Chapter 34: The Accounting System

“I know, his theory is different from mine,” Yi Fan said. “His argument is that before industry is fully developed and resources can be freely allocated to control the production capacity of various departments, finance and accounting are nothing more than bookkeeping. However, even the current production capacity is estimated based on project needs. Accurate and timely budget accounting is indispensable for production. Finance is not just about the expenses and investments of government departments; it’s also a tool for monetary regulation. Currency issuance and withdrawal are inseparable from finance.”

Yi Fan got carried away. His interest in monetary policy was far less than his enthusiasm for the finance and tax system. He had always fancied himself the “Chief Accountant” and was secretly calculating that Cheng Dong’s position as Minister of Finance was a political appointment that would be vacated after two terms at most. At that time, he would be a very competitive candidate for the position.

The hope of rising from an obscure middle-level position to one of the nine elders was worth Yi Fan’s consistent, all-out effort in matters where he could shine. Although the Wudaokou group had not formed a very strong clique, it could at least make its voice heard now.

He spoke enthusiastically about his package of finance and tax plans. Some of these had already been implemented, while others only existed in his notebooks and countless memos—writing memos and formulating policies was basically Yi Fan’s main recreational activity.

“What is the most basic and urgent economic problem in Lingao right now? Finance, taxation, accounting, and the market!” he slammed the table. “Without this modern system, we might as well just abolish all currency and revert to a barter and in-kind distribution economy.”

“If you put it that way, Dugong would definitely agree,” Chen Ce said. “Talk about your plan, less commentary.”

Wu Di also said, “Let’s not mention names. Let’s just discuss the matter at hand.” He glanced around nervously.

“Alright,” Yi Fan said. “Many people only see taxation as a means of accumulation, but finance and tax issues are very complex. Finance and taxation determine public investment and consumption, the scale of public debt, and control over the financial market. As for accounting, I believe everyone understands: a financial system cannot be established without economic data. Accounting determines the mastery of economic data, the direction of investment, and the scale and details of imports and exports. The market determines whether there is a place and institution to execute the issuance and withdrawal of currency, and it further refines the government’s control over the currency.”

This speech was nothing special to the people present. It was common sense. The reason Yi Fan said it was mainly to practice his speech for the formal Yuanlaoyuan finance and banking hearing—he intended to use it to leave a full and deep impression on the council members. He had practiced it many times by the Wenlan River.

“The root of finance and taxation is tax. In adopting a tax system, besides inheriting direct taxes like the agricultural tax, newly developed taxes should as much as possible follow the turnover tax system of the old world. As for a two-tier tax system, it’s not necessary to inherit it—our territory is still very small, and with few and low-quality native tax personnel, having two sets of institutions is inappropriate. So for now, it will be controlled by the State Taxation Administration. Local government finances will rely on full funding from higher authorities. As for public debt, it will be issued to all residents of Lingao, underwritten by Delong, and repurchased by Delong when needed. At the current scale, it’s not necessary to immediately establish a corresponding market institution, but Delong must be internally clear, and auditors must be stationed at Delong to prevent over-issuance and excessive repurchases. It’s necessary to establish a joint finance and audit committee to make quarterly plans for Delong’s regular and irregular business.”

“Public debt is not urgent for now, especially when our jurisdiction is only Lingao,” Wu Di said. “At this stage, the simpler this system is, the better. Otherwise, it will involve too much energy.”

“Without public debt, how the hell are you going to issue currency? How did you learn finance?” Yi Fan already disliked Wu Di, and now he just let him have it.

“I didn’t say we can’t issue it, but it’s enough for the Ministry of Finance and Delong to exchange hands. Don’t sell it publicly,” Wu Di said. “In a small place like Lingao, is there any point in having so many fancy tricks? Never mind free purchase, who would you even sell it to by allocation?”

“There are many people in Lingao who have gotten rich because of us. Shouldn’t they contribute a little? Anyway, they are secretly transferring their assets out.”

“How much can that be? Besides, people are transferring assets because we haven’t exuded the ‘aura of a king’,” Wu Di said. “They still lack sufficient confidence in our prospects.”

“Alright, you continue,” Chen Ce said.

“Then there’s accounting, which is the foundation of the entire economy and finance. Currently, although Lingao has hundreds of product lines, they mainly boil down to heavy industry with coal, iron, and non-ferrous metals as raw materials and internal infrastructure as consumers; light industry, mainly food processing, cotton cloth and garments, matches, etc., with Lingao residents as the main consumers and gradually increasing exports; and luxury goods industry, mainly bathroom ceramics, clocks, and cosmetics, with exports as the main purpose and gradual domestic promotion.

“Among these three product lines, the first is the main item for which Lingao needs to make external payments, and it is priced in silver and does not directly generate profit. The raw materials for the second are mostly imported, but the profit from the export part can support the continued development of the entire industry, and the domestic sales priced in grain vouchers are actually ultimately converted to silver pricing. The third is supported by the first industry and is one of the main sources of profit. At the same time, Lingao also has imports in the purely consumer sector: grain and population. Grain supports the import of population, and the cost of the population also includes inspection and quarantine, physical recovery, etc. So this part requires human resource cost accounting. Through detailed accounting, we can determine the direction and method of population import.

“The above accounting is just a general overview of the cost side. The accounting of expenses requires a large number of basic accounting personnel. Given the relatively simple production at present, a centralized accounting department can be set up under the Ministry of Finance to handle the accounting of all units uniformly, but with separate statements prepared for each, gradually expanding the scale of the general ledger and accelerating the preparation of monthly consolidated statements. At the same time, accounting and taxation are inseparable. Not only do state-owned enterprises need accounting, but the finance, tax, and Delong departments need it even more.”

“I bet most people in the Yuanlaoyuan don’t understand this set of things you’re talking about,” Chen Ce said.

“Isn’t that obvious? The people who understand this stuff are all in the finance and economics department. Isn’t Ma Dugong always advocating for ‘rule by engineers’? We can also be considered a kind of engineer.”

Chen Ce suddenly realized this guy was ambitious. His ambition should have been apparent from his creation of that damn Cheka. He couldn’t help but become vigilant.

“So I think it’s better not to have your unified accounting. This touches upon the material planning and allocation system that Dugong has always insisted on,” Wu Di reminded him again. “He won’t give up this concept easily.”

“I know that,” Yi Fan nodded. “This is a proposal, not a final draft. Even if my plan is fully approved, there will be all sorts of problems during implementation. We can adjust it then.”

“Finally, there’s the market, mainly the financial market,” Yi Fan continued. “Currently, there are joint-stock operations between private individuals and between private individuals and the transmigrator government. So, establishing an over-the-counter market and carrying out government-guided stock trading is a problem that must be solved as soon as possible. Similarly, the joint ventures of Zichengji, Delong, and Lei Tang can also be included in this market. Zichengji’s point in Guangzhou can be seen as the prototype of a Guangzhou stock exchange. However, the stock market is currently only a small pilot in the financial market. For Lingao’s finance and monetary system, the most important thing is to establish a bond market as soon as possible, starting with the issuance of public debt. Public debt can play a role in regulating the scale of currency on the finance side, while Delong can regulate the currency on the banking side through the scale of credit. At the same time, the financial market must also include marine and fire insurance institutions. Great maritime trade is based on two points: the joint-stock system and the insurance system. As for commodity trading, the cooperative is now a prototype of a commodity exchange…”

“Let’s not talk about securities, commodity exchanges, and your insurance companies for now. This is the same as the bond market. It’s pointless to do this when the economic scale is too small. And there aren’t enough customers now,” Chen Ce interrupted his further high-flown arguments. “At least wait until we unify Hainan and occupy Guangdong. The grander you make it now, the more likely it is to be shot down. The people in the Executive Committee may not like Ma Dugong’s theory, but they all believe in the theory that ‘simple is good’.”

“Fine, fine, I’ll just simplify it.”

“Director Yi, you’ve been talking about theory for a long time. How exactly is this accounting and auditing system going to work?” Jin Zhijiao, who had been silent throughout the meeting, finally spoke up. “According to you, our ‘Qi Ka’ is basically responsible for auditing, accounting, and statistics all at once. How to coordinate the relationship with the enterprise accounting departments will be a problem.”

“I have an idea about this,” Yi Fan said. “The accounting system is mainly concerned with state-owned enterprises and shareholding enterprises. Due to the lack of qualified accounting personnel and the small scale of individual enterprises, we can adopt a centralized accounting center for all of Lingao to process the accounting data of all Lingao enterprises. All internal transactions of state-owned enterprises can currently be treated as related-party transactions, with only imports and exports generating cash flow. The expense accounting department will be separated to handle the expense expenditures of all enterprises. In addition, we can set up a planning and budget department to coordinate the budgets of all enterprises in Lingao, Guangzhou, Leizhou, and Sanya.”

“This discussion is premature,” Chen Ce said. “I think you just need to improve the financial system of each enterprise. Once the data collection is complete, we can do whatever we want in the future.”

“Fine, fine. By the way, about Delong Bank adding security personnel, does Cheng Dong have any opinion?” Chen Ce asked.

He was asking Du Mo, the director of Delong Bank’s office—this man was one of the very few who hadn’t lost a single jin since D-Day. He had worked in finance, so he became a member of the finance circle. He worked at the Cheka for a while, and after Delong was split up, he was transferred to be the director of Delong Bank’s office because he had previously handled office reception.

Du Mo and Yi Fan were completely aligned on many concepts, so he was a die-hard fan of Yi Fan. He was Yi Fan’s basic staff at the Cheka. This transfer was sudden and he couldn’t refuse it. As for Yi Fan’s complaint about the organization department suddenly stuffing Jin Zhijiao into his department, he imagined the Cheka as a place like the Independent Commission Against Corruption, not an accounting firm.

“Commissioner Cheng signed off on it after seeing it. I estimate this will be a routine matter passed over quickly at the next Executive Committee standing meeting,” Du Mo said. It was a small banking business request buried in a pile of signed reports.

After that, everyone continued to chat about everything under the sun, only talking about trivial matters. Yi Fan felt he had drunk too much water and needed to go to the toilet.

“I need to go too. Let’s go together,” Chen Ce said.

In a small, modern toilet on the third floor, the two men stood side by side, relieving themselves. Just as Yi Fan let out a groan of satisfaction, Chen Ce whispered:

“Your plan actually has the intention of creating a SASAC. This will probably be sniped by Dugong, and Wu De will definitely form an alliance with him—with a SASAC, the status of the Planning院 will be greatly diminished. Once these two get together, your plan will have a hard time passing.”

“I’m aware of that,” Yi Fan said, continuing to relieve himself, and whispered, “At least there are nine members in the Executive Committee.”

“It’s very uncertain,” Chen Ce expressed his concern. “Don’t forget, Wen Zong, although he was a liberal in the past and a small capitalist, is essentially a planned economy advocate. He’s a standardization fanatic—from this perspective, his desire for control is much stronger than Dugong’s. As for Zhan Wuya, a thorough engineer, he will definitely side with Wen Zong. Ma Jia is a slippery one, and this matter doesn’t concern him, so he has no reason to jump out. The others have a similar attitude, mostly just going with the flow.”

“What about the Standing Committee of the Yuanlaoyuan? The Executive Committee doesn’t have absolute power.”

“Your plan is so complex and professional, do you expect the people in the Standing Committee to understand it? They can only decide on the direction—if you want them to decide on the amount and allocation of funds, that’s no problem. If you want them to decide how much currency to issue and how the accounting should be done, that’s a professional issue, and it’s not something they should be in charge of in the first place.”

Yi Fan was silent for a moment. “I still want to try.”

“I think you’d better be patient and prepare a simple report to submit.”

“I have a simple one too,” Yi Fan said. “First the complex one, make some noise, and then the simple one will be easier to pass.” He buttoned up his pants. “Something too simple won’t have problems for a while, but it will definitely have drawbacks in the long run. Anyway, I’ve said my piece. The decision is up to them.”

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“How do you plan to handle the exchange of precious metals and copper coins?” Cheng Dong asked in his office, receiving the three main proponents of the plan. “This matter concerns the people’s livelihood and public sentiment. We must be cautious.”

His office was a bit crowded. It was mostly filled with filing cabinets, stuffed with various financial documents and files. In the past, this was the central repository for all of the transmigrator group’s financial data. As the number of departments grew, a considerable number of files were transferred to their proper places. The once crowded and messy office finally looked more presentable.

The furniture was still the earliest made plain wood desks and chairs. The only decorations were a few pots of green plants. Many people hung calligraphy and paintings by Ming artists that they had collected in their offices, or at the very least, a few Kraak porcelain plates from Fujian as decoration. But there was none of that here. The walls were dazzlingly white.

Yi Fan sometimes felt that this person’s austerity in this regard was almost pretentious.

“Someone,” he called out. A young woman in a female clerk’s uniform dress appeared at the office door. “Pour tea!”

“Yes.” The secretary withdrew.

“You finally have a secretary too,” Wu Di said, subtly flattering him. “That’s rare among the Executive Committee members, isn’t it?”

“Not that rare. Wen Zong and Dugong have never had one. I only dared to use a secretary when there was hope of all council members getting one. Otherwise, I’d be a target,” Cheng Dong said with a bitter smile. The secretary soon brought three glass cups of kombucha.

“This is all I have. Make do for now.”

“No problem, I love this stuff,” Wu Di immediately drank half a cup in one go.

Yi Fan didn’t drink. He went straight to the point: “Simply put, we issue a notice, stipulating a final deadline for the circulation of silver and copper coins. After the deadline, all non-issued metal coins will be prohibited from circulating in Lingao.”

Seeing Cheng Dong frown, he knew his proposal was not well-received—which he had expected.

“—This is an administrative measure. It must be supplemented with specific implementation methods. My idea is…”

“Before you talk about your ideas, I have one point to make clear with you all,” Cheng Dong said. “I, and the Executive Committee, while agreeing to exchange the gold, silver, and copper coins in the market, absolutely do not want to leave the impression that we are plundering wealth. The common people don’t care about your economic or monetary policies. They will only think you are plundering for your own enrichment. That’s one thing. What’s worse is that they will think we are planning to run away, which is why we are so desperately plundering gold, silver, and copper coins. Public sentiment is a fragile thing, easy to lose and hard to cultivate. The common people have been cheated by the government so many times that they are extremely suspicious. Such a major economic measure must be handled with great care. We absolutely cannot be seen as competing with the people for profit.”

“In fact, there is such an intention—”

“Of course I know that. The key is the presentation, the presentation,” Cheng Dong emphasized. “It can’t be too ugly, especially in our first base area.”

“Yes, we understand that,” Yi Fan nodded repeatedly. “So we discussed and decided to use soft measures as much as possible, to achieve the goal through commodity circulation and taxation. However, this will take a longer time.”

The specific measures were: all retail and wholesale channels controlled by the transmigrator group in Lingao would be priced in circulation vouchers after a transition period, and would no longer accept silver and copper coins. During the transition period, each shop would set up an exchange counter, taking in silver and copper coins and giving out circulation vouchers. During the transition period, dual pricing would be implemented, with depreciated prices for silver and copper coins to encourage consumers to use circulation vouchers…