126 6 Financing Compulsory Education in Rural Areas: The Development ...
education were included in the budget and reported to the People’s Congress at
the corresponding level or its standing committee, and supervision and inspection
was extended to cover the flow and use of funds and establish whether central gov-
ernment requirements for additional educational expenditure were met. Under this
system county-level governments were expected to lead, but were supported by
complementary contributions from central government, provincial government and
township government who share responsibilities (Tian and Cai 2005 ).
In summary the “to the county” model (yi xian wei zhu) was a major reform
directed at solving long running problems in the rural education compulsory man-
agement system, including the need for effective decentralization, insufficient
investment capacity, and unsustainable burdens on farmers and poor households
(Cai 2013 ). The implementation of this management system has been a major
turning point from people paying for compulsory education from local revenue to
the government taking most of the responsibilities (Yuan 2004 ).
With the operation of the county centered system new problems appeared. The
Rural Tax and Fee reform started in 2001 had canceled additional educational fees
and fund raising. These accounted for 30 % of rural educational revenue. The gap
caused by the reform had to be filled by the local government. But due to the cen-
tral tax sharing reform, the fiscal expenditure capacity of rural governments was
greatly weakened. Township and county governments were unable to fill the gap in
poor counties and even middle income counties experienced shortfalls.
The reforms also meant that western regions received more financial transfers
than ever before. But these flowed to county level governments which mostly lacked
adequate capacity to use the funds efficiently and monitor the impact. In addition,
government above county level did not always meet their fiscal responsibilities and
failed to provide sufficient income to replace that which used to flow from local taxa-
tion. The funding guarantee for the development of rural education remained fragile.
The problems of unbalanced investment and unfair public resource allocation had not
been solved (Gao 2004a, b). In addition regional differences in educational invest-
ment levels remained serious As a result a fourth set of reforms were introduced.
6.2.4 The “New Mechanism” After 2005
The County centered management system had the defect of mismatches between
financial power and actual responsibilities. In particular it was inappropriate to
divide the tax sharing income. Central and provincial finance took about 60 %,
county and township only took about 15 %, but the latter bore most of the respon-
sibilities for compulsory education. Central and provincial finance did not invest
enough in rural compulsory education. According to the statistics of 2004, the
total budget for rural compulsory education in the whole country was 132 billion
yuan, the transfer payment by the central state was 15 billion yuan, accounting for
11.3 % of the whole national budget. This put heavy demands fragile county level
finances and many were in deficit.