Opening Remarks in the International Conference on International Experience with Public Service Reform and China's PSU Reform

Vice Chairman Li Shenglin,
Deputy Director Rolf Alter,
Distinguished guests,
Ladies and Gentlemen,

It gives me great pleasure to welcome all of you to this conference on behalf of the World Bank.  I would like to take this opportunity to thank our partners National Development and Reform Commission (NDRC) and the Organization for Economic Co-operation and Development (OECD) for co-sponsoring this important event, as well as the continuous guidance and support you have kindly offered to the World Bank team in its study on China's public service unit reform.  This conference is part of a World Bank technical assistance project funded partially by the European Union, which we greatly appreciate.  I would also like to express my sincere thanks to all the international speakers who have traveled from other parts of the world to Beijing to make their contribution here today as well as to the following event in Jiangsu province.

The World Bank attaches great importance to China's PSU reform. It is the third stage of restructuring China's public sector, following state owned enterprise (SOE) reform and government reorganization. We believe that success in this transformation will unlock the great development potential of China's services sector, and significantly improve the government's public service delivery function.

Since September 2002, the World Bank has worked closely with the former State Council Office for Restructuring Economic System (SCORES) and later NDRC in a study on the overall strategy of PSU reform. Our final report is expected to be delivered later this year. Furthermore, we have also collaborated with NDRC in a technical assistance project to support a multi-ministry study team led by NDRC.

It is widely agreed that PSU and SOE reforms are both equally important, but much more complex. In this conference, we are going to find a similar degree of complexity among the "agencies" of some OECD countries. The high degree of complication calls for clearly defined objectives and an overall strategy to safeguard the reforms and prevent losing direction in mid-stream.

How to define the objective of the reform is one of the questions to be discussed in this conference and the following workshop in Jiangsu province. However, there is strong rationale to set the objective as to build a new system of public service delivery to implement the "new development concept" which was adopted by the recent Third Plenum of the CPC Central Committee, and to fit the notion of  a "xiaokang" or well-off society. The "new development concept" puts emphasis on "people-centered" growth and calls for balance and coordination between economic and social development. It is quite obvious that this will not be achieved without broader, more equitable and efficient delivery of public services, such as basic education, public health, and others. Therefore, China's PSU reform is not only a reform of existing PSUs. It must go beyond short term concerns such as redundant labor and heavy fiscal burdens to have a clearer and stronger focus on equitable and efficient delivery of public services.

Of  course, in the central planning system PSUs were created specifically for the provision of public services. Meanwhile, however, the structure of China's economy has changed drastically.  As part of the transition from a central planning economy to a market economy, China's PSU reform faces the core challenge of re-defining the role of the government in public services delivery.  And this is the broader context of PSU reform.

The challenge, though, is enormous. For example, it will require re-focusing public expenditure on public goods and government functions that have been established as higher priorities. And prioritization itself requires a new set of mechanisms. The government will need to think again about what to do, and what to do first, in terms of public service delivery. In addition, a great deal needs to be done to ensure a functioning division of labor and resources among various levels of governments, in particular, a functioning system of inter-government finance - that is, a rational and efficient system of expenditure responsibilities, revenue assignments, and equalizing transfers. The role of the government also needs to be re-defined to ensure the effectiveness and efficiency of service delivery. It is critical to realize that in most cases, the government's responsibility is to see that public services are delivered to citizens in desirable quantities, qualities and costs, rather than to try to produce and deliver them by itself. Effective and efficient delivery of public services involves public-private partnerships in service provision, which will not be achieved until various barriers and restrictions against certain kind of providers are removed and free entry and fair competition prevail. A regulatory framework has to be established to address market failures caused by monopoly, externality and asymmetric information. Governance also matters. Neither public nor private service providers can be efficient before there is a functioning governance structure which, among other things, strikes a balance between autonomy and accountability. I believe many OECD countries have gone a long way in search for such a governance structure and we expect to learn their lessons particularly in the following two days.

Ladies and gentlemen,  I do not want to go into greater details on the various issues involved in China's PSU reform. While the challenge is enormous, it is our strong belief that China is in a good position to achieve full success in PSU reform. As some of you will see later this week, successful experiments have been carried out in many places in China, such as the provinces of Jiangsu and Zhejiang. In comparison with SOE reform and government reorganization, which were launched in the 1980s and 1990s, PSU reform enjoys a much more favorable environment. The World Bank is here to help. As always, we stand ready to respond to any further request for assistance on PSU reform, be it from the central government or any provincial government.

Let me conclude by wishing full success to this conference, and a happy stay in Beijing to our international and national guests. Thank you very much.