122 6 Financing Compulsory Education in Rural Areas: The Development ...
offering grant assistance to poverty-stricken regions. Second, the central govern-
ment encouraged enterprises, institutions and individuals to donate to rural com-
pulsory education on a volunteer basis. Third, meanwhile, primary and middle
schools were allowed to begin charging a certain amount of tuition and fees to
support school operations. Fourth, schools were encouraged to generating income
by having business, factories or services. The non-government sources for rural
education included educational surcharges (the Notice on Raising Expenditure
to Finance Rural Schools in 1984; the Provisional Regulations on Collection of
Educational Surcharge in 1986), expenditure collected from farmers, encouraging
schools to create income, and mobilizing social expenditure to develop rural edu-
cation, etc. There were two major sources for state funding, one was allocation
from local government, the other was special funding from both central and local
government which took very small part of the funding of the whole.
In summary over this period China established a funding system characterized
by village and township funding, supplemented by tax surcharges, tuition fees,
social donations, and taxes on school run business. This system mobilized every
sector of the society and it was a kind of “people’s education was run by people”.
However, it created great burdens on the poorest townships and villages, as well as
households. The gaps in development between areas widened as income distribu-
tion in China worsened with economic development.
6.2.2.2 “Local Responsibility, Multi-level Management, County-
Centered and Township Shared Responsibility” (1994–2000)
The second phase of multi level management ran from 1994. The problems of the
“village-centered” system of financing were not able to overcome shortages of
revenue generation, teachers, and imbalances between counties. To solve the prob-
lems, two strategies were taken.
First, tax-sharing was formally developed. China began to reform the decentral-
ized fiscal system in 1994. Arrangements for the sharing of tax revenues between
different administrative levels were implemented with the aim of making more effi-
cient use of funds from the central government to the localities (Liu et al. 2009 ).
The contents of tax-sharing reform included three dimensions. First, agreements
were made to divide expenditure between central and local government according
to the responsibilities of the different levels. Second, based on the principle of more
consistency of responsibilities with revenue raising financial income taxes that were
closely related to the national interests and those related to the macro adjustments
between authorities at the same level were made as central state taxes. Those taxes
that were large in quantity and could balance investments were shared between
central and local governments. The taxes that were closely related to the local eco-
nomic and social development, with potential and suitable for local government to
manage and collect, were made local taxes. Central taxation and local taxation insti-
tutions were established separately. Central taxes and shared taxes were collected
by central institution and local taxes were collected by local taxation institutions.