Fiscal and banking reforms are both parallel and interrelated.They are parallel in that in both cases,institutional frameworks have been established that have not yet begun to function in the manner in which they are intended to function.We are thus entering a critical period in which these new institutional setups will undergo testing.Whether they can serve as the basis for a new period of deeper marketization and improved efficiency in the Chinese economy remains to be seen.The challenges are severe,and there is no grounds for complacency.However,based on the past record of reform in the Chinese economy,the vitality of the economy,and the high rate of saving and investment,it is reasonable to expect that these challenges will ultimately be overcome.

　　The interrelationship between fiscal and banking reform comes from the impact of the government on the financial sector.Starved for budgetary revenues,government officials pressure the banking system to finance their needs.Today,the government is trying to empower the banking system to refuse the exactions of government officials at all levels and operate on commercial principles.But at the same time,the central government is attempting无忧论文 【http://www.uklunwen.com】 to claw control of budgetary revenues away from local officials without also undertaking a parallel increase in central government expenditure responsibilities.This amounts to a kind of squeeze on local government finances that is unlikely to prevail in its current form.Local officials simply have too many options,and too much local knowledge,to allow themselves to be starved for resources in this fashion.

　　Instead,we can imagine two different emerging scenarios.Under the negative scenario,both fiscal and financial reforms would eventually fail.This failure would come about because of the government's failure to increase budgetary revenues.The central tax agency would not become established as a true central government agency,and local tax officials would have little incentive to increase budgetary revenues.In such a case,local officials would continue to divert resources into extra-budgetary funds,and would be forced to maintain their control over local financial institutions.The result would be the miscarriage of financial reforms,and an intensification of patterns of irregular finance and personal corruption in the Chinese economy.Under the positive scenario,government finances would begin to recover in 1997.Led by an increase in revenues collected by the central tax agency,the government would be able to direct more resources to the critical health,education,and administration components of the budget.Effective transfers to local govern