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  Building a More Dynamic Official Travel Allowance System in China:

  A Special Perspective to Curb Governmental Expenditures

  Daopeng Fu

  Ministry of Finance, P.R. China


  Daopeng Fu, Division Chief of the Administration and Law Enforcement Department, MOF, P.R. China

  As a trainee of SAFEA Program, Daopeng Fu studied at the Sanford School of Public Policy, Duke University, from August 2 to December 11, 2013

  The views in this article are the author’s personal opinions, and do NOT necessarily represent the views of theDepartment of Administration and Law Enforcement, MOF, P.R. China

  Correspondence concerning this article should be addressed to Daopeng Fu, the Administration and Law Enforcement Department, MOF,Beijing 100820,China

  Contact: fudaopeng@gmail.com




  With a large number of civil servants, official travel expenses account for a significant part of the administrative costs of the Chinese government. By analyzing the current situation in China and the experience of U.S. federal and state governments from legal, political and economic perspectives, this paper seeks solutions on how to build a more dynamic official travel allowance system in China in order to meet changing demands and to control expenses. Policy options include the following: solidify four ideological pillars such as legal, political, economic and trust consciousness; establish a Central Government Official Travel Regulation (CGOTR) to replace the current provisions; establish a dynamic adjustment mechanism of the allowance rates; increase the allowance rate to a moderately higher level. In addition to a regular travel allowance rate, there should be other flexible rates to reflect the price differences among different regions and seasons.

  Key words: administrative cost, official-travel allowance, more dynamic










  With over seven million civil servants, the administrative expenditure of Chinese government has recently become an important issue. In addition to slashing the budget, the establishment of institutions and regulations will lay the foundation for controlling the administrative costs. This paper gives policy recommendations on China’s official travel allowance institutional arrangement.

  The first part draws a brief whole-picture of China’s current official travel allowance system which was issued in 2006 and remained effective today. And main problems and challenges which the system is facing such as an almost static lower rate, only one benchmark allowance rate throughout the whole country, and expenses are sometimes transferred, etc.

  The second part mainly introduces the experience of the U.S. federal and the state of North Carolina, which both have dynamic adjustment mechanisms and moderately feasible rate level.

  Based on the analysis of the former two parts, the third part finally gives some policy options. It is on top agenda of China’s MOF to review the current policy and design a dynamic and feasible official travel allowance system in 2013. Policy options include as follows: solidify legal, political, economic and trust consciousness; establish the Central Government Official Travel Regulation (CGOTR); introduce the mechanism of government purchase of services which will provide the government with more detailed and timely information about lodging and meals; establish a dynamic adjustment mechanism of the allowance rate; increase the three allowance rates to a moderately higher level. In addition, some matching measures are needed to ensure a successful implementation of the new system.











  Building a More Dynamic Official Travel Allowance System in China:

  A Special Perspective to Curb Governmental Expenditures

  Since the emergence of the concept of the state/country during the process of human society evolution, it has been taken for granted that the state/country raise a portion of its GDP to maintain its function. Furthermore, according to Adolph Wagner’s law, also known as the law of increasing state spending, public expenditure rises constantly for any country and shows an upward sloping trend. That is, according to Wagner’s law, the development of an industrial economy will coincide with an increased share of public expenditure in GDP. However, endeavoring to curb public expenditure, especially administrative costs, is a common and difficult challenge for both developed and developing countries today. Official travel expenditures are a significant component of administrative costs, particularly in some unitary emerging economies, including China.

  No public policy can be made inside closed doors. In other words, in order to formulate effective policy, government officials and civil servants often travel domestically or abroad to get more information and knowledge for public policy-making. With over seven million civil servants, the administrative expenditure of Chinese government has recently become an issue of great importance. Higher government administrative expenses signify government inefficiency and causes loss of faith in government accountability. For example, in July, China’s State Council decided to cut five percent of the government administrative budget including official travel expenses, which had been passed by the People’s Congress in March 2013. In addition to slashing the budget, the establishment of institutions and regulations will lay the foundation for controlling the above-mentioned expenditures. Since China’s President Xi Jinping advocated that China “practice strict economy and combat waste” in the beginning of 2013, the Ministry of Finance (MOF), which oversees the regulatory system that governs these types of public activities, is overhauling its current static and lower official travel allowance rates, to build a more dynamic system and to control expenses. Based on the analysis of the current situation in China and the experiences of the U.S. federal and the North Carolina state governments, this paper will give some policy recommendations on China’s official travel allowance institutional arrangement.

  Current Situations in China: Urgent Need for Change

  Outlines of the current law basis

  According to the Constitution of the People’s Republic of China, “The state practices strict economy and combats waste.”(Article 14) In addition, China’s Budget Law indicates, “the state shall establish budget at each level of the government.”(Article 2) and that “the guiding principle of practicing strict economy and building up the country through thrift and hard work shall be followed in compiling the budgetary expenditures at various levels.”(Article 30)

  Therefore, the policy of practicing strict economy and combating waste is deeply rooted in China’s Constitution. It is a compulsory requirement that all governments should operate in an efficient manner. This includes keeping governmental administrative costs as low as possible. On the budget management side, China’s budget law authorizes government budget power at each level as well as the responsibility to slash its administrative costs.

  In order to convert the words in the Constitution and laws into practice, concrete and feasible detailed systems are imperative. As China’s former leader Deng Xiaoping said, “Bad system makes good guys do bad, whereas good system prevent bad guys from doing bad.”

  Current Official Travel Allowance Regulations

  The official travel allowance is an important part of China’s overall expenditure-managed system. Since 1950, its criteria (including lodging, meals and miscellaneous expenses) have changed numerous times along with the transformation of government functions and macroeconomic conditions. In 1996, the MOF issued its per diem allowance rates including lodging allowance, that were remained effective for almost 10 years.

  The year 2006 witnessed a significant turning point for the allowance system. The MOF increased the standard level in order to meet demand under the sharply changing social economic environment. Its main contents are as follows:

  (1) The regular lodging allowance maximum rate was increased from 40yuan to 150 yuan (about $19 at the 2006 exchange rate; today is about $25.) At the same time, the lodging allowance rate for deputy minister staff and staff above deputy director-general level increased to 600yuan and 300yuan respectively.

  (2) In order to make the lodging allowance rate possible, the MOF introduced the “designated hotel management” policy in late 2006. That is, the MOF designated hotels which would accept the maximum lodging allowance rate through open bidding. Although the government lodging allowance rate is much lower than the market price, the frequency and stability of official travel attract qualified hotels to participate in the bid.

  (3) Meals allowance rate was increased from 15yuan to 50yuan per day.

  (4) Established a “miscellaneous expense” of 30yuan, which covers the expenditure of city public transportation and communication fees during official travel.

  Challenges and Problems Facing the Current Regulations

  China, compared with the U.S., is a unitary political country with its own historical and cultural characteristics, which best suits China’s rapid soci-economic development. It is important to acknowledge this characteristic in order to understand the underlying phenomena of the management of the budget and expenditures. Challenges and problems faced by the current official travel regulation are as follows:

  (1) The absence of a dynamic adjustment mechanism for the allowance rates fundamentally impedes a prompt and timely re-adjustment to meet changing environments. Compared with a sharp increase of the consumer prices level, the travel allowance rate has remained static since 2006.

  (2) The rates standards are much lower than the market prices. The average lodging market price per night at a three-star hotel is approximately 300 yuan(from 200yuan to 400yuan, hotels.ctrip.com) in Beijing, twice as much as the governmental lodging rate. In addition, the meals allowance rate of 50yuan per day is well below the actual basic demand of traveling officials.

  (3) There is only one benchmark allowance rate throughout the whole country, which does not adequately reflect the price differential among different locations.

  (4) The vertical relationship between central government agencies and local ones, as well as the horizontal relationship among local governments, is much closer than the situation in the U.S. As a result, expenses are sometimes transferred from the central government to local governments or between local governments. Such a system inevitably increases local government’s hospitality budgets and has recently drawn outcry from the media, again denigrating government accountability. It also easily causes bureaucrat corruption.

  (5) The role of the designated hotel management policy is limited. At the same time, it increases the administrative costs of the official travel regulation since the designated hotels always refuse to accommodate traveling government officials due to the lower lodging allowance rate. It is time to reevaluate this policy.

  U.S. Experience: Both Federal and State Governments

  Federal Travel Regulation

  The Federal Travel Regulation (FTR)[1]enumerates the travel policy for all executive agency employees of the US federal government.

  The General Services Administration (GSA) establishes per diem rates for destinations within the Continental United States (CONUS), which are the maximum allowances that federal employees are reimbursed for expenses incurred while on official travel. The CONUS per diem rate for an area includes three allowances: the lodging allowance, the meals allowance and the incidental expense allowance (M&IE). Every fiscal year, the GSA reviews and adjusts the lodging allowance rate. However, an M&IE study is conducted every three to five years.

  Since fiscal year (FY) 2005, the GSA has obtained Average Daily Rate (ADR) data from the lodging industry in order to set the lodging allowance standard. The ADR is a widely accepted lodging-industry measure based upon a property’s room rental revenue divided by the number of rooms rented as reported by the hotel property to the contractor. This provides the GSA with the average rate in a given area.

  In FY 2014, most of the CONUS (approximately 2600 counties) are covered by the standard CONUS per diem rate of $129 ($83 for lodging, $46 for M&IEs.) There continues to be about 400 Non-Standard Areas (NSAs) that have per diem rates higher than the standard CONUS rate.

  There are six M&IE tiers in the lower 48 continental United States (currently ranging from $46 to $71.) In order to deduct provided meals from the daily M&IE, it is broken down as follows (See table 1.) Also listed is the portion of the M&IE rate that is provided for incidental expenses (currently $5 for all tiers,) as well as the amount federal employees receive for the first and last calendar day of travel that is calculated at 75 percent.

  Table 1: Meals and Incidental Allowance Breakdown

  M&IE Total







  Continental Breakfast/Breakfast




























  First & Last Day of Travel







  Source: http://www.gsa.gov/portal/content/101518

  Historically, the GSA has worked with federal agencies, travelers, and the travel industry to improve the process of establishing federal lodging per diem rates. There are three factors that influence the ADR that may cause the federal lodging per diem rates to differ from published market rates. These three factors are property selection criteria, time frame of data and seasonality.

  Property Selection Criteria. This criterion includes geography (i.e., ZIP codes to which federal employees travel,) fire-safety certification, and various property demographics. The contractor, Smith Travel Research, classifies properties into luxury, upper-upscale, upscale, mid-scale, and economy categories. The goal of the selection criteria is to choose properties best representing mid-range hotels in each market.

  Time Frame of Data. For the FY 2014 per diem study, the GSA uses ADR data generated from April 2012 to March 2013.

  Seasonality. To better represent seasonal rate fluctuations, the GSA has created seasonal rate periods in many markets where there is a sustained period (two or more months in length) where ADR are different from the preceding or following period by at least 15%. If there is an ADR difference between 10% and 14% over a sustained period and the occupancy rate level for this same period is 70% or more, this period also becomes a season. Once a season has been defined, the ADR for all seasons is computed using the current lodging data ending in March. The GSA uses the same properties for rates and seasonal determination; however, three years’ worth of data is used to determine seasons.

  It is important that the Federal Travel Regulation allows for actual expense reimbursement when per diem rates are insufficient to meet necessary expenses through specifically authorized procedures.

  North Carolina State Statutory Regulations

  According to North Carolina State Statutory regulations[2], state employee may not collect per diem compensation. It is available not only to members of State Boards, Commissions, Committees and Councils who do not receive any salary from state funds for their services.

  “Subsistence” is an allowance related to lodging and meal costs (including gratuities.)The maximum allowable statutory rate for meals and lodging is $103.20 for in-state travel and $117.70 for out-of-state travel. The Director of the Office of State Budget and Management revises the subsistence rate periodically based on the percentage change in the consumer price index. The payment of sales tax, lodging tax, local tax, or service fees applied to the cost of lodging is allowed in addition to the lodging rate and is to be paid as a lodging expense.

  The employee may exceed the part of the ceiling allocated for lodging without approval for over-expenditure provided that the total lodging and food reimbursement that the employee is entitled to for that day does not exceed the maximum allowed daily subsistence. The following table shall be used for reporting allowable subsistence expenses incurred while traveling on official state business (See table 2):

  Table 2: Subsistence Rate Breakdown



  Out of State


  $ 8.20

  $ 8.20


  $ 10.70

  $ 10.70


  $ 18.40

  $ 20.90

  Lodging (actual, up to)

  $ 65.90

  $ 77.90




  Source: http://www.osbm.state.nc.us/files/pdf_files/BudgetManual.pdf

  Reimbursable gratuity or tips must be considered reasonable for items that are not already covered under subsistence. Excessive tips are not be reimbursed. A reasonable tip is defined as one that a prudent person would give if traveling or conducting personal business and expending personal funds.

  North Carolina state rules and guidelines shall take precedence over federal guidelines governing the use of federal grant funds, unless specifically exempted by OSBM in advance.

  Policy Options: a More Dynamic Institutional Arrangement

  A top agenda item for China’s MOF, is the review of the current policy and a scientific design of a dynamic and feasible official travel allowance system within the year. First, it is required by the State Council to accomplish tasks established by the institutions and advocated by the Central Committee of CCP. It is one of the institutional cages that the power should be put inside. Second, according to the “Eight Rules”, one of the MOF’s essential functions is to devise a strict but feasible system as a breakthrough point to prompt budget management. Third, society desires the improvement of government management to a more transparent and accountable system. On the basis of the above analysis and by drawing experience from the U.S. federal and the state of North Carolina, possible policy options include:

  Solidify Four Ideological Pillars

  Legal consciousness. During the policy design process, we should keep in mind that China has its Constitution, Budget Law, and other regulations that limit the scope of institutional innovation. At the same time, it is necessary to establish regulations with higher standards to normalize government official travel activities.

  Political Awareness. As a unitary country, China has a closer relationship between central and local, upper and lower governments. The institutions of the upper level government should be the guideline for the lower levels. This is the biggest difference between China and the U.S. Therefore, there is not a perfect theory or policy that can be transplanted from the U.S. to China.

  EconomicAwareness. China is still a developing country. Its per capita GDP in 2012 was $6629, which accounts for only12.9% of the U.S.($51248) (IMF, 2013.) At the same time, there is a big gap between the eastern and western regions in China. In some places, the revenue of an eastern township surpasses that of a western county or municipality. In terms of economic factors, the official travel allowance rate should be moderate, that is, not too high or too low. It should also depend on where you travel, just like overseas travels. 

  Trust Consciousness. An employee traveling on official business is expected to exercise the same care in incurring expenses that a prudent person would exercise if traveling on personal business and expending personal funds. Excess costs, circuitous routes, delays, or luxury accommodations and services unnecessary, unjustified, or for the convenience or personal preference of the employee should be strictly prohibited.

  Main Points of a New Institution Arrangement

  1.   Instead of the current Provision of the MOF, the upcoming official travel allowance system shall be improved as a regulation of the State Council, which means a higher tier in the legal systems, a stricter implementation, and a more severe punishment. The name of the new system could be the Central Government Official Travel Regulation (CGOTR).

  2.   Introduce the mechanism of government purchase of services. A feasible rate can never be reached only through closed-door research. In order to get more detailed and prompt information about lodging and meals, government agencies should strengthen contact between non-profit industrial associations and private sector. The MOF should choose some qualified contractors who can provide those necessary materials to regulate and adjust the travel allowance rate.

  3.   Establish a dynamic adjustment mechanism of the rate. Firstly, the MOF shall review and calibrate the lodging allowance rate according to the materials provided by contractors in the beginning of each fiscal year. Secondly, the rate must be changed if the Consumer Price Index (CPI) exceeds a certain limit, for example 5%, to meet the actual changing demand. Thirdly, to better represent seasonal price fluctuations, the MOF needs to create seasonal rate periods in markets where there is a sustained period (such as two or more months in length) and market rates are different from the preceding or following period by at least 15%. 

  4.   Increase the three allowance rates to a moderately higher level. Abandon the former model of two people of the same gender sharing one standard bedroom. The new lodging allowance rate is designed on the assumption that one person will stay in one bedroom. 1) Increase the regular standard of lodging allowance rate from 150yuan to 250 yuan(about $40) including taxes. 2) Increase meals allowance rate from 50yuan to 120yuan(about $20), which includes breakfast 20yuan($3.4), lunch 50yuan($8.3) and dinner 50yuan($8.3). 3) Maintain the current miscellaneous expense allowance rate, that is 30 yuan($5). After this reform, we get a comparison of the official travel allowance rates as follow (See table3):

  Table 3: Official Travel Allowance Rates Comparison



  U.S. Federal

  U.S. NC State


  After reform


  Out of State

















  Not covered

  Not covered







  5.   In addition to a regular travel allowance rate that is applied to most official travel destination locations, there should be other flexible rates to reflect the price differential among different regions and seasons. This is a very difficult task for the MOF to finish in the short term. As an initial breakthrough, the central government could authorize provincial governments to stipulate its in-province travel allowance rates, which could be used by central government officials and employees. Finally, the MOF should coordinate related agencies including local ones to enact a countrywide travel allowance rate.

  Necessary Matching Measures

  There are some important matching measures that must be enacted to ensure a successful implementation of the above allowance system.

  1.   A more complex institutional net is needed to ensure that the designated function is fulfilled for the new official travel allowance system. In other words, the challenges of the official travel activities cannot be addressed only through the reform itself. Therefore, the MOF is facing a bigger challenge to devise a variety of institutional reforms including training, conferences, hospitality or receptions, and other official activities.

  2.   A strict definition and procedural manual outlining the rules of official travel is needed to reduce unnecessary travel. For the purposes of determining eligibility for the allowances, travel status should mean being away from the employee’s normal duty station or home. In addition, while traveling, the employee must be acting in his/her official capacity as required by his/her work activities. At the same time, Prior written approval by the department head or his/her designee must be obtained in order to qualify for reimbursement for overnight stays. Supervisory personnel certifying the reimbursement must request as necessary and obtain proper documentation from the traveler to substantiate that the overnight lodging was necessary and accomplished.

  3.   Any kind of vertical or horizontal transfer of the official travel costs should be prohibited. This transfer would be against the law after the Central Government Official Travel Regulation went into effect as designed in this thesis. Furthermore, the Office of Audit in China should launch a strict auditor on the budget and expenditure of the official travel activities, as well as other related expenses such as training, conferences, hospitality,  etc. 

  4.   In order to improve the transparency of official travel activities and corresponding expenses, sunlight is the best preservative. Further openness of the government with information toward society will be helpful to supervise the official behaviors and public fund expenditure. Since 2009, the MOF has disclosed “three public expenditures”(including expenditures of public vehicles, official hospitality and overseas travel) and the “administrative budget”. The final goal should be offering public access to the budget and expenditures of official travels.





  Wallace E. Oates, (1972). The Division of Functions Among Levels of Government. Fiscal federalism,31-64, published by Edward Elgar Publishing Limited.

  Jiwei Lou, (2013). Problems and the Upcoming Reform on China Intergovernmental Fiscal Relations.Rethinking of Intergovernmental Fiscal Relations in China, 286-319, published by China Financial ad Economic Publishing House.

  Jiwei Lou, Jorge Martinez-Vazquez, BaoyunQiao, Shuilin Wang and Heng-Fu Zou, (2008). Expenditure Assignments in China: Challenges and Policy Options. Public Finance in China: Reform and Growth for a Harmonious Society, 77-95.

  Joyce Yanyun Man and Yu-Hung Hong, (2011).China’s Local Public Finance in Transition, Lincoln Institute of Land Policy.

  The Federal Travel Regulation, U.S.

  The Budget Manual of the North Carolina State, 2013



  Appendix A

  In 1996, the Ministry of Finance stipulated China central government per diem allowance rate on official business, which had been in effective till 2006. For foreigners, it is difficult to understand that an expenditure norm could be in effective for almost 10 years.




  Ministerial level officials

   Actual lodging and meals expense rates

  Deputy ministerial level

  100Yuan(about $12.5)

  15Yuan(less than $2)

  Director-general level

  60Yuan(about $7.5)

  15Yuan(less than $2)

  Other lower level staffs*

  40Yuan(about $5)

  15Yuan(less than $2)

  Source: the Ministry of Finance, 1996.





  Appendix B

  The following figure shows an area with two seasons, one season is from Jan. to Aug., other season is from Sept. to Dec. The lodging allowance rates are different based on the different marketing prices. The U.S. federal government, GSA, use the prompt changing data to determine its lodging rate.








[1] The FTR is a regulation contained in 41 Code of Federal Regulations (CFR), Chapters 300 through 304, that implements statutory requirements and executive branch policies for travel by federal civilian employees and others authorized to travel at government expense.


[2] North Carolina State Statutory regulations for per diem, transportation, and subsistence allowances for state departments, agencies, boards, commissions, committees, and councils are contained in G.S. 138-5, 138-6, and 138-7.




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