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CASS gets with the fiscal program

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In Brief

A recent report from the Chinese Academy of Social Sciences (thanks to World China Bridges for the link) has listed the 10 most serious social problems in China at the moment. The high expense and a lack of access to medical services topped the list.

"It's very rare in other countries that health care was the most serious social problem," the report said. "Instead of a simple problem about poor medical service, it is related to the country's reform on all public service sectors."

Given the authority of this source, this is an incredibly important admission. It is also a surprising admission. China has suffered dramatically from an inability to formulate comprehensive solutions to public policy problems. The most substantial of these weaknesses has been an inability to reform its fiscal system, which has been a considerable hindrance to the delivery of public goods. Nowhere has this been more obvious than the health care system.


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Part of the reason for this is historical. The end of the collective meant that the state became a far weaker presence within farmers’ lives. It also had considerable impact on China’s policy creation. The Central Government suffered from an inability to raise revenues to fulfil social spending obligations. This resulted in the disproportionate distribution of funds compared to mandates within China.

The Chinese health care system also changed significantly, and the onus shifted firmly onto the individual to fund their social spending under the “Family Responsibility System”.

This changing context had a major impact on service delivery within rural areas of China. The weakening of the role of the state led to a drastic fall in funds available to the providers, and simultaneously reduced the role of the state as a supervisory mechanism over health care providers.

Weaknesses in the fiscal system then exacerbated service delivery problems. The 1994 tax reforms, establishment of hard budget constraints and consequent need to raise revenues provided perverse incentives for the providers.

Resolving health care problems in China urgently requires a reformation of these poor incentives for health care providers. There is limited market competition, yet the social spending structure means that there also is not effective government supervision. If flawed incentives for providers are not changed, an influx of greater money and access into the system (such as that currently occurring under the New Cooperative Medical Scheme) will merely reinforce the incentives for providers to overtreat or overcharge.

Recent reports like this one from CASS hopefully presage a shift in Chinese public policy, and changes in the Chinese fiscal system. This shift would be both vital and overdue.

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