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--- title: "SU-SOC175 JAN282026" source: https://www.jemoka.com/posts/kbhsu_soc175_jan282026/ date: 2026-01-28 --- What did we learn thus far? unitary political system—extension of party organization into every part of government (agencies, banks, schools, etc.) unusually large state ownership and assets; unusually high barriers asset transfer to AMCs taxation setup banks are an arm of the state China’s fiscal system based heavily on taxation of enterprises VAT on manufacturing: 34% corporate income tax: 17% social security contributions: 18% compare that to China corporate taxes: US: 4%; China: (^) payroll taxes: US: 16%; China 25% fiscal system china: taxes on housholds are only 10-11 percent of revenue private wealth, capital gains are not taxed no inheritance tax 20% or so should pay some income tax, actual number is largely lower distinct feature strongly reliance on enterprises heavily VAT-based central and local government misalignment History Taxation 1.0 tax farming each level given a quota of tax to become the higher levels central government thus had a smaller share—localities had too much power Taxation 2.0 1994 tax reform no more tax farming central government got more revenue only Beijing tax: everyone else shared a bit of the revenue and can put into special banks Adverse Incentives even if a company is loosing money, its still paying a lot in taxes which is good for government …companies are therefore being propped up just to keep them operational New Fiscal Source for Localities Beijing asserted ownership on land use rights sold to developers ground rent charged for fees Impact of 2008 exports dropped 20% tried to turn to domestic sources of wealth; but consumers can’t spend enough China instead decided to go New Deal and just stimulate economy by building things China’s Stimulus underfunded local mandates (i.e. “we’ll fund half, and you will match, grow your GDP by n%”) bank loans to governments (this is not possible in US because then US collapsed) to match the above BUT: local governments can’t make new taxes and can’t make bonds; they can’t borrow from banks either; so they make a local state enterprise via a “local government financing vehicle.” Government Financing Vehicles Bank loans are typically short term—3 years—and securitized by the projects being built.