Chapter 4 deals with the individual income tax, a tax first introduced in China two-thousand years ago. It examines the evolvement of the individual income tax system and compares the changes in the marginal and average tax rates in recent decades based on the constant retail price index, showing that marginal tax rates have declined significantly for low- and middle-income earners. It unravels the mystery of the small proportion of the individual income tax in total tax revenue despite high marginal tax rate for the individual income tax. It discusses the optimal marginal and average income tax rates for China, showing that the optimal marginal tax schedule is quite flat when income is beyond a certain level. The chapter ends with an analysis of the problems of the individual income tax system and offers suggestions for further individual income tax reforms.

Chapter 11 analyzes the fiscal relationship between the central and local governments. It first examines China’s budget system and the central-local tax sharing system, the fiscal imbalance between local fiscal revenues and expenditures, and the massive fiscal transfers from the central to local governments. It then discusses fiscal decentralization through extra-budgetary revenue collection, land sales, and bank borrowing by local governments. Next, it discusses the fiscal imbalance of the central and local governments and regional fiscal disparities. Policy suggestions on how to improve the central and local fiscal relationship are provided in the end, including the increase in local government revenue and the shift of some expenditure responsibilities from local governments to the central government, as well as granting local governments more fiscal freedom.

Chapter 10 tackles the controversial issue of high local government debt. It first examines sources of local government debt and clarifies that most of China’s local government debt is set apart from the government budget. It then estimates the size of China’s local government debt over time, scrutinizes the reasons for the fast debt accumulation, and evaluates the immediate impacts and potential problems of high local government debt. In this latter part, the size of government debt in each region is also estimated and the large disparities in government debt among regions are exposed. It shows that local government debt is rather high in some regions. It also shows that the size of local government assets is substantial. Thus, although high, China's local government debt is still manageable It finally discusses the measures China has taken to curb local government debt and offers suggestions for additional fiscal reforms needed for curtailing local government debt.

Chapter 5 studies the corporate income tax. Revenue from corporate income tax has been increasing in China which is at odds with the worldwide trend. Unlike the individual income tax, the corporate income tax accounted for a large proportion of total tax revenue in China. The reasons for this unusual phenomenon are thoroughly analyzed in this chapter. It also examines corporate income taxes from various industries and from various enterprises such as SOEs, domestic private enterprises and foreign enterprises, and compares the corporate income taxes in various provinces. Policy suggestions are provided at the end of this chapter, such as reducing the corporate income tax to stimulate investment and economic growth and eliminating excessive preferential corporate income tax policies to put all enterprises on equal ground for competition.

Chapter 8 is concerned with social security. It discusses the evolution of social security systems for different groups of citizens such as urban workers, government employees, rural residents, and urban non-working residents. It explores existing problems in the social security system, such as unequal social security benefits between urban and rural senior citizens, the decentralized social security management system, low returns in individual accounts, and the growing debt in the social pooling account. Challenges such as population aging are also explored in this chapter, and reform options are discussed, such as reducing social security debt, postponing the retirement age for urban workers, increasing benefits to retired farmers, increasing the size of the individual account of young farmers, and establishing a nationwide social security system.

Chapter 12 analyzes how China’s pro-growth tax system and expenditure system, the expansionary fiscal policies, and local government fiscal expansion outside formal budgets have stimulated China’s economic growth in recent decades. It discusses China’s growth perspective and shows that China may become the largest economy in the world in less than a decade. It also exposes the challenges that China faces, such as income inequality, environmental degradation, resource depletion, slowing down economic growth, and the population aging. It finally discusses fiscal reforms needed for equitable and sustainable economic growth, including reinforcing environmental and resource tax laws, curtailing government debt, stimulating private investment, raising transfers to low-income families, and increasing government expenditures on education, healthcare, and welfare.

Chapter 3 examines business cultures in East Asia, explores their origins, and identifies characteristics that may assist in designing and implementing competition law and policy. It is argued that authoritarianism, paternalism, and collectivism engender dependence on and subservience to corporate authority. Further, business groups (SOEs in China, zaibatsu and keiretsu in Japan, and chaebol in Korea) have played an important role in industrialization. The chapter underlines the links between culture at the level of society and at the level of business communities and enterprises, the norms and practices of such enterprises, and their competitive effects. Given these links, it would be constructive to take account of elements of culture in developing and implementing a well-designed competition law and policy. The chapter discusses six dimensions that should be taken into account in competition law: competition goals, the enforcement of competition law against government-linked companies, the management of family firms, the enforcement of competition law where business groups are prevalent, the design of compliance programmes and the promotion of ‘competition culture’ in East Asia.

Chapter 7 explores how the legal cultures in East Asia relate to criminal cartel sanctions. For context, the chapter retraces the incorporation of Confucian ethics in the criminal codes of ancient China. This exercise indicates the possibility of stigmatizing cartels on the moral ground that they constitute improper profit-making contrary to the principle of righteousness. The chapter submits that debates concerning the morality of and prohibition of cartels in East Asia are properly informed by an understanding of Confucian norms—including not only those that allow an actor to achieve virtue internally but also those associated with one’s status and the maintenance of harmonious social order externally. It is submitted that condemning cartel conduct and characterizing it as morally wrongful requires a conception that goes beyond individualist assumptions and calculations. In East Asia, the likely effectiveness of criminal sanctions targeting cartel behaviour can be enhanced if the moral wrongfulness of such behaviour is properly defined, and if its immoral character becomes widely recognized and internalized.

Chapter 2 summarizes the key principles of Confucian philosophy and the influences of Confucian values on individuals, societies, and modern economic activity in East Asia. As the chapter explains, the most important principle in the development of internal ethics is benevolence, and it is part of the virtues that are considered to be preconditions for a hierarchically structured, harmonious society. The impact of Confucian principles on business activities in East Asian countries has been reflected in internal moral development (business ethics), interpersonal relations (organization and management structure of companies), and business culture in general. The chapter discusses the significant variation of this impact in East Asian countries and regions (specifically, in mainland China, the Hong Kong and Taiwan regions, Japan and Korea). It explores the impact of Confucianism on business culture; and then, in light of that discussion it considers the implications of Confucian business culture for competition law and policy in East Asia.

Chapter 5 discusses the bureaucratic characteristics of Confucianism, and the shaping of administrative competition enforcement. It explores the continuity between ancient bureaucratic practices and modern administrative structures. While competition law is making important strides in the countries concerned, old traditions have impeded a more complete trust in open markets. The chapter recounts the influence of the Confucian heritage and discusses the bureaucratic elements that derive from that tradition, all of which sheds light on the features of the administrative model in East Asia. Since far-reaching reforms such as the abandonment of the administrative model would entail profound upheaval and are unlikely, the chapter underlines the feasibility of less radical improvements. In this regard, more effective enforcement appears to require a modernization of bureaucratic systems. Among other things, the chapter advocates reforms that would: enhance the independence of competition authorities from government; increase accountability through checks and balances; and promote predictability and certainty through transparency in rules, policies and decision-making.

Chapter 6 turns to the subject of 'private enforcement', which in East Asia is uneven and inadequate. It discusses this through the lens of ‘litigation culture’, or rather the culture of non-litigiousness. Claims of non-litigiousness in East Asia, and above all in Japan, have been fiercely contested by scholars. Yet the subject is nuanced; the impact of non-adversarialism has not simply been ‘debunked’. In the context of this debate, the chapter examines factors that have limited the development of consumer antitrust claims. Consistent with the value of social harmony and the ancient authoritarianism that prioritizes social stability, methods of mediation and conciliation have been favoured over court conflict. Under the influence of this tradition, private parties have often been encouraged to settle their differences. Deviating from this tradition, the chapter highlights Korea, where recent legislative developments are producing, at least on paper, stronger litigation incentives. Overall, the view is expressed that, where cultural factors contribute to non-adversarialism, thereby leading to a deficit in the vindication of private claims, it appears that cultural messaging and a shift in norms may assist in unlocking the potential of legal and procedural reforms that reduce institutional barriers and activate economic incentives.