121the Decision on the Reform of Education System by the Central Committee of
the Communist Party of China set forth the principle of decentralized financing
and decentralized management in education. The 1986 Compulsory-education
Law specified that “compulsory education management is under the control of
the State Council and is the responsibility of local government. It is a multi-level
management system”. The principles of “Two increases” were put forward: first
the State Council and local government are responsible for securing financing of
operating expenses of education and infrastructure investment and the growth rate
of the national fiscal funding for compulsory education should be higher than the
general rate of revenue growth; second the per student average fee should increase
year by year.
Local administration in China has five levels below the national government as
noted above. Under the devolution principle, responsibility for educational admin-
istration and funding was devolved from the central government to local authori-
ties all the way down to the town and village level, with all levels jointly taking
the responsibility of raising funds to cover public undertakings and infrastructure
construction. This was a recipe for some confusion since it was up to each prov-
ince to decide how to divide the responsibilities. Without clear requirements for
provincial and prefecture level government, the provincial governments tended
to delegate responsibilities to lower levels. Rural compulsory education financ-
ing was mapped onto administrative levels. Thus senior secondary schools were
the responsibility of the county, junior secondary schools the township, and pri-
mary schools were the villages. Village and township level undertook most of the
responsibility of implementing universal compulsory education up to grade 9 in
rural areas. The expenditure was mainly supported from county and township fis-
cal revenue and township governments played a key role in guaranteeing the flow
of financial resources (Fan and Li 2010 ).
In financing rural compulsory education, township and village administration
become the main suppliers. The central state only managed transfers to poverty
stricken areas and the provincial governments formulated policy and criteria on
finance as well as also allocating special funds. County level government mainly
focus on investment in a small number of senior secondary schools and schools in
the county town center. Township level governments took financial responsibility
for central primary schools and junior secondary schools located in the township
center. Administrative villages or few natural villages needed to take responsi-
bilities on raising part of the fund for primary schools located in the villages. It
became the case that many villages transferred the financial burden to parents by
charging various kinds of fees from villagers as village authorities had little finan-
cial income themselves.
The system failed to produce adequate funds for development. Many methods
were used to generate revenue (Lewin et al. 1994 ). These included at least four
methods. First, local authorities were authorized to collect extra charges, with
these user fees supplementing local financing for infrastructure construction.
School buildings needed in compulsory education in the countryside were to be
mainly financed by towns’ or villages’ self-financing, with the central government
6.2 Reform of Management and Fund Guarantee System