Xinhua News Agency has reported that some cases of large-scale cheating on subsidy programs through the policy-oriented livestock insurance in Deyang, Sichuan has been taking place recently. In some areas, policy-oriented livestock insurance has become a tool for agricultural insurance institutions and livestock stations to collude with illegal farmers to falsify and defraud the given subsidies. In the second half of 2018, a farmer in Deyang, Sichuan made fraudulent claims up to RMB 936,000 without raising any pigs at all. The livestock insurance business chain has therefore been corrupted through fictitious and inflated revenue. The Central Commission for Discipline Inspection of the region has inspected 545 people, 7 insurance companies and most of the livestock stations which were involved in the case. The organization handled 393 people, the Ministry of Public Security investigated and handled 23 people, and the insurance company handled 57 people internally, successfully recovering fiscal subsidy funds of up to RMB 64.46 million. The insurance company involved said that the return of premiums is a common incentive for farmers to accept policy-oriented livestock insurance due to farmers' low-level acceptance. There will be the increased presence of corruptions when there are benefits, and it is especially so when there was no insurance supervision institution at the county level there in the past.
In fact, judging from the use of fiscal subsidies in recent years, the phenomenon of fraudulent claim has emerged one after another. In addition to agricultural subsidies, the subsidies for home appliances, photovoltaic industry, and new energy vehicles have occurred frequently. It has gone to the extent where even listed companies have publicly defrauded claims. In 2015, the total amount of subsidies that were required to be refunded by many domestic appliance companies was close to RMB 900 million. These companies which were involved include color TV giants such as Skyworth, Changhong, Konka and TCL. In 2016, the Ministry of Finance also exposed five new energy vehicle manufacturers that swindled state subsidies. Stemming from these incidents, the total amount of fraudulent subsidies exceeded RMB 1 billion. Among them, well-known brands such as Jinlong and Chery were listed, and they were fined RMB 374 million by the Ministry of Finance as a result of their actions. According to the report of Securities Daily report, the four ministries and commissions, including the Ministry of Finance, have organized a special inspection of 93 major new energy vehicle manufacturers in early 2016. Among them, there were 76,374 vehicles suspected of defrauding and illegally seeking compensation, and a total subsidy figure of RMB 9,270.7 million was involved.
The phenomenon of fraudulent claim of fiscal subsidies has been repeatedly exposed in recent years, reflecting on the point that the mechanism of the subsidy system itself needs to be improved. In addition, legal rules for fiscal subsidies should be established immediately. Subsidy policies do not have a special legal basis in China. Most of the subsidies stay at the level of administrative regulations, mainly and mostly by the fiscal authorities handling approval and implementation. The flexibility, pertinence and realizability of this implementation are relatively durable. However, looking from the point of normal operations, the legal basis is insufficient given that this system is unstable and it only has a temporary effect. Certain regulations are often issued in a number of ways but many of them are temporary and lack effective supervision and accountability. As a result, they are highly prone to fraud. In addition, after the special funds have been disbursed, there is no evaluation mechanism. No one has tracked the legality of the acquisition behind these subsidy funds. There is also no proper way to manage and use it. If this part of the funds is illegally obtained, misappropriated, or are encroached or corrupted, only a few people will be accountable for the consequences. This shows that there are many loopholes in the supervisory level.
On the other hand, the excessive fiscal subsidies require reflection and adjustment from the perspective of policy making. As a macro-control measure, fiscal subsidies have a positive effect on promoting production and circulation, stabilizing market prices, safeguarding people's livelihood and expanding international trade. However, if it is improperly applied, especially when the scope of subsidies is too wide or the amount is too large, it will exceed fiscal affordability, which causes price distortions to arise in certain products and cause disruption to the operation mechanism of enterprises. Leveraging social economic activities to counter this will then restrain the economy and slow down development. The amount of industrial policies in China is excessive, as illustrated in the photovoltaic industry. It is estimated that in 2016, the total amount of PV subsidies will reach RMB 26.4 billion while the subsidy will exceed RMB 45 billion in 2017. These subsidies were issued through the Renewable Energy Development Fund. Despite these huge sums, there is still a huge gap in government finances. The funding gap of the fund is expanding year by year, reaching RMB 60 billion in 2016 and over RMB 100 billion yuan in 2017. The market is over-represented under fiscal subsidies, and the huge production capacity cannot be achieved by subsidies alone, which causes the market to further distort. This has eventually caused a substantial reduction in subsidies for the photovoltaic industry. According to Bloomberg News, the Chinese government's cumulative subsidy for new energy vehicles reached RMB 59 billion in 2015. Comparatively, the total amount of subsidies in 2016 and 2017 was RMB 83 billion yuan.
Subsidies for enterprises are now generalized, and the significance of supporting the industry and promoting industrial upgrades are mostly lost. Last year, Haitong Securities research showed that the total amount of subsidies received by enterprises in 2017 has exceeded RMB 430 billion. From the perspective of listed companies, the amount of government subsidies received by all listed companies in 2010 was only RMB 38.1 billion, and the average government subsidies received by each company was RMB 21 million. Meanwhile, the amount of government subsidies received by all listed companies in 2017 have reached 130.2 billion yuan, and the average amount of subsidies received by each company also increased to RMB 39 million. At the same time, the coverage of subsidies is also expanding. In 2010, the proportion of government subsidized companies in listed companies was about 89%. In 2017, this proportion has risen to 97%. In particular, the fiscal and steel industries, which are at the bottom of subsidy fund dependence, are at stages of excessive development or overcapacity. Nevertheless, they occupy most of the government subsidy resources because profits are mostly tied up by research and development activities, computers and communications where government subsidies are not required. In high-tech industries such as equipment manufacturing, the quantity of government subsidy resources obtained have not yet reached the average level.
Therefore, China's fiscal policies and system of government subsidies have to be adjusted. Other than improving the fiscal subsidy system, plugging loopholes, and strengthening supervision, along with reducing taxes, ANBOUND also pointed out that it is necessary for the policies on fiscal subsidies to pay more attention to people's livelihood expenditures as well as focus on public service spending, so that promote domestic market. Something that needs to be pointed out is that for the fiscal policy of encouraging consumption, subsidies should be avoided as much as possible so that it is difficult to eliminate backward production capacity. Policies that optimize business environment, such as regulating the market construction and improving the quality of products should be implemented instead to successfully form a benign and competitive market.
Final analysis conclusion:
Due to the continuous incidents of defrauding fiscal subsidies taking place, China's fiscal subsidy system needs to be systematically adjusted. To achieve this end, there is the need to enhance the subsidy's mechanism and system, improve the design of subsidy policies and promote the improvement of market mechanisms, in order to prevent the distortions and wastage of fiscal resources.
