 capital flow liberalization and, 230 number of pensioners for, 148f currency internationalization and, 250 reducing contribution rates for, 156 MTEF and, 117 People's Bank of China (PBC), 12 rebalancing of, 10 balance of payments and, 20, 198 resources and, 6 bond market and, 301 SOEs and, 10, 318, 327 capital flow liberalization and, 233, 234 Producer price index (PPI), 338, 339 CBRC and, 347 Productivity, rebalancing of, 7 currency swap agreements and, 270 Property rights, reforms for, 29 exchange rates and, 269 Property tax. See Recurrent property tax inflation and, 20 Public-private partnerships (PPPs), 19 interest rate corridor by, 203–4 emerging risks with, 175 interest rates and, 20 for infrastructure projects, 172 Macro-Prudential Assessment LGFV and, 171 Framework of, 208 monitoring risks with, 177 Monetary and Financial Statistics MTEF and, 131 Manual by, 345–48, 345n10 Pupil-student ratios, 28t monetary policy framework and, 20 quotas and, 235 Q reserve requirements of, 198, 208 QFII. See Qualified Foreign Institutional RMB internationalization and, 263, Investor 267, 268 Qualified Domestic Institutional Investor staffing for, 14 (QDII), 217, 220, 221t, 263

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Qualified Foreign Institutional Investor repatriation channels for, 267–68 (QFII), 220, 221t, 263, 302 in SDR, 30, 222n11, 249, 270, Quality and Technology Supervision 274–76 Bureau, 100 Shanghai Free Trade Zone and, 268 Quantitative loan limits, interest rates Renminbi (RMB) internationalization, and, 199, 208 22–23, 30, 249–76 Quotas capital flow liberalization and, 221–23 capital flow liberalization and, 235 in capital markets, 260, 263 for lending, 20 cross-border payments infrastructure SAFE and, 218, 220 and, 269–70 currency swap agreements and, 270 R deposit insurance and, 269 Railway infracture, 28 domestic financial reforms for, 268–69 Ramsey, F. P., 61 exchange rates and, 269 Real estate boom, 19 IMS and, 271–73, 272t Real MTEF, 135–36 interest rates and, 269 Real sector statistics, 342–43 lower regulatory barriers for, 263 Rebalancing, 5–11 offshore liquidity and, 269–70 of consumption, 7 PBC and, 263, 267, 268 of domestic demand, 6, 7f policy measures to promote, 260–70, of financial sector governance, 8–10 261t–262t of green growth, 10 progress in, 258–59, 259f, 260f of inclusive growth, 11, 11f reserve averaging and, 269 of innovation, 7 shadow banking and, 269 of local government finances, 8, 10f Renminbi Qualified Institutional Investor of portfolios, 21–22 (RQFII), 220, 221, 267 of private sector, 10 Rental income, taxation of, 44, 50, 53–54 of productivity, 7 Reserve averaging, RMB returns on investment and, 6f, 7 internationalization and, 269 to services sector, 7 Reserve requirements of sustainable leverage, 8 FDI and, 228n15 Recurrent property tax, 69n14 interest rates and, 198, 208 current situation for, 69 macroprudential policy and, 241n28 for local government finances, 33, 69–70 of PBC, 198 proposed reforms for, 69–70 URR, 237, 239 Renminbi (RMB) Reserves Data Template, 344 currency swap agreements with, 254 Residency-based controls, for capital flow depreciation of, 264–65, 265f–266f liberalization, 240 dollar and, 268 Residential property price index (RPPI), exchange rates for, 228–29, 230f 339, 342 FDI and, 252–53 Resolution framework, for local foreign exchange markets and, 270 government bonds, 176 foreign holdings in, 254 Resources globalization and, 260f market allocation of, 11–12 in Hong Kong, 267, 268 misallocation from SOEs, 314–15, in offshore bond markets, 253–54 315nn8–10, 317f offshore deposits in, 253, 253f private sector and, 6 offshore trading in, 254–57, 256f, Retirement age, 18 257f, 258f life expectancy and, 154

©International Monetary Fund. Not for Redistribution 368 Index

OECD and, 154n17 RMB internationalization and, 269 pensions and, 151, 153–55, 153n16, trusts and, 292 156n23 WMPs and, 297 Third Plenum and, 153n16 Shanghai Free Trade Zone, 268 Returns on investment, rebalancing and, Shanghai-Hong Kong Stock Connect, 6f, 7 220, 267 Risks Shenzhen-Hong Kong Stock Connect, of capital flow liberalization, 240–43 30 for LGFV, 172 Shocks, spillovers from, 4f local government finances and, 163–78 Small and medium-sized enterprises with nontraditional lenders, 292, 293t (SMEs) with PPPs, 175, 178 corporate income tax for, 57–58, 58t preference mismatch of, interest rates interest rates and, 209 and, 205 WMPs and, 298 with shadow banking, 293t Small banks, regulatory restrictions on, See also Compliance risk management 205 RMB. See Renminbi SMEs. See Small and medium-sized RMB Cross-border Interbank Payment enterprises System, 270 SNA. See System of National Accounts Rolling MTEF, 134 Social indicators, 28t Royalties, taxation of, 53–54 Social safety nets, 15 RPPI. See Residential property price index proposed reforms to contributions to, RQFII. See Renminbi Qualified 54 Institutional Investor reforms in, 29 Rural banks, 281 Social security, 17–18 lending and deposits of, 286 current situation with contributions to, 54 S employer contributions to, 29 SAFE. See State Administration of Foreign individual income tax and, 44, 45f, Exchange 47f, 54 Sales tax, on vehicles, 68 MTEF and, 118 SASAC. See State-Owned Assets reform for sustainability and equity, Supervision and Administration 143–59 Commission taxation for, 49 SAT. See State Administration of Taxation tax wedge for, 54, 157f Savings rate, 7, 27t Social Security Fund Budget, MTEF and, SDDS. See Special Data Dissemination 124 Standard SOEs. See State-owned enterprises SDDS Plus, 336, 339n4, 349 Soft budget constraints SDR. See Special drawing rights interest rates and, 100, 202–3 Securities companies, 282 LGFV and, 100, 202–3, 203n4 Self-assessment, for tax administration, 83 Sole proprietorships, taxation of, 58 Service sector, 3 Song, Zheng, 153n14 GDP and, 86n15 Special Administrative Region (SAR). See rebalancing to, 7 Hong Kong taxation of, 78n5 Special Data Dissemination Standard Shadow banking (SDDS), of IMF, 25, 333, 336 interest rates and, 199 Special drawing rights (SDR) risks with, 293t balance of payments and, 275

RMB in, 22–23, 30, 222n11, 249, tax evasion and compliance and, 77, 270, 274–76 78–79, 81, 81n10 Specialized guarantee agencies, interest tax liens of, 104–5 rates and, 205–6 taxpayer registration and, 100 Spillovers, from shocks, 4f taxpayer services of, 100–101 Spring Breeze Project, 100 TCL and, 81, 92 State Administration of Foreign Exchange uniformity of administration in, 89–90 (SAFE), 216, 216n6, 220, 263 VAT and, 60n11 exterior sector statistics by, 343–44 State Budget, 16 State Administration of Taxation (SAT), MTEF and, 124 14, 16 State capital investment, in SOEs, 318, Administrative Measures for the 326f General Anti-Avoidance Rules of, State Council 81n10 Development Research Center of, administrative reviews for, 106, 86n15 106n44 economic decisions by, 12–13 aligning organizational structure with Legislative Affairs Office of, 92 modernization strategy, 93–95 local government financing and, 185 arrears collection by, 104–5 monetary policy framework and, 20 audits by, 103–4 MTEF and, 16, 122, 135n3, 138 compliance risk management for, PPPs and, 171 98–99, 98n36, 99n37 SASAC of, 308, 308n2 critical skills gap in, 90 SOEs and, 25 default assessments by, 105 TCL and, 92 dispute resolution by, 105–6 State-Owned Assets Supervision and emerging challenges and opportunities Administration Commission for, 85–90 (SASAC), 308, 308n2 extending national and international State-owned banks, 291 reach of, 95–98, 95nn32–33 lending and deposits of, 286 filings and payments to, 101–2 State-Owned Enterprise Fund Budget, 124 globalization and, 87–88 State-owned enterprises (SOEs), 5 human resources for, 83–84, 106–7 assessment of current reform plans, information technology for, 84–85, 90, 320–22 107–8 bad loans of, 284 installment arrangements with, 104, in bond market, 301 104n43 capital flow liberalization and, 218 Large Business Department of, 93, capital gains and, 320t 93n27, 94–95, 95nn30–31 case studies of, 328–29 master-files for, 96, 96n34 classification of, 318, 323n19 new legislation for, 88 competition in, 323 organizational stresses in, 89, 94 corporate leverage and, 309–14, 312t, organization of, 11, 82–83, 83t 313f, 314f performance measurement system for, credit growth and, 8 109, 109n46 current reform plans for, 316–20, process enhancement for, 99–106 319t–320t processes of, 83 debt of, 314 strengthening, 75–111 entrusted loans and, 295 structural changes in economy and, FDI and, 218, 218n8 86–87 framework for, 24–25

implicit support for, 315–16, 317f information technology for, 84–85, 90, improving efficiency of, 318 107–8 inefficiency of, 308–9, 309f, of local government finances, 77, 77n3 310f–311f for multinational corporations, 97 interest rates and, 192, 208–9 new legislation for, 88 key indicators of, 312t organizational stresses in, 89, 94 land use by, 316n12 organization of, 82–83, 83t macroeconomic statistics and, 26 process enhancement for, 99–106 misallocation of resources by, 315–16, processes of, 83 315nn8–10, 317f self-assessment for, 83 parameterization of data for, 330 slowing economic growth and, 85–86 pilot programs for, 321, 321t SOEs and, 77n1, 83 private sector and, 10, 318, 327 strengthening, 75–111 reform of, 307–30 structural changes in economy and, reforms for, 29, 324f, 330t 86–87 soft budget constraints and, 100 taxpayer population and, 81, 82t state capital investment in, 318, 326f uniformity in, 89–90 tax administration and, 77n1, 83 United States and, 88n19 unemployment and, 327, 327f See also State Administration of Statistics Department, of IMF, 348n11 Taxation Steel industry, 25 Taxation Stiglitz, J. E., 61 on air pollution, 66–67 Structural vector autoregressive models of capital gains, 57f, 59 (SVAR), 194–95, 195n1 of capital income, 49–50, 71 interest rates and, 211–12 by central government, 36–37 for yield curves, 200 on consumption, 78n6 Sulfur dioxide, 66 lump-sum, 61, 62 Sustainable leverage, rebalancing of, 8 pensions and, 44–49 SVAR. See Structural vector autoregressive on property, 70 models on vehicles, 68 System of National Accounts (SNA), See also Business turnover tax; 334–35, 334n1 Corporate income tax; Recurrent property tax; Value-added tax; T individual income tax Targeted allowances, for individual Tax Collection Law (TCL), 80–81, 90 income tax, 51 amendments to, 91–93, 104, 105 Tax administration, 16, 92nn23–26 Tax evasion and compliance, 75–78, administrative assessment of, 83 77n2 aligning organizational structure with in global financial crisis, 86n14 modernization strategy, 93–95 SAT and, 77, 78–79, 81, 81n10 background of, 76–80 with VAT, 78, 78n8, 79f critical skills gap in, 90 See also Compliance risk management current situation for, 80–85 Tax liens, 104–5 emerging challenges and opportunities Taxpayer population, 81, 82t for, 85–90 Taxpayer Services Department, of SAT, 93 future reform priorities for, 90–100 Tax policy, 15–16 GDP and, 76, 77t, 78, 79f changes to, 77n1 globalization and, 87–88 direct tax reforms to, 38–59 human resources for, 83–84 indirect tax reforms to, 60–70

modernizing, 33–71 Triffin's dilemma, 271 reforms to, 34t–35t Trusts, 282, 282nn2–3, 291 Tax sharing, 8, 37, 39t–40t, 41f, as intermediating product, 292–93 165f–167f, 168, 179t TSF. See Total social financing Tax system air pollution and, 66 U efficiency of, 42 Unemployment, 27t environment and, 10 from SOE reform, 327, 327f human resources and, 106 Unemployment insurance, 156n25 overview of, 36–38, 37f–38f taxation for, 49 simplification of, 50 Uniform Social Credit Code, 100 taxpayer satisfaction with, 80t, 89 Unirule Institute of Economics, 315n8 See also State Administration of United Kingdom Taxation DGI and, 353f Tax treaties, 97, 97n35 e-commerce of, 87 Tax wedge insolvency framework for, 12f for individual income tax, 46f United States for social security, 54 bond yield in, 20, 200, 201t social security and, 157f capital gains in, 186f TCL. See Tax Collection Law DGI and, 353f Third Plenum, 5, 12 dollar of, 251n1, 268, 272 MTEF and, 117 e-commerce of, 87 pensions and, 156 environmental taxes in, 63f retirement age and, 153n16 insolvency framework for, 12f SOEs and, 24–25 money supply in, 192–93 tax administration and, 91, 91n20 MTEF in, 121–22 13th Five-Year Plan, 5 specialized guarantee facilities in, 205–6 capital flow liberalization and, 215n2, tax administration and, 88n19 232 tax system and, 36 environmental taxes and, 62 tax treaties with, 97n35 macroeconomic statistics and, 348 Unremunerated reserve requirement monetary policy and, 191 (URR), 237, 239 MTEF and, 117 Urban households, individual income tax SOEs and, 24–25 for, 48f tax administration and, 91 Urbanization, recurrent property tax and, tax policy and, 33 70 Time horizon URR. See Unremunerated reserve for MTEF, 17, 122, 124, 126, 134, 140 requirement for pensions, 149n9 Tobacco, taxation of, 61 V Top-down forecasting, for MTEF, 128 Value-added tax (VAT), 15, 16, 36, 77n1 Total social financing (TSF), 346, 347 audits of, 103, 103n42 Trade surplus, tax administration and, from business turnover tax, 33, 60, 60n11 77n1 current situation for, 60 Transfer pricing rules, 96 filings and payments to, 101–2, Transparency 101n40, 102n41 Budget Law and, 19 financial sector and, 62 improvements in, 12–13 GTP for, 84 in local government finances, 187 information technology for, 108

proposed reform of, 60–62 Work Program, 12 refund mechanism for, 60 World Bank registration threshold for, 62 credit information systems and, 206 shared by central and local government environmental taxes and, 62 finances, 37 MTEF and, 126 tax evasion and compliance with, 78, World exports and imports, China's share 78n8, 79f of, 335f tax rates for, 60 World Health Organization, 10 transition to, 60–62 environmental taxes and, 62 Vehicle taxes, 68 World Trade Organization (WTO), 5, 13 Voluntary Trading Arrangements, 275 capital flow liberalization and, 217 RMB and, 252 W SOEs and, 321 Water pollution, 10 WTO. See World Trade Organization Wealth management products (WMPs), 285–86, 296–98 X arbitrage and, 292 Xiaokang, 3 bond market and, 300 XI Jinping, 13, 320 CBRC on, 296–97 Xinren, 147 equity markets and, 303 for local government finances, 291 Y as nontraditional lenders, 289f, 290, 292 Yield curves, 200 WEN Jiabao, 5 Yu’ebao, 285–86 Wholesale funding, 299–300 WMPs. See Wealth management Z products Zhongren, 147

"China has redoubled its reform efforts and advanced on a number of fronts, including in the fiscal area. For example, significant progress has been made in completing the value-added tax reform and local government imbalances are being addressed. This book is a comprehensive guide on critical reform issues and provides good insights into China’s fiscal policy frameworks.” –ZHU Guangyao Vice Minister, Ministry of Finance

“China needs to complement its extraordinary build-up of hardware (infrastructure, factories, housing) with development of the ‘software’ of a market economy—legal system, financial sector, budget management, environmental protection, and social safety net. This book is essential reading to understand China’s challenges and policy frameworks that can help the country meet those challenges.” –David Dollar Senior Fellow, China Center, Brookings Institution

“The Chinese economy, at another historical juncture in its development, faces a struggle between new and old. But this time, simply boosting investment would be insufficient to restore robust growth. Instead, the successful transformation of the economy lies in completing institutional reforms that began nearly four decades ago. This timely book provides guidance on how to accomplish this and can help China to achieve the highest possible, sustainable growth rates.” –Yiping Huang Professor, National School of Development, Peking University

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