The Official Corruption In The Distribution Of Financial Funds And Its Governance Mechanism In China

Western national finance allocation process is full of fierce interest confrontation.Government, Parliament and interest groups always have an open bargaining on the detailed contents of public budget plan. When stakeholders are disabled to reach an agreement, the government may even get closed. In contrast, we almost can not see stakeholders’ intense bargaining on China’s allocation of financial resources in the various forms of government work conferences. However, the benefit game in the process of financial funds allocation exists really, and the way of central government and local government to deal with the conflict of interests is not formal and public conferences but private consultation. Official corruption is an important way of private consultation. The so-called official corruption, that is, local governments bribe the central ministries and commissions with public funds, in order to obtain projects and funds. China is a market-economy country under the domination of government, so the financial distribution relationship between the central government and local government has a profound impact on the benefit distribution pattern of all the country. The official corruption in the process of "getting interests by bribing government departments" has distorted the effectiveness of financial funds allocation, corrupted officials, and confused social assessment on corruption.The unspoken rules relationship between central government and local government are the ground breeding official corruption in the process of financial funds distribution. It is an informal relationship based on the behaviors’ balance of advantages and disadvantages,that has got the default of central government and local government and haven a compulsory binding force on them. This relationship has created conditions for the occurrence of official corruption in the allocation of financial funds. However, when reviewing the study of the relationship between hidden rules and corruption, we find that most of them studied the relationship at the phenomenon level and there almost no one setting up a systemic model of the relationship between them. Based on existing study, this paper combines the advantages of the normative analysis and empirical analysis, and constructs the mechanism system of latent rules leading to corruption and corresponding governance system.This paper decomposes constituent factors of the official corruption in the process of financial funds distribution into dynamic factors, pressure factors and capacity factors through cost- benefit analysis. Dynamic factors mainly include the expected benefits of corruption behaviors and its probability of realization, which decides if actors want to corrupt. Pressure factors include expected return and cost of the actors under the conditions of formal institutions, which decide if it is necessary to corrupt. Capacity factors include the cost and risk of corruption, and their probability of realization, which decides if actors dare and can corrupt. The potential rules between the central and local governments, have formed the dynamic mechanism, pressure mechanism, and capacity mechanism of causing the official corruption in the process of financial funds distribution through strengthening the above three kinds of factors. The Promotion Tournament mechanism is a dynamic mechanism that stimulates the local governments’ need to bribe the central government and results into alienation of local governments’ motivation and manners. The information asymmetry, imbalance of interests and inequality of power in the process of authorization make the central and local public administrators have to allocate financial funds through official corruption. The soft budget constraint reserves rent-seeking space for corruption, provides material support for corruption, reduces the risk of corruption, and increases success rate of corruption. The three mechanisms interact and form the resultant force of causing official corruption in the allocation of financial funds.The official corruption in the allocation of financial funds is a kind of systemic corruption. In recent years, many reform measures in our country, such as decentralization, budget reform, and decision-making mechanism reform and so on have a governance effect on it. The rectification of local governments’ offices in Beijing and the reformation of the transfer payment system are most targeted among them. However, when combing the contents and results of the two reforms since 2005, we find that although relevant measures have been taken frequently, the similar problems are repeated, and the reform has not achieved its expected effect. The institutionalization level of governance means is low and the unspoken rules are not regarded as core governance objects, both of which are not only the main defects of current governance model, but also the important reason for the low governance efficiency. Therefore it is an important way for governing the official corruption in the allocation of financial funds to solve the problem of potential rules by using formal systems.It is not difficult to find that mechanisms of inducing corruption of the Promotion Tournament, authorization as occasion demands and soft budget constraint respectively result from the defects and distortions of China’s promotion incentive system, authorization system and budget constraint system. If they can be corrected by means of institution, the factors of causing corruption can be transformed into the factors of anti-corruption. Therefore the paper builds up a three-in-one governance system by correcting the Promotion Tournament, institutionalizing authorization, and hardening budget soft constraints.