Using performance indicators for governing

COMPANIES often use Key Performance Indicators to evaluate staff. Then what about the government?

Today, as the central government demands more efficiency and transparency in how public funds are spent, performance-based evaluation has increasingly taken center stage in government fiscal performance. It has also evolved into a key indicator of official accountability and rational decision-making.

At a recent forum hosted by the Shanghai National Accounting Institute in Hangzhou, capital of Zhejiang Province, experts from the Asian Development Bank, China’s Ministry of Finance, research institutions and evaluation organizations shared insights into the long way China has come in acknowledging the importance of performance evaluation.

Many government agencies have set up their own evaluation departments since performance-based assessment was introduced in 2005 as a first step toward building a budget management system, said Zheng Yong, director of the Evaluation Management Office of the Budget Division at the Ministry of Finance.

The goals of evaluation are myriad: improve management, enhance policy-making and above all, provide an important reference for future use of funds.

The amendment to China’s Budget Law in 2014 is a huge boost to realizing these goals, Zheng said.

Under the law, the Ministry of Finance looks at a range of measures such as output, public satisfaction, efficiency and quality. The job of Zheng’s organization is to expand the evaluation to governments at all levels. Moreover, instead of only surveying a single project for its effectiveness, the focus of fiscal ombudsmen will be more and more on the overall spending of the agency being examined.

Liu Wenjun, head of the Budget Assessment Center at the Ministry of Finance, has tracked developments in the field of budget evaluation for some time. He credits cities like Shanghai and provinces including Guangdong, Hunan and Zhejiang for leading the nation in what he called a craving for “performance-based evaluation.”

Originating in the West, performance-based evaluation has played a more and more important role in China’s governance. Liu said the surge of interest in performance-based evaluation owes a lot to the significant changes that are reshaping Chinese attitudes toward fiscal discipline.

One of these changes is the growth of national fiscal income and outlay from some 400 billion yuan (US$61.4 billion) in 1996 to somewhere between 16 and 18 trillion yuan in 2016. “This is growth of epic proportions,” he said.

Given the tremendous amount of money, the previous fiscal approach is proving ever more limited and thus has to be supplanted by new methods as outlined in the Budget Law and a raft of official documents, said Liu.

Prevailing norm

In his opinion, China’s urge to conform to the performance-based standards as a prevalent fiscal norm in the world is a result of outside pressure as well as China’s own interest in pushing for transparency.

Asked how performance-based evaluation has affected China’s fiscal reforms and governance, Liu said it has considerably empowered ideas such as accountable government. He stressed this point by invoking the ancient Chinese classic “I Ching,” or the Book of Changes, which elucidates that “through institutional curbs we can make the best of tax revenues and refrain from over-taxing and hurting the populace.”

Liu noted much of China’s fiscal reform revolves around the mission to combine Western and Chinese wisdom to cut wasteful spending and optimize the value of public funds.

This, however, proves harder than it sounds. And the biggest difficulty comes from devising sound evaluation standards acceptable to the evaluees.

It was left to Zheng’s organization to devise the standards and her team spent three months consulting fiscal staff from numerous government agencies to hammer out the specific standards.

“When all the standards were agreed on, it’s like we had signed an agreement with these agencies on behalf of the central government,” Zheng said.

She also noted that early intervention may also be necessary because many evaluations that end up exposing monumental inefficiencies often happen after the fact.

It is “strongly advised” to implement follow-up monitoring during the execution of a budget or a project for the sake of stemming waste and raising efficiency.

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