A scandal in Shaanxi Province underlines problems with the lottery and beckons legislative reform of the current system

March 23 was a big day for Liu Liang, the young man who won the grand prize in a scratch-and-win sports lottery in Xi’an, Shaanxi Province. But two days later, the organizer told him that the ticket was a forgery and refused to give him the prize. Not satisfied, Liu climbed onto a six meter-high advertisement billboard and threatened to jump off in protest, demanding the organizer, Xi’an Sports Lottery Center, live up to their promise.

 
To his surprise, Liu’s antics eventually brought a fraud case to light that astonished the whole nation. China Welfare Lottery Center and National Sports Lottery Center were required by the Ministry of Finance, to suspend scratch-and-win lottery activities in the province.

The decision came on June 3. Xi’an Sports Lottery Center announced the next day that Liu Liang’s winning lottery ticket from March 23 was in fact valid. Liu was finally awarded his prize, a new BMW.

Fraudulent lottery cases like this, along with other recent ones, reveal some legal ineptitudes regulating China’s lottery. Currently, the welfare lottery and sports lottery have different issuance systems, which not only causes competition among identical products, but also delays a standardized administrative regulation on lottery issuance. Reform is imminent.

Getting a Grip on Lottery Administration

The lottery in China came long before laws regulated it.

China’s modern lottery dates back to the mid-1980s. It is state-run. In 1987, the State Council approved the department of civil affairs to issue lottery tickets. Statistics from that period show from 1988 to 1990 over 50 kinds of lottery tickets were issued in an area covering 85 percent of the country. These sweepstakes covered a wide range of industries such as finance, capital construction, advertising, sports, movies, tourism, housing and shopping. After a short period success, the lottery business fell into disarray: fixed outcomes, bloated ticket pricing and shoddy raffles were not uncommon.

The State Council subsequently released a notice on strengthening the administration of lotteries in 1991 and 1993. According to the notice, the authority under the State Council responsible for the administration of the lottery would be the People’s Bank of China. The right to approve the issuance of lottery tickets still belonged to the State Council.

Then, in 1993, China’s top legislature, the National People’s Congress, promulgated the Law Against Unfair Competition, which also applies to the lottery market. From January 1, 2000, the lottery’s administration was transferred from the People’s Bank of China to the Ministry of Finance.

According to an emergency notice on shoring up lottery administration, issued by People’s Bank of China in 1995, lottery means a ticket to be printed with numbers, graphics or words for people to fill in. Also, people are free to choose and purchase any ticket they like. A winning stub functions as a voucher of sorts whereby participants can claim specified prizes according to the rules of the game.

Since May 1994, after consolidating the lottery market, China has allowed only two kinds of lotteries, namely welfare lottery (established in 1987) and a sports lottery (first organized in 1994). By the end of 1990s, the scale of these lotteries grew in leaps and bounds, with administrative policies adjusted accordingly. Chinese lotteries then entered a period of rapid development.

Statistics show that from 1987 to the present a total of 25 billion yuan ($3.02 billion) in welfare lottery tickets have been sold, 7.56 billion yuan ($913,043 million) of which has gone to a public fund and 3.96 billion yuan ($478,261 million) has been put into use. Over 69,000 welfare projects have been launched with the revenue.

Since 1994, a total of 4.3 billion yuan ($519,324 million) in sports lottery stubs have been sold, raising nearly 1.2 billion yuan ($144.928 million), all of which has been used to plug up financial holes for large-scale sports facilities.

Presently, annual sales of both welfare and sports lottery tickets annually reach over 15 billion yuan ($1.81 billion) each. In 2003, the per-capita income in China was $1,087. Even if per-capita lottery purchases account for as little as 1 percent per-capita income, with China’s population of 1.3 billion, there is still a rather large potential lottery market.

Statistics show that lottery sales around the world have reached $120 billion a year, with an annual growth of 18 percent. China’s lottery business has risen 50 percent annually over the past 10 years. China’s lottery sales rank ninth in the world.

Some experts believe that the lottery market has formed an initial system in terms of printing, issuance, marketing, collection, distribution and the use of raised capital. The lottery is becoming a regularized part of the national socialized market economy.

Problems

The China Welfare Lottery Issuing Center, under the Ministry of Civil Affairs, and the China Sports Lottery Administration Center, under the State Sports General Administration, have contributed much to the development of the lottery business. But it has also created quite a lot of problems, according to the country’s official Xinhua News Agency.

The two big lottery distributors have formed their distinctive systems, while engaging in vicious competition. Scrapping for market share, the two sides launched a price war at the cost of fairness, openness and integrity of the rules.

The welfare and the sports lottery centers respectively operate market-based corporations. But they are actually government institutions. So, there is no separation of the government functions from the enterprise management, ultimately. As the overseer, a division of the Ministry of Finance, is authorized to supervise them. It has a hard time implementing its rules in actuality, however.

The legislature’s inability to keep a leash on the two big lottery issuers, is an obstacle to lottery legislation. Currently, the Ministry of Finance, allocating funds to 10 ministries and commissions, controls the lottery’s public welfare account. The Ministry of Civil Affairs and the State Sports General Administration together gobble up 50 percent of the total fund, while the other half is allocated to other eight fields, such as schools, environmental protection and social security. Ministries and commissions in charge of education, construction and western region development want to get some of the shares from the lottery revenue, while the departments in charge of the work requiring to have more funds. Prudent legislation must appease all these departments.

Legislating Reform

The government’s inability to lasso in lottery revenue and redistribute it has proved a stumbling block. In 2000, the Ministry of Finance took charge as the main administrator of the lottery. This has been seen as a step in turning the lottery into an important mechanism to reallocate national revenue.

In the over 120 countries who have a lottery, their governments have all constituted laws to regulate it. China has yet to do so. The Central Committee of the Communist Party of China and the State Council have been the departments in charge of the lottery by issuing notices and administrative rules and regulations. But the implementation of those regulations has not been sufficient enough to solve the problems.

Zhang Jixiang, Vice Director of the General Office of the Ministry of Finance, compares China’s lottery system to lottery administrative system in foreign countries, saying “unregulated administration” is the basic problem here. For example, Zhang says, the biggest difference between China and Britain’s lottery is that the former “has no legal basis for the issuance and administration” of its lottery. Without laws, China can neither promote the development of the lottery, nor effectively address the problems facing the business.

The sale of lottery tickets is still not regulated, Shen Mingming, Director of Lottery Research Center, Beijing University, goes on to say that“coordination among departments is the main obstacle to lottery legislation.”

Peng Zhenqiu, Vice President of the Socialism Academy of Shanghai Municipality, has called for enacting laws that would set up a monopolistic administration, launch market-oriented reform and improve taxation to use lottery institutions to push forward the national economy.

Peng said that lottery is regarded as the nation’s third distributing mechanism of national income. Increased lottery sales have become the basis of swelled input in public welfare undertakings like welfare, sports and environmental protection. Lottery development also spurs other industries such as printing, telecommunications and advertisement.

“Lottery law should give clear definition of rules to issuers of tickets and administrators as well as the rights and obligations of customers,” said Liu Wujun, an official from the Research Office of the Ministry of Justice. Liu believes that lottery law should also forbid sales to children under the age of 14, adding that drawing and announcing winning tickets is necessary for legal notarization. “Enacting laws doesn’t mean that they can eliminate fraud. But with laws, responsibility will be clear,” Liu emphasized.

Liu also suggests the establishment of a supervisory body like a “China Lottery Regulatory Commission.”

Related department in the Ministry of Finance told the media the problems that it believes need to be solved next: Fine tune issuance and administration, speed up lottery legislation, adjust the welfare allocation fund and continue to update policies.

Backgrounder

On October 10, 1984, the Chinese Athletics Association and the China Sports Service Company (now China International Sports Travel Company), sponsors of the Beijing International Marathon, issued a lottery named “Sports Development: The 1984 Beijing International Marathon.” Tickets had 6-digit serial numbers but had no face value. It was considered to be the first lottery issued in modern China. Since then, local governments have used lotteries to raise money for holding large sports events and constructing sports facilities.

From 1983 to 1993, governmental departments and institutions that usually administered welfare undertakings mainly issued lotteries. Lottery during this period was ad hoc and there was no policy to administer it.

The following five years, from 1994 to 1999, were a time of disorder for the national lottery and the Central Government began to introduce regulations. On March 11, 1994, the State Council approved the State Physical Culture and Sports Commission (now the State Sports General Administration) to issue a standard sports lottery nationwide. The State Council has authorized only two departments to issue lotteries; the other is the Ministry of Civil Affairs, which issues the welfare lottery. A welfare fund was raised under the administration of civil affairs and sports departments.

In 2000, the lottery administration was transferred from the People’s Bank of China to the Ministry of Finance. The use of the welfare fund was enlarged from the civil affairs and sports departments to fund extracurricular student activities, sponsor the upcoming 2008 Olympics and support the Red Cross. A departmental lottery continued to shift into a national public lottery.
 

(Beijing Review  July 8, 2004)