Chapter 590 - Financial Accounting System
"I'm well aware of his position. His theory differs fundamentally from mine." Yi Fan leaned forward. "His argument runs thus: before industry is fully expanded and resources can be allocated at will across various departments, finance and accounting are merely bookkeeping. But even our current capacity is estimated based on project needs—accurate and timely budget accounting cannot be divorced from production. Finance isn't merely government expenditure; it's also the instrument that regulates currency. Currency issuance and withdrawal are inseparable from finance."
Yi Fan spoke with mounting fervor. His interest in monetary policy was actually subordinate to his enthusiasm for the fiscal and tax system. He had long styled himself the "Chief Accountant," and privately calculated that Cheng Dong's position as Fiscal Comptroller was a political appointment—the man would step down after two terms at most. By then, Yi Fan would be a highly competitive candidate for the position.
From obscure middle manager to potential member of the Nine Elders—this prospect drove Yi Fan to spare no effort on matters where he could distinguish himself. Though the Wudaokou group had not coalesced into a particularly powerful organization, it could at least make itself heard.
He expounded enthusiastically on his comprehensive fiscal and tax proposals. Some were already implemented; others existed only in his notebooks and countless memoranda. Writing memos and formulating policies had essentially become Yi Fan's primary recreational activity.
"What is the most fundamental and urgent problem facing Lingao's economy? Fiscal taxation, accounting, and markets!" He slapped the table for emphasis. "Without this modern system, we might as well abolish all currency and regress to an economic structure of physical rationing and barter."
"Put it that way and the Director will certainly approve," Chen Ce remarked. "Tell us about your plan. Less commentary."
Wu Di added: "Skip the names. Let's discuss the substance." As he spoke, he glanced around the room with visible unease.
"Very well," Yi Fan said.
"Many people treat taxation merely as a means of accumulation. In reality, fiscal and tax issues are enormously complex. Fiscal taxation determines investment in and consumption of public goods; determines the scale of public debt; determines control over financial markets. As for accounting—I trust everyone here understands: a fiscal system cannot be built without economic data. Accounting determines mastery of economic data, determines investment direction, determines the scale and particulars of imports and exports. Markets determine whether locations and institutions exist to execute currency issuance and withdrawal; markets determine the government's control over currency..."
His speech covered territory familiar to everyone present—this was common knowledge. Yi Fan delivered it primarily to rehearse his presentation for the formal Senate Fiscal and Financial Hearing. He intended to leave a full and profound impression on the assembled Elders. To that end, he had practiced many times alone by the banks of the Wenlan River.
"The root of fiscal taxation is the tax itself. In adopting a tax system, apart from direct taxes like the agricultural tax that we must inherit, new tax categories should follow the turnover tax system of the old spacetime as closely as possible. As for a two-level tax system—there's no need to replicate that here. Our territory remains quite small. Given our shortage of qualified indigenous tax personnel, maintaining two separate institutional structures is impractical. For now, only the National Tax Bureau holds authority. Local government finance will depend on full appropriations from above.
"Regarding public debt: it will be issued to all Lingao residents, underwritten by Delung, and repurchased by Delung when necessary. At our current scale, there's no immediate need to establish corresponding market institutions, but internal divisions within Delung must be clearly delineated. Audit must be stationed within Delung to prevent indiscriminate issuance and excessive repurchases. We should establish a Financial Committee combining the Ministry of Finance and Audit to produce quarterly plans for Delung's regular and irregular business operations."
"Public debt can wait, particularly while our jurisdiction is confined to Lingao," Wu Di interjected. "At this stage, the simpler this apparatus, the better. Otherwise it drains too much energy."
"Without public debt, what currency can you possibly issue? How did you study finance?" Yi Fan had long found Wu Di disagreeable; now he attacked him directly.
"I never said we can't issue—just that swapping hands between the Ministry of Finance and Delung is sufficient. There's no need to sell publicly." Wu Di countered. "In a place as small as Lingao, what's the point of elaborating these mechanisms? Forget free purchase—even with allocated sales quotas, who would you sell to?"
"Plenty of people in Lingao have grown wealthy because of us. Shouldn't they contribute something? Besides, they're secretly transferring assets offshore anyway."
"How much could that amount to? Moreover, people transfer assets because we haven't yet radiated 'Tyrant's Aura,'" Wu Di replied. "They still lack sufficient confidence in our prospects."
"Fine. Continue," Chen Ce said.
"Next: accounting. This is the foundation of the entire economy and finance. Though Lingao currently has over a hundred product lines, they essentially divide into three categories.
"First: heavy industry using coal, iron, and non-ferrous metals as raw materials, with internal infrastructure as the primary consumer.
"Second: light industry—primarily food processing, cotton textiles, garments, matches, and so forth—with Lingao residents as the main market, though exports are gradually increasing.
"Third: luxury industry—mainly sanitary ceramics, clocks, cosmetics—primarily for export, with gradual domestic market penetration.
"Of these three, the first category constitutes Lingao's main external expenditure. Priced in silver, it generates no direct profit. The second category's raw materials are mostly imported as well, but profits from the export portion can sustain the entire industry's continued development, while domestic sales priced in grain coupons ultimately convert to silver pricing. The third category is supported by the first and represents one of our primary profit sources.
"Simultaneously, Lingao also has imports in the pure consumption sphere: grain and population. Grain supports population importation, and population costs must include inspection, quarantine, physical recovery, and so forth. This sector requires human resource cost accounting to determine the direction and method of population import through detailed analysis.
"The above covers only general cost accounting. Expense accounting demands a large corps of basic accounting personnel. Given the relatively simple current production situation, a centralized accounting department can be established under the Ministry of Finance to uniformly handle all institutional accounts while preparing reports separately—gradually expanding the general ledger's scope and accelerating preparation of monthly consolidated reports. Concurrently, accounting and taxation are inseparable: not only central SOEs require accounting; Fiscal Tax and Delung need it even more."
"The material you're presenting—I'd wager most of the Senate wouldn't understand a word of it," Chen Ce observed.
"Obviously not. People who understand this work are all in the fiscal and financial department. Doesn't Director Ma extol 'Engineers Running the Country' every other day? Well, we're also a type of engineer."
Chen Ce suddenly perceived that Yi Fan harbored serious ambitions—one could have discerned this from his creation of the Cheka. He felt a flicker of wariness.
"So I'd suggest you avoid unified accounting," Wu Di cautioned. "That impinges on the material planned allocation system Director Ma insists upon. He won't surrender that concept easily."
"I'm aware of this." Yi Fan nodded. "This is a proposal, not a final draft. Even if my plan receives full approval, implementation will reveal various problems. We'll adjust then."
"Finally: markets—specifically, financial markets." Yi Fan pressed on. "Currently, joint-stock operations already exist among Lingao civilians and between civilians and the Transmigration Government. Therefore, first establishing an over-the-counter market for government-guided stock trading is an urgent necessity. Likewise, external joint ventures of Zichengji, Delung, and Leitang can be incorporated into this market. Zichengji's outpost in Guangzhou could be considered the prototype of a Guangzhou Stock Exchange.
"However, the stock market is currently only a very modest pilot within the financial market. For Lingao's fiscal and monetary system, the most important priority is establishing a bond market as quickly as possible, beginning with public debt issuance. Public debt can regulate currency scale through the fiscal side, while Delung regulates currency via credit scale on the banking side. Simultaneously, the financial market must incorporate maritime and fire insurance institutions. Grand maritime trade rests on two pillars: the shareholding system and the insurance system. As for commodity trading, the Cooperative already functions as the prototype of a commodity exchange..."
"Securities exchanges, commodity exchanges, your insurance companies—table all of that for now, along with the bond market. Economic scale is too small; engaging in this is pointless. And we haven't nearly enough clients yet." Chen Ce cut off his soaring rhetoric. "At minimum, wait until we've unified Hainan and occupied Guangdong. The more grandiose you make these proposals now, the greater the likelihood they'll be shot down. The Executive Committee may not embrace Director Ma's theories, but they all subscribe to the 'Simple is Good' philosophy."
"Fine, fine. I'll simplify and be done with it."
"Director Yi, you've been theorizing at length. How exactly do you propose to organize this accounting and audit system?" Jin Zhijiao had remained silent throughout, but now spoke up. "According to your description, our 'Cheka' effectively shoulders audit, accounting, and statistics all in one. How to coordinate relations with corporate accounting departments becomes a significant issue."
"I have thoughts on that," Yi Fan replied. "The accounting system actually centers on central SOEs and shareholding enterprises. Due to the shortage of qualified accounting personnel and the small scale of individual enterprises, we can adopt centralized accounting—a single accounting center handling all Lingao enterprise data, with reports prepared separately. Internal transactions among central SOEs can be treated as related-party transactions for now; only imports and exports generate cash flow. Separate the expense accounting department to handle all enterprise expenditure disbursements. Additionally, establish a Planning and Budget Department to coordinate budgets across all enterprises in Lingao, Guangzhou, Lei, and Sanya."
"Discussion of this is premature," Chen Ce said. "I think you need only improve the financial systems of each enterprise. Once data collection is complete, everything else can follow."
"Fine, fine." Yi Fan pivoted. "By the way, regarding additional bank security personnel for Delung Bank—Cheng Dong has no objections, correct?" Chen Ce asked.
He was addressing Du Mo, Delung Bank's Office Director—one of the very few people who hadn't lost a single pound since D-Day. Having done finance work previously, he had become part of the fiscal-financial staff. He worked in the Cheka for a time, then transferred to become Delung Bank's Office Director after the separation, since he had prior experience handling office reception.
Du Mo and Yi Fan aligned completely on many concepts; he was Yi Fan's devoted follower and one of his core personnel in the Cheka. The transfer had come suddenly and could not be refused. As for Yi Fan suddenly transplanting Jin Zhijiao from the Organization Department into his operation—Du Mo harbored considerable resentment. The Cheka he had imagined was something akin to Hong Kong's Independent Commission Against Corruption, not an accounting firm.
"Committee Member Cheng signed off on it. I expect it'll be rubber-stamped at the next Executive Committee standing meeting." Du Mo indicated the request was buried in a large stack of signed reports—a minuscule bank administrative matter.
The conversation drifted into casual chitchat, touching on everything and nothing—pure idle talk. Yi Fan realized he'd drunk too much tea and needed to relieve himself.
"I should go as well. Let's walk together," Chen Ce said.
In the modern lavatory on the third floor, two men stood at adjacent urinals. Just as Yi Fan let out a groan of relief, Chen Ce whispered:
"Your plan essentially amounts to creating a SASAC—a State-owned Assets Supervision and Administration Commission. This will likely draw fire from the Director, and Wu De will certainly ally with him. With a SASAC, the Planning Agency's status diminishes substantially. Once those two combine forces, your plan will face serious opposition."
"I'm aware of this." Yi Fan maintained his stance, whispering back. "There are nine Executives, after all."
"Extremely risky." Chen Ce expressed concern. "Don't forget President Wen—he may have presented as a liberal in the past, a petty capitalist, but at core he's also a planned-economy adherent. He's a standardization fanatic. From that angle, his craving for control exceeds even the Director's. As for Zhan Wuya—a thoroughgoing engineer—he'll certainly stand with President Wen. Ma Jia is slippery; since this doesn't concern him, he won't stick his neck out. The others hold similar attitudes—mostly 'buying soy sauce,' as they say."
"What about the Senate Standing Committee? The Executive Committee doesn't rule with absolute authority."
"Your plan is so complex and technical—do you really expect Standing Committee members to understand it? They can only decide general direction. You want them to determine appropriation amounts and allocation? That's fine. You want them to decide how much currency to issue or how accounting entries should flow? These are professional issues—they shouldn't be managing that in the first place."
Yi Fan was silent for a moment. "I still intend to try."
"I think you'd be wiser to stay calm and prepare a simplified version for submission."
"I have a simplified version as well," Yi Fan said. "Submit the complex one first—stir things up—then introduce the simplified version. It'll pass more easily." He buttoned his trousers. "Excessively simple measures won't cause problems immediately, but will certainly create drawbacks over time. Regardless, I've stated my position in advance. The decision rests above."
"What do you plan to do about redeeming precious metals and copper cash?" Cheng Dong received the three principal generals submitting the proposal in his office. "This matter touches people's livelihood and public trust. We cannot proceed incautiously."
His office was somewhat cramped, dominated by filing cabinets stuffed with various financial documents and dossiers. This had once been the aggregation point for all the Transmigration Group's financial data. As departments multiplied, substantial files had transferred to their proper destinations, and the once-chaotic office finally looked somewhat respectable.
The standard furniture remained: plain wooden tables and chairs from the earliest manufacturing runs. Decorations consisted solely of a few potted green plants. Many people hung looted Ming Dynasty calligraphy and paintings in their offices, or at least displayed a few pieces of Fujian-produced Kraak porcelain as ornament. Here there was nothing of the sort. The walls were glaringly white.
Yi Fan sometimes felt this man's ascetic simplicity bordered on affectation.
"Someone come!" Cheng Dong called out. A young woman in the standard female clerk's uniform appeared at the office door. "Tea!"
"Yes, sir." The secretary withdrew.
"You finally have a secretary," Wu Di offered smooth flattery. "That's rare among Executives, isn't it?"
"Not that rare. President Wen and the Director still don't have one. Now that Elders have hope of being assigned secretaries, I dare to employ one. Otherwise I'd become a target." Cheng Dong smiled wryly. A moment later, the secretary returned bearing three glass cups of kombucha.
"This is all we have. Make do."
"No problem—I love this stuff." Wu Di immediately drained half his cup in one gulp.
Yi Fan didn't drink. He went straight to the matter at hand: "Put simply, we issue a public notice specifying a final deadline for the circulation of silver and copper cash. After that date, all metal coins not issued by us are prohibited from circulation in Lingao."
Seeing Cheng Dong frown immediately, Yi Fan knew the other man didn't fully approve of this proposal—which was within expectations.
"—This is an administrative measure requiring supplementary implementation procedures. My idea is..."
"Before you elaborate, there's one point I must clarify." Cheng Dong raised his hand. "Both I and the Executive Committee, while approving the redemption of gold, silver, and copper cash circulating in the market, absolutely do not wish to leave commoners with the impression that we're looting their wealth.
"Commoners won't care about your economic policy or monetary policy. They'll only conclude you're plundering for self-enrichment—that's one concern. Worse, they might suspect we're about to flee, which would explain why we're so desperately hoarding precious metals and copper cash. Public sentiment is easily ruined and difficult to restore. Commoners have been betrayed by governments so often that they're intensely suspicious. Such major economic measures must be handled with extreme care. We absolutely cannot hand critics a handle to accuse us of competing with the people for profit."
"In truth, there is such an intention—"
"Of course I know that. The key is propriety. Propriety." Cheng Dong emphasized the word. "The optics cannot be too ugly, especially in our foundational base area."
"Yes, we understand." Yi Fan nodded repeatedly. "That's why in our discussions, we emphasized soft measures as much as possible—achieving objectives through commodity circulation and taxation. But this will require considerably more time."
The specific measures were as follows: after a transition period, all retail and wholesale channels controlled by the Transmigration Group in Lingao would switch entirely to circulation note pricing, no longer accepting silver or copper cash. During the transition period, shops would establish exchange counters accepting silver and copper cash and paying out circulation notes. During the transition period, dual pricing would apply, with devalued rates for silver and copper cash to encourage consumers to adopt circulation notes...
(End of Chapter)