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Auditor-General Li Jinhua revealed in his audit report that more than half of 773.3 billion yuan (US$96.7 billion) in central transfer payments were not recorded in local governments' budget books.

This means that many of the transfer payments are beyond the control of the local people's congresses, the very bodies meant to supervise the distribution of such funds.

Transfer payment usually refers specifically to a system of payments from the central coffers to the provinces to seek a national fiscal balance and promote the development of poorer regions.

China is a country with imbalanced regional development. Therefore, such transfer payments are crucial in order to bridge the regional development gap. And our transfer payment policy has indeed done a lot to achieve this.

However, irregularities in the distribution of the transfer payments cannot be denied, as indicated by Li's report and the remarks made by National People's Congress (NPC) Standing Committee members.

In his report, Li said that 37 central departments have the power to distribute various types of transfer payments. Meanwhile, budgets on the use of these funds are far from clear while the policy-making process is neither open nor transparent.

A lack of clear-cut budgets and closed-door management may impede external supervision and brew corruption.

In examining the annual audit report, NPC Standing Committee members attacked the favour-winning tactics of some local governments, which send officials to Beijing to lobby the central ministries for more transfer payments. The lobbying process may involve corrupt deals, according to the NPC members.

Li has rightly suggested that the transfer payment plans be streamlined, budgeting be strengthened at both central and local levels, and an accountability mechanism be established.

While the suggestions hold water, policy-makers need to do more to standardize the transfer payment system.

It is important to establish a rational policy-making mechanism. Department heads should not decide the distribution of transfer payments. Definite standards must be put in place and decisions should be made collectively on the basis of full discussion and research.

It is more important that in the distribution of transfer payments, application standards and decision-making procedures should be made more transparent so the public can be better informed about the whereabouts of these public funds.

(China Daily June 30, 2006)