where China changed its tax system, it changed its customs, it changed the way local governments managed their budgets. It changed really personnel appointments within the party in order to aggregate more power to Beijing. And they did it in a very clever way. For example, under the old system, localities' provinces would have a negotiation with Beijing every year and decide how many taxes they would pay to Beijing. So what Beijing did was they went to the provinces and they said, look, you're paying us, let's say, 25% of your gross national product of Shanghai every year, and that's, let's say, $100 million. So let's fix your payment at $100 million. And what we're going to do is we're going to impose a VAT tax and an income tax, and Beijing is going to collect all of it and then rebate to you the portion that's due to you. Initially, the localities were fine with that because the cost was the same. Over time, it became very unbalanced so that the lower the level of the government, (15/57)
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