A key question here is the financial ability of the state to act in the ways that are needed. In the early reform period, decentralization was deliberately encouraged, with central revenue falling from 34 per cent of GDP in 1978 to a mere 6 per cent in 1995, according to the Chinese economist Hu Angang. [472] The state found itself increasingly shorn of many of its old sources of revenue and responsibility. [473] Expenditure by the central state, in its turn, came to account for a rapidly declining proportion of GDP: 31 per cent in 1978, reaching a trough of around 11 per cent in 1995. By the mid nineties there was deep concern about the loss of central state capacity that this involved, including the latter’s ability to promote balanced development between the regions, and a determined attempt was made to reverse the process. There were even fears that individual provinces were beginning to operate like independent countries, with an increase in their external trade and a decline in trade flows between them. [474] As a result, the government introduced major tax reforms including, for the first time, taxes specifically earmarked for central government; previously, central government was dependent on a share of the taxes raised in the provinces, based on a process of bargaining between the two. The central government also acquired its own tax-collecting capacity, with a large majority of revenue now being collected centrally, some of which is then redistributed to the provinces. [475] Not surprisingly, the rich provinces strongly resisted paying higher taxes to central government. [476] By 1999, however, state expenditure had risen to 14 per cent of GDP and by 2006 to around 22 per cent. [477] Crucially, the state needs to be able to fund its new social security programme in order to provide for the tens of millions of workers made redundant by the state-owned enterprises which had previously been responsible for virtually all of their employees’ social needs, including education, health and housing. [478] The problem is particularly severe with education and health, which have suffered from very serious public under-investment during the last decade, a cause of deep popular concern and resentment. [479] The government is deeply aware of these problems and in 2008 alone education expenditure was budgeted to rise by 45 per cent. [480] During the Maoist period, the state was responsible for almost 100 per cent of health expenditure: the figure is now around 16 per cent compared, for example, with about 44 per cent in the United States and over 70 per cent in Western Europe. As a result, a majority of the population can no longer afford healthcare. In April 2009 the government announced a major reform of the health system, including the short-term goal of providing basic insurance cover for 90 per cent of the population. The lack of a decent safety net and the threadbare character of key public goods fuel a sense of deep insecurity amongst many people, acting as a powerful incentive for them to save, even though the living standards of the vast majority, especially in the cities, have greatly improved. [481]
Finally, China ’s growth has been extremely resource-intensive, demanding of land, forest, water, oil and more or less everything else. Herein lies one of China ’s deepest problems. [482] The country has to support an extremely large and, for the most part, dense population in a situation where China is, and always has been, poorly endowed with natural resources. It has, for example, only 8 per cent of the world’s cultivated land and yet must sustain 22 per cent of the world’s population; in contrast, with only a fifth of China ’s population, the United States enjoys three times as much arable land and its farmland has been under human cultivation for one-tenth of the time of China ’s. [483] China ’s development, moreover, is rapidly exhausting what limited resources it possesses. Over the last forty years almost half of China ’s forests have been destroyed, so that it now enjoys one of the sparsest covers in the world. In 1993 it became a net importer of oil for the first time and now depends on imports for almost half its oil needs.
Figure 14. China’s growing dependency on oil imports.
