A Research On The Law Issue Of China’s Soft Budget Constraints

A legally budget binding effect on government spending is the essential element (factor) for the rule of law of fiscal budget. But this effect is weakened by the impact of the economic changes due to the preplanning feature of the budget, thus resulting in the problem of soft budget constraint (SBC). What kind of economic changes may affect the effectiveness of the annual budget which has been taken effect and lead to append, reduce budget or other alteration. These issues should be clearly defined by the budget law. There exists the problem in China’s budget implementation process that government budget binding effect is being weakened currently. Economic soft constraints bring legally soft constraints, whereas the legally soft constraints further exacerbate the economic soft constraints.This issue showed especially clearly when Chinese government introduced financial bailout plan to cope with the global financial crisis in2008. The efficiency that Chinese central government issued a four trillion plan was so high to embarrass the U.S. federal government. U.S. financial rescue plan was delayed because it cannot be approved by both houses of Congress and it adversely affected the market rescue opportunity. Meanwhile, the Chinese Government’s financial bailout plan need not be approved by National People’ s Congress (NPC) and can be implemented after the plan was filing to the NPC. Two years later, the different financial bailout plan creates a different implementing result. In China, this plan changed the established economic structural adjustment plan. Large-scale government investment and bank capital concentrated to invest in the urban infrastructure and real estate market, generating a phenomenon that state-owned enterprises advanced while private sector retreated, and prospering in only one industry, real estate. Meanwhile, the huge investment produced serious inflation, not only creating severe speculative actions in real estate and agricultural and sideline products market, forming new asset bubbles and prices going up, but also bringing about some problems, such as usurious loan and local governments’ explicit and implicit debts. All these problems which exist huge potential risks will reduce the operational quality of national economy, decreasing social wealth, and even bringing about the bankruptcy of enterprises. In United States, though the economic recession has not been improved effectively and may even face the risk of another recession, and the government also faced the risk of defaulting on its debt. But its market mechanism is still sound, market operation being orderly, prices being stable, and the social security system has been further optimized. Economic structure and operational quality have not been serious affected. Usually, if the public authority of the government budget constraints by Parliament, the efficiency of government administration may be lowered. But it may promote the government’s administrative measurements to become more rational and can meet the requirements of the people-oriented public budget which based on the rule of law of budget. China’ s soft budget constraints directly related to the issue that the budget legal system and management system are constructed as the government financial budget power the core. The people’s congress and its standing committee lack the substantive constraints to on the government budget in the same level. Meanwhile, because the half of the fiscal revenue is not included in the budget management, coupled with a lack of budget performance assessment and accountability system, economic changes of course become the sound excuse to alter the established budget, thus the economic and legal double soft constraints cannot be avoid. Hard budget constraints come from the hard constraints of the National People’s Congress on the government financial power. The enhancement of China’s budget binding effect must be based on the transformation of government management function and reform of budget management system. And through the amendment of the Constitution, Law of PRC on Supervision by the Standing Committees of the People’s Congresses at All Levels, legislation law, budget law, the relationship between the National People’s Congress and the Government, the central government and local government, government and the market, society can be sorted out. The systematic, mechanical and legal obstacles on the budget constraints can be eliminated. The goal to conformation hard budget constraints cannot be done overnight, but are approaching to. The budget expenditure is moving toward the public finance from construction finance and the requirement of livelihood finance was proposed. With the amendments of the budget law, establishment of "Whole caliber" budget management system, improvement of the budget standardization level and the strengthen of budget transparent and oversight, the legally binding effect of budget will be strengthened and the hard constraints in the government budget execution will be gradually established.