China revises law to better manage government money

China's top legislature on Sunday adopted a revision to the Budget Law which clears ambiguity and closes loopholes in managing the trillions of yuan involved in fiscal revenue and spending.

This is the first time the Budget Law has been revised since it took effect in 1995.

As the law is closely interrelated with China's ongoing fiscal reform, it took the country an unusually long time to revise it -- seven years to draft a bill for the first reading in 2011 and four readings to get it passed.

Members of the Standing Committee of the National People's Congress (NPC) adopted the bill through a vote at the bi-monthly legislative session, saying that the revision has responded to improvement in the fiscal system and the most controversial and concerning problems.

In 2014, China's fiscal revenue is budgeted to be 13.9 trillion yuan (2.26 trillion US dollars) and government spending to be more than 15 trillion yuan.

The management of such a huge amount of public funds and supervision of its use remain key challenges for the Chinese government.

The revision to the law is a big move to further the fiscal reform and establish a modern fiscal system, said Zhang Dejiang, chairman of the NPC Standing Committee, at the closing meeting of the session.

The revised law will help establish a complete and transparent budgetary system, transform government functions and modernize governance, Zhang said.

The revision of the law laid the foundation for fiscal reform in the next step, Prof. Liu Jianwen with the Law School of Peking University told Xinhua.

"The first revision took such a long time because a number of disputes concerning the direction of fiscal reform had not been settled then," Liu said.

"If the current fiscal reform measures were not acknowledged by legislation, new moves would be held back."

LOCAL GOVERNMENT BONDS

One of the most controversial issues is local government bonds. The old version of the law banned local governments from issuing bonds, but in practice some local governments have sought back doors to raise funds, mostly to fund infrastructure. The money has remained unsupervised.

To tackle this situation, the revision green-lights bond sales by provincial-level governments but places them under strict conditions. It not only restricts the amount of bonds but also regulates how to issue them and use funds raised through bonds.

Under the new version, provincial governments are allowed to issue bonds within a quota set by the State Council, China's cabinet, and approved by the NPC or its standing committee.