A final resolution to the peasant burden problem the politics of fee to tax reform in rural china

They concluded that it was theimbalance between financial resources caiquan and task implementation shiquan that had caused the county and township governments to rely on extractions fro

Chapter 1 Introduction

In February 2004, shortly after the celebration of Chinese New Year, the ChineseCommunist Party Central Committee (CCPCC) and the State Council (SC) jointlyissued the “No 1 Document”1of the year Described as a big “New Year gift” topeasants from the central government, the document not only prescribed a number ofmeasures to increase peasants’ income, but also shed light on peasant burdenreduction, promising to gradually cut down the agricultural tax before annulling itentirely And as a first step, the overall tax rate would be lowered by one percent Asthe majority of the measures proposed in this document would be secured withfinancial support, it was regarded as a document with a high content of “gold”.2

It was not the first time that the center released “No 1 Document” on rural issues.For five successive years from 1982 to 1986, the central leadership issued five "No 1Documents" on agriculture, the countryside and peasants These documents helped tolegalize many initiatives of the Chinese peasants and the local governments in ruralreforms However, for eighteen years after 1986, the central government put itsemphasis on urban reforms and not a single “No 1 Document” was issuedspecifically on rural issues Given this, the document was hailed as an indication that

1 The full name of the document is “Zhonggong Zhongyang Guowuyuan guanyu Cujin Nongmin Zhengjia Shouru Ruogan Zhengce de Yijian” (“CCPCC and State Council’s Opinions on Policies Promoting the Increase of Peasants’ Income”).

2 At the press conference after the release of the document, Chen Xiwen, deputy director of the office

of the Central Financial Work Leading Group, revealed that the central government's fiscal budget for rural development would increase by nearly 30 billionyuan (around 3.61 billion USD) to more than

150 billion yuan (around 18.07 billion US dollars) in 2004 “Zhongyang Caijingban Fuzhuren Chen Xiwen Jiexi Zhongyang Yihao Wenjian” (“Analyzing the No 1 Document by Deputy Director of the Office of the Central Financial Work Leading Group Chen Xiwen”), 8 February 2004, http://news.xinhuanet.com/newscenter/2004-02/09/content_1304919.htm , accessed 2 December 2004.

China's new central leadership would give top priority to issues of agriculture, thecountryside and peasants.3

This move is by no means isolated in the central state’s agenda As early as in

2000, Changping Li, a township Party Secretary in Hubei, wrote a letter to PremierZhu Rongji, in which he appealed: “the life of the peasants is extremely hard, therural areas extremely poverty-stricken and the prospect of agriculture extremelyprecarious!”4Although Li later resigned from his post, this appeal, however, became

a slogan and he himself became a symbol of speaking-out for peasants.5The centralgovernment finally came to realize that rural issues are so deep-rooted andcomplicated that fundamental and concerted efforts must be made to resolve them

A core issue raised by Li in his letter was the peasant burden6problem Thisproblem is believed to be a major source of discontent in agricultural China anddirectly threatens the social and political stability in these areas.7 Given the low

3 For details, please refer to “Xinhua News Agency Commentator: No 1 Document Being the Priority

of the Priorities” (“Xinhuashe Pinglunyuan: Zhongzhongzhizhong de Yihaowenjian”), 8 February

2004, http://www.people.com.cn/GB/jingji/1037/2325998.html , accessed 1 December 2004.

4

The letter was first published in the popular Nanfang Zhoumo (Southern Weekend) and has been

widely cited since then Changping Li, “Xiang Dangwei Shuji Hanlei Shangshu” (“A letter with Tears from a Township Party Secretary”),Nanfang Zhoumo (Southern Weekend), 24 August 2000.

5 Despite Li’s resignation, his letter as well as the book he then published has been well received among not only governmental officials and the scholars, but also common people He was later recruited by the China Reform Journal Li himself was elected “Person of the Year” with the highest votes by readers ofSouthern Weekend, beating out other influential figures in many areas.

6 There are different definitions of the term and they will be discussed in the first section of Chapter 2.

7 To have a general idea about peasants’ resistance in rural China, please see Thomas P Bernstein and Xiaobo Lü, Taxation without Representation in Contemporary Rural China (Cambridge University

Press, 2003), pp 116-165; Tangbiao Xiao, “Er Shi yu Nian lai Dalu Nongcun de Zhengzhi Wending Qingkuang: Yi Nongmin Xingdong de Bianhua wei Shijiao” (“Political Stability of Rural Mainland China in the Past Two Decades: A Perspective from Peasants’ Actions”),Er Shi Yi Shiji (Twenty-First Century), No 2 (April 2003), pp 51-60; Lianjiang Li and O'Brien, “Villagers and Popular Resistance,” Modern China, Vol 22, No.1 (January 1996), pp 28-61; Jianrong Yu, “Nongmin Youzuzhi

Kangzheng jiqi Zhengzhi Fengxian: Hunan Sheng H Xian Diaocha” (“Organizational Struggle of Rural Residents and Its Political Risk: A Survey of County H in Hunan Province”),Zhanlue yu Guanli (Strategy and Management), No 3 (2003), pp 1-16.

income rate, unpredictable and open-ended financial exactions have driven peasants

to protest in the agricultural areas in the country

Since no statistics on type, frequency of rural protests have been disclosed, it isnot possible to directly evaluate at the national level how much the burden problemhas contributed to the instability of rural areas.8However, evidence can be found in alot of researches A survey conducted in 1999 in ten counties of Zhejiang Provincerevealed that among the 300 peasants responding, 34.33% believed that agriculturaltaxes were too heavy, and in one county, the figure went up to as high as 75%.9Anarticle by Weihua Chen asserted that in 1995 and 1996, peasant burden was thelargest source of rural complaints, accounting for over 30% of the complaints lodged

at all levels from the county up, and over a third of all collective visits Meanwhile,the second most important source, violations of laws and CCP disciplines bygrassroots level cadres, was also related to the problem.10Shukai Zhao analyzed 196letters received byFarmers’ Daily (Nongmin Ribao) in 1998 and 1999 and found that

63 of them reflected the burden problem, topping the list of problems Reasonsranking from 2ndto 4thwere land problems, retaliation from the cadres and corruption,

8

Sometimes it is even impossible to categorize the reasons for peasants’ protests because such reasons are usually correlated and contribute together to the complaints For instance, in a fieldwork conducted

in 2002, the author found that peasants in an Inner-Mongolia village appealed to higher (from county

to prefecture, then the autonomous region and finally the center) authorities for the corruption of the village head But when talking about his corruption deeds, land appropriation, heavy financial burdens

as well as violation of village self-government policies were all involved.

9 Pengshuo Chai and Jiehong Zhou, “Yanhai Fada Diqu Nongmin dui Shuifei Fudan de Xintai” (“Peasants’ Attitude towards Financial Burdens in Coastal Developed Regions”),Zhongguo Nongcun Jingji (Chinese Rural Economy), No 4 (2000), pp 62-68 Figures presented here are especially

impressive given that Zhejiang is among the richest provinces in China.

10

Weihua Chen, “Cong Xinfang Gongzuo Jiaodu dui Dangqian Jianqing Nongmin Fudan Wenti de zai Sikao” (“Reexamining the Question of Lightening Peasants’ Burden from the Vantage Point of Letters and Visits”),Renmin Xinfang (People’s Letters and Visits), No 9 (1998), pp 28-31.

respectively, each receiving 51, 30 and 24 letters.11Further, by analyzing the records

of voice messages to a central level media during the first half of 2004, researchersfound out that among 22304 messages on rural issues, 1195 (5.4%) were aboutpeasant burden problem, ranking No 4 among the problems revealed.12This figurewas very significant given that the fee-to-tax reform, which was reported to haveeffectively reduced the burden, had been carried out for two years It is not surprisingthen that some sources claim that the ten years between 1992 and 2002 has been atime when the Chinese countryside suffered most from the peasant burden problem.13Observing the correlation between peasant burden and rural social-politicalstability, the Chinese central government has tried very hard to solve the problemever since it came into prominence in the mid-1980s According to a research groupunder CCPCC Organization Department, seventy-six regulations and policy circularswere issued between 1991 and 1999 by CCPCC, the State Council and the centralministries, jointly or separately.14The sub-regulations and circulars created by thelocal authorities (from provincial level to township level) to go with the centraldecrees are not counted Table 1.1 shows the major decrees issued by the centralgovernment from 1990 to 1999 before the fee-to-tax reform was introduced

11 Shukai Zhao, “Shangfang Shijian he Xinfang Tixi guanyu Nongmin Jinjing Shangfang Wenti de Diaocha Fenxi” (“Appealing to Higher Authorities and the Letters and Visits System An Analysis on Peasants Appealing to Beijing”),Sannong Zhongguo (Sannong China), Vol 1 (Winter 2003), p 118.

12 Jianrong Yu, “Tudi Wenti yi Chengwei Nongmin Weiquan Kangzheng Jiaodian-guanyu Dangqian Woguo Nongcun Shehui Xingshi de Yixiang Zhuanti Yanjiu” (“Land Issue has Become the Focus of Peasants’ Rights Defending Resistance-A Special Research on Rural Social Situation in Contemporary China”), http://www.weiquan.org.cn/data/detail.php?id=3980 , accessed 20 December 2004 The project was jointly launched by the National Social Sciences Foundation Research Group and National Soft Sciences Research Group, China Academy of Social Science (CASS).

13 Ling Zhao, “Nongmin Weiquan Zhongxin Chuxian Zhongda Bianhua” (“Great Shift in Focus Appeared in Peasants’ Rights Defending”),Southern Weekend, 2 September 2004.

14

Zhonggong Zhongyang Zuzhibu Ketizu, Zhongguo Diaocha Baogao, 2000-2001: Xin Xingshi Xia Renmin Neibu Maodun Yanjiu (China Investigation Report, 2000-2001: Study of Contradictions among the People in the New Situation) (Beijing: Zhongyang Bianyi Chubanshe, 2001), p 84.

Table 1.1: Major Decrees Issued by the Central State

Source:Zhongguo Nongye Nianjian (China Agricultural Yearbook), 1991, 1992, 1994, 1997,

1999 and 2000

Besides issuing numerous decrees and decisions, the central government alsomade institutional efforts to resolve the problem The State Council set up theLeading Team on Burden Reduction (jianfu lingdao xiaozu) in the early 1990s.

Provinces and counties throughout the country set up leading teams or burdenreduction offices (jianfuban) to match the center These offices were to monitor the

implementation of relevant laws and regulations, to assist peasants in burden-relatedlitigation or in appeals and to approve local governmental decrees relevant to burdens.However, they were endowed with little real power independent from the localauthorities

“Administrative Regulations on Fees and Labor Services Borne

by Peasants” (This document introduced the famous 5% limit ontownship and village levies)

Council

“Emergency Circular Concerning Earnestly Reducing PeasantBurdens” (The notice requires all documents and fee collectionprograms be suspended and liquidated)

State Council Office

“Notice of Opinion Concerning the Management of theExamination of the Peasant Burden”

Concerning Current Peasant Reduction Work by MOA, MOS,MOF, SDPC and LAO”

Campaigns were launched by the central government from time to time,especially when top leaders were cautioned by signals of rural unrest.15 For instance,

a nationwide comprehensive campaign was carried out in 1993 when rural riots16shocked the central leaders.17

In March, an “Emergency Circular”18was issued followed by the summer directivesmentioned earlier19that ordered the wholesale slashing of burden, all amidst a greatdeal of publicity Intense pressure was generated on local officials as central andprovincial inspection teams descended on the countryside Local officials could notignore or evade the pressures from above to reduce burdens, and in fact, unauthorizedcollections, especially those that exceeded the 5 percent T and V levies, did decline

in 1993 in many places In the autumn of that year, MOA claimed that peasants hadsaved 10 billion yuan, a substantial amount since one estimate of burden resulting

from fees, fines and apportionments put them at 13.9 billion.20

15 In fact, campaigns are frequently adopted by almost all levels of the hierarchy to create pressure for implementing policies, which is to a certain extent a heritage from the pre-reform era But today’s campaigns are significantly different because they are much less intensive and usually limited to the bureaucratic hierarchy As a lot of resources and administrative strengths are poured in, achievements, sometimes impressive, can be made, although the sustainability of such achievements is doubtable Kevin J O’Brien and Lianjiang Li, “Campaign Nostalgia in the Chinese Countryside,”Asian Survey,

Vol 39, No 3 (1999), pp 375-393; Lianjiang Li, “Support for Anti-corruption Campaigns in Rural China,”Journal of Contemporary China, Vol 10, No 29 (2001), pp 573-586.

16 Riots in Renshou County, Sichuan were among the most widely publicized examples of the collective protests in that year Some scholars view it as an indicator when rural conflicts began to receive wide public attention Shukai Zhao, “Xiangcun Zhili: Zuzhi he Chongtu” (“Rural Governance: Organization and Conflicts”),Zhanlue yu Guanli (Strategy and management), No 6 (2003), p.1.

17 Peasant burden may not be the only reason why the central government launched the campaign The problem of IOUs also suffered the central state at that time For information on the IOU crisis, please see: Andrew Wedeman, “Stealing from the Farmers: Institutional Corruption and the 1992 IOU Crisis,”The China Quarterly, No.152 (1997), pp 805–831.

20 Bernstein and Lü, Taxation without Representation in Contemporary Rural China, p 172 Some

researchers have overemphasized the influence of Renshou riot by taking it as the direct reason for the campaign “The earthquake provoked by the peasants’ riot in Renshou was not limited to the county The ‘victory’ by peasants was almost nationwide one On 19 March, CCPCC and the State Council issued ‘The Emergency Circular on Earnestly Alleviating the Peasant Burden’….” See: Bai Shazhou,

From Slave to Citizen: The Peasants of Modern China (Hong Kong: Mirror Books, 2001), p 301.

Although being one of the major riots, it was not the only reason why the central state launched the campaign because the key documents in that campaign had already been issued and were utilized by peasants in Renshou to legalize their actions in their protest.

RESEARCH QUESTIONS

Despite all the efforts made by the central government, the problem persisted, andmight have deteriorated Since the beginning of the new millennium, especially afterthe 16th Party Congress, China’s top leaders finally determined to address ruralproblems in a serious and concerted way The fee-to-tax reform21thus emerged as anew approach that the center resorted to in order to alleviate the burden on peasants.Many researchers identify, among others, the fiscal system as the most importantfactor that led to arbitrary extractions from peasants They concluded that it was theimbalance between financial resources (caiquan) and task implementation (shiquan)

that had caused the county and township governments to rely on extractions frompeasants to fund target-setting programs (dabiao) as well as routine expenditure.22Thus, the fee-to-tax reform was designed to address some of the institutional roots ofthe burden problem in the financial and bureaucratic system by simplifying the taxcategories, providing transfer payments as well as a set of complementary reforms.The reform has reportedly made great achievements, with an average 30% reductionamong the 20 pilot provinces in 2002.23 Scholars who conducted fieldwork have

21 The basic logic is that, by converting all non-tax levies into one major tax, the reform will eliminate the irregularity and enhance the predictability of local extractions The remaining taxes are the agricultural tax, agricultural specialty tax and additional tax SeePRC Yearbook 2003, Vol 23 (2004),

p 409.

22

Xiaobo Lü, “The Politics of Peasant Burden in Reform China,”The Journal of Peasant Studies, Vol.

25, No 1 (1997), pp 113-138; Qiucheng Tan, “Difang Fenquan yu Xiangzhen Caizheng Zhineng” (“Fiscal Decentralization and Functions of the Township Government”), Zhongguo Nongcun Guancha (China Rural Survey), No 2 (2002), pp 2-12; Jun Zhang, “Xiangzhen Caizheng Zhidu Quexian yu

Nongmin Fudan” (“The Drawback of the Financial System of Township and Farmer’s Burden”),

Zhongguo Nongcun Guancha (China Rural Survey), No 4 (2002), pp 2-12; Yang Zhao and Feizhou

Zhou, “Peasant Burdens and Rural Finance,”Hong Kong Journal of Social Sciences, No 17 (Autumn

confirmed the reduction.24 And the No 1 Document of 2004 was among thecontinuous efforts to solve the problem and can be viewed as a policy to solidify andmagnify the achievements of the fee-to-tax reform Encouraged by the document, thefee-to-tax reform was pushed to a new stage By August 2004, 30 provinces,autonomous regions and municipalities had either lowered the agricultural tax rate oreven cancelled it.25

Regarded as the “third rural revolution”26since the foundation of P R China in

1949, the reform has by far gained great success in terms of burden reduction and itseems that it is a real blessing to Chinese peasants No wonder some researchersbelieve that such a reform has “shown greatest promise of making a dent in the(burden) problem”.27

Unfortunately, it is not yet a happy ending Many observers have found that thereform actually deteriorated the fiscal situation at the county and township levelssince the allocation of new financial resources from the center is far from sufficient tomake up for the deficit created by the reform.28Hui Qin summarized the “Huang

24 Xiujuan Tian and Feizhou Zhou, “Shuifei Gaige yu Nongmin Fudan: Xiaoguo, Fenbu he Zhengshou Fangshi” (“Fee-to-Tax Reform and Peasant Burden: Effects, Distribution and Collection Moods”),

Zhongguo Nongcun Jingji (Chinese Rural Economy), No 9 (2003), pp 12-18 Hubei Sheng Nongmin

Jianfu Diaochazu, “Hubei Sheng Liu Xianshi Nongcun Shuifei Gaige hou Nongmin Jianfu Qingkuang Diaocha”(“Investigation of Peasant Burden Reduction in Six Counties (Cities) of Hubei Province after Fee-to-Tax Reform”),Hubei Shehui Kexue (Hubei Social Sciences), No 10 (2003), pp 25-28.

25

“Woguo 30 Sheng Shishi Nongyeshui Jianmian, Nongcun Shuifei Gaige Jin Xinjieduan” (“30 Provinces in Our Country Cut down Agricultural Tax and Rural Fee-to-tax Reform Enters a New Phase”), http://news.xinhuanet.com/fortune/2004-08/20/content_1835407.htm , accessed 22 December

2004 The report says, by then eight provincial level units had annulled the agricultural tax They are Jilin, Heilongjiang, Shanghai, Tibet, Beijing, Tianjin, Zhejiang and Fujian 11 provincial units lowered down the tax rate by 3 percent and the rest 11 provincial units cut the tax rate by 1 percent.

26 The first two revolutions are the land reform from 1949 to early 1950s and the reform of the household contract responsibility system from 1978 to the early 1980s.

27 Bernstein and Lü,Taxation without Representation in Contemporary Rural China, p 166.

28 Shouyin Zhu et al., “Nongcun Shuifei Gaige Shidian he Xiangcun Guanli Tizhi Gaige Genzong Yanjiu Baogao” (“Research Report on Rural Pilot Fee-to-tax Reform and Rural Administrative System Reform”),Jingji Yanjiu Cankao (Economics Research Review), No 40 (2003), pp 2-24; Licai Wu,

“The Political Consequences of the Rural Fee-to-Tax Reform in Mainland China: A Case Study of

Zongxi Law”29

from burden reduction efforts in Chinese history, raising concerns onthe feasibility of converting all fees into a unified tax In addition to that, researchershave also noticed that the reform has more or less been carried out in a campaignmanner and thus adds to the uncertainty of its sustainability.30Scholars like Licai Wueven suggested that the fee-to-tax reform not only made the township governmentsmore dependent on upper level state and thus bureaucratized, but also pushed thetownship governments into a dilemma of fiscal constraints and their responsibilitiesfor local public goods provision.31

Given all the contradictory phenomena stated above, several interesting questionsemerge: how could the current fee-to-tax reform achieve such a high percentage ofburden reduction despite the financial shortage it created at the county and townshiplevel? In other words, how did counties and townships manage to survive the revenuelosses as a result of the burden-cutting reform? This is the central question in thisresearch To answer it, we must assess the burden reduction on peasants, the revenueloss of local authorities, especially township governments and further to disclose themechanism that has helped townships to manage the crisis Besides, another question

Anhui Province,”Hong Kong Journal of Social Sciences, No 24 (Winter 2002), pp 85-113; Thomas P.

Bernstein, “Can the Peasant Burden Problem Finally Be Resolved? A Preliminary Assessment of Recent Policy Innovations,” Paper prepared for 40th Anniversary Reunion Conference of the Universities Service Centre for Chinese Studies, ‘The State of Contemporary China’, Chinese University of Hong Kong, 2003.

29 He pointed out that although such reforms might make some achievements in the short run by converting all fees and taxes into one single levy, they were deemed to fail as people and especially the local authorities would forget (or at least pretend to have forgotten) that the single levy had already included all those miscellaneous fees and taxes, and began to extract new fees or taxes Qin Hui,

Nongmin Zhongguo: Lishi Fansi yu Xianshi Xuanze (Peasantry China: Historical Reflections and Current Choice), (Zhengzhou: Henan Renmin Chubanshe, 2003), pp 17-23.

30 Bernstein, “Can the Peasant Burden Problem Finally Be Resolved? A Preliminary Assessment of Recent Policy Innovations.”

31

Licai Wu, “Nongcun Shuifei Gaige dui Xiangzhen Caizheng de Yingxiang jiqi Houguo: Yi Anhui Sheng Weili” (“The Impact of the Rural Fee-to-tax Reform on Township Finance and Its Consequences: Case Study on Anhui”),Bijiao (Comparative Studies), Vol 4 (2003), p 156.

we may raise in our mind is: how does the fee-to-tax reform affect state power at thegrassroots level? Obviously clear and logically consistent explanations to thesequestions will provide policy implications to the peasant burden problem andmaintenance of rural social and political stability, especially in agricultural areas Byexamining the process of the fee-to-tax reform and its complementary reforms, theauthor also endeavors to analyze the changing role of the state in the Chinesecountryside.

A PERSPECTIVE FROM THE BROADER THEORECTICAL BODY

As Thomas Bernstein and Xiaobo Lü have put it, “The burden issue was part andparcel of the underlying challenge of how to make the transition from an authoritarian

to a democratic, responsive regime”.32And it was also perceived as a result of thedecentralization and de-concentration of state power caused by economic reform.33Therefore, answers to the questions raised in the paper not only have significantpolicy implications, but also provide good opportunities to make contributions to thetheoretical body of transitional regimes and the state-society relationship

To a great extent, most theoretical endeavors on peasant issues can be viewed aspart of the consistent concern with the state-peasantry relationship among ChinaStudies students, which in turn is linked to the profound methodological tradition ofapplying state-society model to political transitions Philip Huang studied peasant

32 Bernstein and Lü,Taxation without Representation in Contemporary Rural China, p xvi.

33 Xiaobo Lü, “The Politics of Peasant Burden in Reform China”; Qiucheng Tan, “Fiscal Decentralization and Functions of the Township Government”; Jun Zhang, “The Drawback of the Financial System of Township and Farmer’s Burden”; Thomas P Bernstein and Xiaobo Lü, “Taxation without Representation: Peasants, the Central and the Local States in Reform China,” The China Quarterly, No 163 (2000), pp 742-763.

economy and social change in north China in the first half of 20 century, finding theimpact of bureaucratic intrusion on the relationship between state and village Hecommented that “The state in the Republican period could make its power felt in thevillage but did not have the apparatus to place its own salaried agents into villages,and had to work with unsalaried men drawn from the communities themselves”.34And at the close of the republican period, “village and state remained in an uneasyrelationship fraught with tension and abuse, or the potential for abuse.”35

Prasenjit Duara studied the expanding and modernizing role of the Chinese state

in the early 20thcentury and suggested that the rapidly growing revenue needs of themodernizing state forced it to rely on traditional entrepreneurial brokerage to generatethe needed revenues and thus led to state involution Although Duara’s study hasfocused on North China before CCP came into power, it is still suggestive Just as hehimself has pointed out, “The liberalization of recent years has reintroduced thesehistorical issues, although in a vastly different context Some scholars are beginning

to see village cadres as entrepreneurs and brokers mediating the relationship betweenstate agencies and villagers.”36

Helen Sui compared the Chinese rural society in the imperial period with thatunder the post-revolutionary government and found that the strong organizational andideological pressure created by the party-state has created a structure of dependence,which in turn “obliged the cadres to push even the most unrealistic policies upon the

34 Philip C C Huang, The Peasant Economy and Social Change in North China (Stanford, CA:

Stanford University Press, 1985), pp 305-306.

35

Philip C C Huang,The Peasant Economy and Social Change in North China, p 306.

36 Prasenjit Duara,Culture, Power and State: Rural North China, 1900-1942 (Stanford, CA: Stanford

University Press, 1988), p 254

villagers.”37So with the penetration into the Chinese countryside, the party-state gaveits local agents much less room to maneuver than the imperial regime did.

With the commencement of China’s reform and opening-up, increasingintellectual attention has been devoted to the evolution of the state-peasantryrelationship in economic development Acknowledging the fragmentation anddivergence of interests between the central and the local states, scholars begin to ask:Who is the state? And it is a welcome development as it takes the central-localrelations into consideration Jean Oi proposed the concept of “local corporatism” tohighlight the important role of local governments in rural industrialization.38However,this approach neglects the predatory, extractive aspects of the local state, amongwhich the peasant burden problem is a very good example as it became worse in the1990s Thomas Bernstein and Xiaobo Lü were among the first to study the predatoryaspect of the local state by investigating the peasant burden problem in agriculturalareas of China They suggested that the central state lacked the ability to control localofficials from above since it failed to lighten the burden on peasants.39But MariaEdin offered a different explanation She studied the cadre management system andconcluded that the party-state maintains the ability to be selectively effective And thereason behind the failure of burden reduction efforts is a result of the central state’spriority settings and policy conflicts.40 Susan Whiting shares a similar point of view

in her recent book She noted that in 1996, burden reduction was actually made a part

37

Helen Sui,Agents and Victims in South China: Accomplices in Rural Revolution (New Haven and

London: Yale University Press, 1989), p 294.

38 Jean Oi, “Fiscal Reform and the Economic Foundation of Local State Corporatism in China,”World Politics, Vol 45, No 1 (1992), pp 99-126.

39 Bernstein and Lü, “Taxation without Representation: Peasants, the Central and the Local States in Reform China”; Bernstein and Lü,Taxation without Representation in Contemporary Rural China.

40 Maria Edin, “State Capacity and Local Agent Control in China: CCP Cadre Management from a Township Perspective,”The China Quarterly, No 173(2003), pp 35-52

of the performance criteria for local officials, but it was without much effect since theother criteria remained, requiring officials to make choices among them.41YongshunCai provides a way out of the dichotomy of predatory and developmental state In hiseyes, the state can be neither predatory nor developmental, but rather irresponsible.And the local cadres, namely state agents may make decisions and allocate resources

“to enhance their own image, leading to a waste of public resources”42

Despite the progress made, answers to the following questions are still notsatisfactory “How does state control vary among regions, administrative levels andtime periods? And are such variations best explained by central policy or by localconditions?”43In studying the peasant burden problem, scholars further realized thefragmentation of local state power and the conflict of interests among different levels

of local state and its agents, and thus moved ahead on the basis of previousachievements Xiaobo Lü studied budgetary constraints and revenue-seeking behavior

of local governments as key factors of peasant burden, concluding that the state isbeing reshaped with its major role changing from “redistributive” to “regulatory”,rather than reduced.44However, Lü failed to define the border between the state andsociety clearly Jingyao Wang has made some progress by investigating the principal-agent relationship in the process of taxes and charges collection and he highlighted

41 Susan Whiting,Power and Wealth in Rural China: The Political Economy of Institutional Change

(New York: Cambridge University Press, 2001), p 286

42 Yongshun Cai, “Irresponsible State: Local Cadres and Image-Building in China,” Journal of Communist Studies and Transition Politics, Vol 20, No.4 (December 2004), pp 20-41.

the middle-level collusion among township and village cadres.45But the middle-levelcollusion theory cannot explain why policies were implemented differently andselectively, a prominent phenomenon in policy implementation in rural China.O’Brien provides a possible explanation to that He found that the implementation ofpolicies largely hinged on the amount of bureaucratic attention a village had receivedand on how villagers and local cadres had perceived their interests and understoodtheir resources in relation to each other and to higher levels.46Elizabeth J Remick, inher paper criticized that, “The standard narrative of state formation emphasizesprocesses of bureaucratization, centralization, and homogenization that eliminatedlocal differences of many kinds.”47 By focusing on taxation and public financeactivities, she argued that “central policies, local social context, and the preference oflocal officials shaped the process of local state building, creating local statevariation.”48

Along this line, Licai Wu, who studied the latest development of fee-to-tax reform,has tried to examine the political consequences of the reform And he concluded that

as a result, the state would oppress the rural society, which might hinder thedevelopment of grassroots democracy in rural areas And the reform wouldbureaucratize the township government and eliminate the intermediary between the

45

Jingyao Wang, “Principal-Agent Relationship in the Implementation of Rural Policy: An observation

on the Collection of Village Taxes and Charges,’’ Hong Kong Journal of Social Sciences, No 24

state and the mass, and thus result in direct conflict at the grassroots level.49Wu’seffort is provocative in the sense that he noticed the possible expansion of state power,which suggests that the state is not only fragmented, but also can be affected by anumber of other factors Thus the financial burden, whether shouldered by peasants or

by local governments, together with policies that are aiming at eliminating theproblem may affect the reshaping of state power, especially at grassroots level

THEORETICAL FRAMEWORK AND ARGUMENTS OF THE STUDY

Even with such a limited survey in the literature, we can see how the state-societymodel has demonstrated its strength in explaining Chinese rural politics, including thepeasant burden problem Along with the continuous intellectual efforts, this research

is also conducted within the theoretical framework of state-society model

Scholars have agreed that generally the relationship between state and society isnot characterized by domination of one over the other And based on currentachievements reviewed in the above section, we can establish the followingassumptions for a model that assembles what Migdal has termed as “state insociety”50: (1) the Chinese state reacts to social demands as peasants havedemonstrated both their will and strength in protests against the peasant burdenproblem; (2) the Chinese state is strong enough to dominate policy making andremain selectively effective in policy implementation; (3) the state must bedisaggregated both vertically and horizontally in order to understand local variations

49 Licai Wu, “The Political Consequences of the Rural Fee-to-Tax Reform in Mainland China: A Case Study of Anhui Province,” pp 85-113.

50 Joel S Migdal, Atul Kohli, Vivienne Shue, eds.,State Power and Social Forces: Domination and Transformation in the Third World (New York: Cambridge University Press, 1994).

in policy implementation; (4) the state and society are intertwined at grassroots leveland the border between state and society is with great flexibility.

Since that the later two aspects have not been sufficiently examined by previousstudies, the author will place special emphasis on the fragmentation of the state andthe flexibility of the state-society border by highlighting the pressure transferringmechanism within and beyond the state as well as the changing role of grassrootsauthorities in public goods provision

How did local governments manage to cope with the financial shortage created bythe fee-to-tax reform? To answer this question, we have to examine the interactionsbetween the state and peasantry as well as the interplay among fragments anddifferent levels within the “local” state And based on the assumptions stated above,the author proposes the following hypotheses: The fee-to-tax reform has created fiscaldeficits on local governments and township authorities shouldered the major part ofthe pressure But the townships managed to survive by diverting the pressure to theirsubordinates Besides, cutting down the provision of public goods could also serve as

an important measure to cushion the fiscal pressure on townships

Close examination of empirical evidence collected at the grassroots level confirmsthe above hypotheses, showing that there is a pressure transferring mechanism withinthe regime On the one hand, much of the fiscal pressure created by the fee-to-taxreform was placed on township governments On the other hand, when confrontingthe fiscal gap, townships have subtly adjusted to divert the pressure Besides thetransfer payments and the complementary reforms aimed at cutting down theexpenses, non-institutional tactics were employed to pass the financial stress on to

those stations and agencies in the township as well as the village administrations Thisprocess is driven by the internal logic of passing pressures from one level of the state

to the other So although the fiscal deficits created by the fee-to-tax reform have hittownship governments severely, the actual bearers of much of the pressure are thosesubordinate stations, agencies, village administrations etc Thus the fiscal pressure ontownships created by the fee-to-tax reform as well as its impacts should not be over-estimated In addition to that, the author also found that the demand and supply ofpublic goods at grassroots level are more flexible than scholars have depicted Based

on these two findings, the author concludes that the financial difficulty confrontingtownships after the fee-to-tax reform has been over-exaggerated by current studies.Although townships have managed to survive the fiscal pressure created by thefee-to-tax reform, the reform has effectively reshaped state power distribution at thegrassroots level All the measures taken by local authorities, no matter institutionalones or non-institutional ones, have greatly influenced the re-distribution

Above all, the fee-to-tax reform and the complementary reforms have changed thefunctions of the grassroots authorities, especially townships First, townships havebeen streamlined and public services institutions are stripped from the administrativeorgan Second, with further regulation of the township budget management and theestablishment of national transfer payments for townships, the fee-to-tax reform hasincorporated the townships deeper into the state financial system and caused itsfurther bureaucratization In addition, since township governments have neither theincentive nor fiscal capacities to maintain the public goods provision system, the

redefinition of local state’s functions would mean withdrawal from the sphere ofcertain public goods provision.

The role of the village administration has also been redefined Being an informalpart of the state apparatus as well as villagers’ self-government organizations, villageadministrations have been important actors in rural politics And as tax collection isnow no longer a big problem, the major work for village administrations is changedaccordingly to tasks like public goods provision and so on However, since mostvillages are no longer economically independent because their budgets are nowhandled directly by townships, their limited role of public goods provision has beengreatly hindered So the function of the village administration is greatly diminishedfrom the perspectives of both the state and the peasants

Clearly, both township and village level authorities in agricultural areas becomeless independent after the fee-to-tax reform and a series of complementary reforms.And such dependence in turn contributes to the further bureaucratization of thegrassroots state However, such dependence and thus the degree of bureaucratization

of the townships should not be over-exaggerated given that they have managed todivert much of the pressure via the pressure transferring mechanism

Further, we may raise questions on the central-local relationship: why has centralpolicy made a dent this time? In other words, if the adaptation of local state powerhas made the fee-to-tax reform successful so far, then what about the previous effortsmade by the central state? Did the local state also adapt before because of otherpolicies? If it did, then does it mean that this time the burden will also rebound asusual? The author here wishes to highlight two new characteristics of the current

reform which makes it hard to predict the accurate outcome First, the reform is made

a priority in local governments’ curriculum and thus forces the state power to change

in a way which is not so easy to rebound Second, the injection of financial resourcesfrom the center to offset the revenue losses has become a new variable.51

In sum, the author believes that by studying how fee-to-tax reform and itscomplementary reforms were initiated, implemented as well as how localgovernments coped with the subsequent negative consequences, we will be able tohave a better understanding of the state-society relations in China, especially in terms

of the fragmentation within the state and the flexibility of state-society border

RESEARCH METHODOLOGY

Given the nature of the study and the types of data available, the research adopts aqualitative approach and the author relies heavily on the method of analyticaldescription The methodology requires intensive knowledge on the targets of theresearch so that data collection is an especially important premise

Away from the secondhand data provided by newspapers, magazines and studies

by other researchers, this research is mainly based on firsthand data collected in athree-month fieldwork carried out across China in Anhui, Hubei, Hebei, Jiangsu andBeijing between July and October 2004.52The fieldwork can be divided into twoparts according to the different goals achieved

51 Some of these points were generated in the inspiring discussions and talks with my friends, especially those from the Department of Political Science, National University of Singapore Here I should express my thanks to their illuminative suggestions.

52 The author feels obliged to Asia Research Institute for their generous funding for the fieldwork, without which the fieldwork would not be successful And I should express my thanks to Hengfu Ruan

in Political Science Department of NUS, Jing Shen, Qisheng Ling, Yunxing Hu and Leyan Peng of Peking University, Xiaobing Li of Tsinghua University for their assistance during my fieldwork.

First, in each of the localities stated above, at least one village was chosen toassess the reform from the perspective of common villagers and village cadres Thesefieldwork sites were carefully chosen to represent the whole situation in the country.Table 1.2 lists the villages chosen for the study and explains the factors taken intoconsideration when choosing these sites.

Table 1.2: The Selection of Fieldwork Sites

Village

Ni53

County54, with little land for grain crops cultivation

Village

Zheng

J County, Hubei The village also lies in a National Designated Poverty

County; relies heavily on grain crops cultivation

Village

Yu

S County, Hebei A normal village, mainly relies on growing grain crops or

cotton, but enjoys some cash earning opportunities

Village

Xi

enjoy more cash earning opportunities

Village

Dong

J County, Jiangsu The village lies in the economically better off coastal

province of Jiangsu, depends on salaries from TVEs55orother sources

Special thanks should also go to Associate Professor Guoqing Hao of Hubei Provincial Party College, Professor Xuefeng He and Dr Ximing Wang in Central China Normal University.

53 To avoid possible trouble, I would not use the true names of the localities or my interviewees and correspondents in the paper.

54 In fact, development levels of National Designated Poverty Counties (NDPCs) vary greatly A poverty county may be less developed than many NDPCs while some counties on the national poverty list may be richer than some common counties This paradox occurs because NDPCs may receive special funds for relief and development while cadres in NDPCs may get promotion and other rewards

non-if the county they serve graduates from the list But generally speaking, those counties designated as poverty counties are relatively poorer.

55

Nowadays, the number of so called TVEs has diminished greatly in the province as many of these enterprises have been turned into private ones, indicating a failure of the Southern Jiangsu model compared with Zhengjia model in developing local economies However, it cannot be viewed as a purely market function because the local governments have greatly involved in “pushing the change of ownership” (tuijin gaizhi) Given this situation, I would include those private enterprises in the concept

of TVEs in this paper To learn more about how local authorities involved in the “change of ownership”, please refer to: Pan Wei,Politics of Marketization in Rural China: The Coalition between Grassroots Authorities and Rural Industries (Beijing: Shangwu Yinshuguan, 2003).

In the selected villages, in-depth interviews with village cadres have generatedrich data as well The following set of items has been included in the menu for thevillage cadres during the fieldwork: the income and expenses before and after thereform; provision of local public goods; real changes in peasant burden; the changes

of the manner and degree of intervention from the township government; etc Further,semi-structural interviews were conducted among villagers56to assess the impacts ofthe reforms on their everyday life and their attitudes towards the reform And theselection of correspondents was random Although information from commonvillagers was usually inaccurate and nonsystematic, this effort is an essential part tomeasure the variable of public goods provision by local authorities In addition to that,

it also provides a chance to check the validity of the data provided by cadres

Second, to examine the fiscal pressure on townships and how they managed todivert the pressure, township cadres were accessed whenever possible On theseoccasions, the author focused on the following components: the fiscal pressurebrought about by the reform, how they responded to alleviate the pressure, how itaffected the control over village cadres, how it affected the provision of public goods,any reduction in the personnel at the township level or the village level, how to keepthe village cadres’ enthusiasm in managing the villages and completing the tasksassigned from above, and so forth Such effort was especially successful in Hubei,where the author managed to conduct in-depth interviews with cadres from fivetownships across the province So the analysis of township reforms was exclusively

56 In most occasions in the paper, the term “villagers” is equal to “peasants”, meaning rural (or urban) citizens It is acceptable because of the notorioushukou (registration of permanent residence)

non-system: although rural citizens may find jobs in the city, they are still regard as peasants or migrant workers if hishukou is still in the countryside And all rural citizens are supposed to contract a piece of

land from the state.

based on the data from Hubei The author feels justified because this research focuses

on the agricultural areas of China and Hubei was very typical in the fee-to-tax reform

as well as the subsequent complementary reforms

LIMITATIONS OF THE STUDY

There are several limitations in this research which need to be highlighted here In thefirst place, although the author has chosen the sites on purpose to represent the wholecountry, we should still be cautious to apply the findings in this research to eachspecific situation in China After all, China is such a big country with such greatdiversity that we can never expect five villages to demonstrate all the characteristics

of the Chinese countryside To make a bolder claim on generalizing the findings, weneed a much larger sample which cannot be afforded for a Master thesis

In the second place, for practical reasons, firsthand data on county level or higherauthorities were not available to the author, with which a more systematic model fromthe top to the bottom may be built To make up, the author relies on media andfindings by other researchers for relevant information However, this part remainsweak in the paper

Another problem is about the definition of state power, a concept which is vague,

if not controversial Some scholars urge that, “States must be disaggregated.”57Andthey suggest that “the overall role of the state in society hinges on the numerousjunctures between its diffuse parts and other social organizations.”58Bearing this in

57 See “Introduction: Developing A State-in-Society Perspective,” in Joel S Migdal, Atul Kohli and Vivienne Shue (eds.),State Power and Social Forces (New York: Cambridge University Press, 1994),

p 3.

58 ibid.

mind, the author here does not bother to trace the evolution of the concept per se, butfocuses on two specific aspects of it, namely the ability to provide public goods andthe degree of bureaucratization at the local level These two aspects don’t necessarilyconflict with each other, neither are they mutually complementary By focusing onthese two aspects, the author attempts to disaggregate state power vertically andhorizontally at the local level and hopes it will be the beginning for future research.

ORGANIZATION OF CHAPTERS

The focus of this study is the interaction between township and villageadministrations as well as that between local governments and the peasantry Byanalyzing the implementation of the fee-to-tax reform and its subsequent reforms, theauthor tries to unveil the logic of grassroots politics in rural China The chapters areorganized as follows

In Chapter 2, the historical background of the fee-to-tax reform, i.e the evolution

of the peasant burden problem will be introduced in the first section After that, thefee-to-tax reform at national level will be introduced, from its origin to the demise ofthe agricultural tax Finally, the dilemma confronting the grassroots authorities,especially the township governments, will be brought in before the chapter closes.Chapter 3 will be devoted to presenting facts about the fee-to-tax reform and itscomplementary reforms collected through fieldwork, reports as well as researches byother scholars The chapter will focus on the following aspects of the reform: burdenreduction on peasants, the fiscal pressure on townships, its consequences and theintuitional countermeasures

Chapter 4 will give priority to theoretical analysis within the state-society model.The pressure transferring mechanism will be led in to explain how townships havemanaged to divert a large part of the fiscal pressure created by the fee-to-tax reform.And after that, several characteristics of grassroots public goods provision will behighlighted before concluding the chapter by focusing on the re-shaping of local state.Chapter 5 is the conclusion of the thesis, which not only presents the findings ofthe study and suggestions for further research, but also offers some policyimplications Although central policies can effectively re-shape the local state, it isdoubtful whether they would re-shape the local state in the way the center hasdesigned it This chapter also endeavors to explore the peasant burden problem in abroader view by relating it to the grassroots democracy in rural China.

Chapter 2 Peasant Burden and Fee-to-tax Reform:

Historical Background

Peasant burden was a common problem in Chinese history as China was an agrarianeconomy and land taxes were the major source of revenue for the imperialgovernment as well as the successive Republican regime In the Maoist era, theagricultural sector contributed greatly to China’s rapid industrialization and “peasantsbecame residual claimants to the harvest, after the collectives and the state had takentheir share” Thomas Bernstein and Xiaobo Lü have made a splendid historicalcomparison of the burden problem in their Taxation without Representation in Contemporary Rural China, so the author does not intend to duplicate the process

here.59 However, to understand why the problem persists despite the centralgovernment’s continuous efforts, and further why the recent fee-to-tax reform hassuccessfully made a dent in the problem, people have to answer the followingquestions: What is peasant burden? How did “peasant burden” become a problem inChina’s reform era and how did it evolve? What are the reasons for this problem?This chapter tries to answer these questions before describing the trial and expansion

of the fee-to-tax reform and the demise of the agricultural tax After that, the fiscalpressure brought about by the fee-to-tax reform will be discussed in brief before weshift to the grassroots perspective in Chapter 3

59 Thomas Bernstein and Xiaobo Lü,Taxation without Representation in Contemporary Rural China,

Chapter 2.

PEASANT BURDEN AND ITS EVOLUTION

“‘Peasant burden’ (Nongmin fudan) refers to an array of formal and informal

exactions both legal and illegal.”60Most researchers on the peasant burden issuewould agree with this definition of the term However, when it comes to its specificcontents, different opinions emerge The narrowest definition of the term, which israrely adopted by researchers in the field, consists of only unified planned fees andvillage retained fees (xiang tongchou and cun tiliu, or santi wutong).61

Meanwhile,some researchers have gone to the other extreme by including gifts expenditure(renqing) into peasant burden.62

This definition has gone too far and has littleinfluence in the academic sphere The most widely accepted working definition of

60 Thomas Bernstein and Lü Xiaobo,Taxation without Representation in Contemporary Rural China, p.

50.

61 The five “xiang tongchou” fees are education supplement fee, social help fee, family planning fee,

collective transportation fee and militia exercises fee And the three “cun tiliu” fees are public

accumulation fee, public welfare fee and administrative fee For detailed information see: “Guowuyuan guanyu qieshi jianqing nongmin fudan de tongzhi” (“Circular on Earnestly Alleviating the Peasant Burden”), 2 February 1990 A version of the text can be found on this website: http://www.fjnk.org.cn/zhengche/jcnmfd90.htm , accessed 5 October 2004 There are evolutions in official documents as well The Agriculture Law of the People's Republic of China passed in 1993 classifies reasonable and unreasonable burdens on peasants Those reasonable burdens include formal taxes, township and village levies (cun tiliu and xiang tongchou fees) as well as corvee labor services

(lianggong) Although only a few scholars adopt these official definitions of peasant burden, we can

never overlook its influence because governmental policies were actually made and carried out based

on such definitions Besides, Xiaohe Ma noted that depending on different objectives and purposes of the work, understandings of peasant burden may vary For instance, when assessing the achievements

of burden reduction effects, governmental offices tend to narrow the border of peasant burden to township and village levies See Xiaohe Ma,Woguo Nongcun Shuifei Gaige Yanjiu (Study on China’s Rural Fee-to-tax Reform) ( Zhongguo Jihua Chubanshe, 2002), p 215.

62

Yadong Fan and Dawei Wang, “Qinggangxian Nongmin Fudan Wenti Diaoyan Fenxi”(“Analysis of the Investigation on Peasant Burden Issue in Qinggang County”), Nongye Jishi Jingji (Agricultural Technological Economy), No 2 (2003), pp 60-64 “Renqing” is one of the troublesome Chinese

concepts It is similar to gift expenditure, but a bit more complex than it It can be better understood in association of “guanxi” (relations), which has attracted quite some attention from western scholars Renqing is to a certain extent based on guanxi The amount of renqing depends on the closeness

between the one who sendsrenqing and the one who receives it It also depends on the sender’s

economic well-being One can send less if he is poor or short of cash But there is still a kind of social standard, and those who can’t meet the standard are usually looked down upon So, poor families usually choose to maintain a narrowerguanxi net, as well as cutting the amount of each But rarely

would a family omit this expenditure totally because the renqing network in fact works as a social

welfare system and would provide relief in times of hardship A famous book on the topic is: YunxiangYan,The Flow of Gifts (Stanford, CA: Stanford University Press, 1996).

peasant burden includes state taxes (agricultural tax, agricultural specialty tax, etc.),land contract fee, township unified planned fees and village retained fees, monetaryequivalent of corvee labor services, fees, assessments and fundraising, fines as well as

“hidden burdens.”63

The evolution of peasant burden can be divided into three major phases during thereform era The first phase lasted from 1978 to 1988 when the increase in burden isslower than that of income The second phase was from 1988 to 1992 when theintensity of burden grew rapidly The third phase began after 1992, and during whichthe burden rates fluctuate year by year.64Liming Xu et al believed that situationdeteriorated in general during the third phase despite fluctuations in the burden rate.65However, Ran Tao et al based on a data set66covering 10 provinces from 1986 to

1999, pointed out that “on average, there has been no significant increase of ruraltaxation as a share of rural net income in the period….and the 1990s has seen evenless increase.”67Two factors contribute to the seemingly conflicting observations inthe third phase First, the burden problem became more acute without significant

63 “Hidden burdens” are compulsory grain sales to state below market prices, scissors differential between industrial and agricultural products See Bernstein and Xiaobo Lü, Taxation without Representation in Contemporary Rural China, p 50 Also see Ran Tao and et al., “Zhongguo Nongcun

Shuifei Fudan: Yige Zhengzhijingjixue de Kaocha” (“Tax and Fee Burden in Rural China: A Study from the Perspective of Political Economics”), Working Paper of CCER, Peking University, 26September 2002 http://www.usc.cuhk.edu.hk/webmanager/wkfiles/1792_1_paper.pdf , accessed 20 January 2005.

64

Meijun Sun, “Nongmin Fudan de Xianzhuang jiqi Guozhong de Genyuan” (“Current Situation of Peasant Burden and the Roots for Its Overweight”) Zhongguo Nongcun Jingji (Chinese Rural Economy), No 4 (1998), pp 7-12.

65 According to Xu, the three phases are 1978-1988, 1988-1992 and 1994-1999 No reasons are given for neglecting the year 1993 Liming Xu, Linsheng Zhang and Zhiheng Wang,Nongcun Shuifei Gaige Chuyi (Meager Opinions on Rural Fee-to-tax Reform) (Beijing: Zhongguo Nongye Kexue Jishu

Chubanshe, 2002), p 86.

66 Ran Tao, Justin Yifu Lin, Mingxing Liu and Qi Zhang, “The Problem of Taxing Farmers in China,” paper prepared for 25th International Conference of Agricultural Economists (IAAE), August 2003 The data set is from the Fixed Point Rural Survey carried out by the Fixed Point Rural Survey Office, i.e., the Survey Department of the Research Center on the Rural Economy (RCRE), at the Ministry of Agriculture of Beijing See Footnote 5 of their paper.

67 ibid.

increase of rural taxation rate because of “the increase of rural income disparity after1990s and the uneven tax and fee distribution among different income groups.”68Second, invisible illegal burden grew rapidly or at least remained heavy althoughlegal burden remained stable or even decreased during this phase.69

It would be evident that the combination of low income and heavy exactionsmakes burden a problem But why is the burden heavier in some regions and not inothers? And why are extractions in many areas heavier than before? A lot of otherfactors should be taken into consideration in order to explain the variance across timeand across areas Among the rest, a clear fact is that China’s rural areas havedeveloped unevenly in the past 26 years of reform While peasant burden was notdistributed according to the benefits of reform, burden rates vary in different parts As

a result, peasant burden in agricultural areas is excessively heavy.70In addition, thegrowth of burden rates often exceeds that of peasants’ income, making the problemworse during some years.71Qisheng Gong et al., adopting a quantitative approach,tested three factors that are supposed to have affected the heaviness of burden,namely collective income, overstaffing of local authorities and rent-seeking behavior

68 ibid.

69 Rural Economy Investigation Team, National Statistical Bureau, “Jianqing Nongmin Fudan Xiyou Bingcun” (“Co-existence of Gratifications and Anxieties in Peasant Burden Reduction”), Diaoyan Shijie (Fieldwork World), No 10 (1999), pp 11-13 In addition to that, there are other ways for the

local cadres to keep the reported burden rate low without actually cutting down the burdens Please refer to Anonymous author, “Toushi Nongmin Fudan: Laizi Jiceng de Baogao” (“Insight into Peasant Burden: A Report from the Grassroots Level”) This paper was first posted in a forum and was then widely circulated http://www.usc.cuhk.edu.hk/wk_wzdetails.asp?id=2756 , accessed 22 January 2005.

70 Thomas Bernstein and Xiaobo Lü,Taxation without Representation in Contemporary Rural China;

Ran Tao et al., “The Problem of Taxing Farmers in China”; Pigai Zhou, “Gaige yilai Nongmin de Fenhua yu Pingtan Shuifei de Fangshi”(“Stratifications of Peasants in Reform Era and the Equally Apportioned System of Rural Tax and Fee”),Shehuixue Yanjiu (Sociology Research), No 6 (2003), pp.

84-93.

71 Lucien Bianco, “Peasant Revolts from Pre-1949 Days to the Present,” China Perspectives, No.24

(July -August 1999), pp 56-65; Lucien Bianco,Peasants without the Party: Grass-roots Movements in Twentieth-Century China (Armonk, N.Y.: M.E Sharpe, 2001); Thomas Bernstein and Xiaobo Lü,

“Taxation without Representation: Peasants, the Central and the Local States in Reform China.”

of local cadres Their tests confirmed the impact of collective income andoverstaffing on burden but found no evidence to verify the influence of rent-seekingbehaviors of local cadres on the issue.72However, rent-seeking of local cadres, orcorruption, was also widely accepted as a factor contributing to the deterioration ofthe burden problem.73On the one hand, corruption directly results in a rise of localpeasant burden On the other hand, the connection between corruption and peasantburden also distorts villagers’ expectation of fairness and justice.

However, the factors discussed above were relatively less profound reasons forarbitrary extractions of local authorities In fact, the fiscal and taxation system should

be held responsible for the problem Experts have long criticized the old fiscal andtaxation system for its inability to match financial resources with task implementationbetween central and local states The 1994 taxation system reform, which raised thecentral state’s revenue share, did not change the situation at all In fact, the reformincreased the financial thirst in localities and drove local cadres to search for newsources for funds.74Shouyin Zhu concluded that the newly introduced tax-sharingsystem (fenshuizhi) failed to escape the vicious circle of the old fiscal-contracting

72 Qisheng Gong, Feizhou Zhou and Yang Zhao, “Difang Jingji, Caizheng he Ganbu Xingwei: dui Nongmin Fudan de Yige Dingliang Fenxi” (“Local Economy, Finance and Cadre Behavior: An Quantitative Analysis of Peasant Burden”)Zhongguo Xiangcun Yanjiu (China Rural Studies), Vol 2,

2003, pp.197-218 The authors admitted that there were limitations in their studies, among which was that they failed to distinguish many of the burdens or even excluded some of those fines, administrative fees and apportions These exactions might add great variances to the final result of their findings.

73 Lianjiang Li and Kevin J O’Brien, “Villagers and Popular Resistance in Contemporary China,”

Modern China, Vol 22, No 1 (January 1996), pp 28-61.

74

One primary goal of the introduction of the tax-sharing system was to enhance the central state’s capacity to balance the regional development in China For details, please refer to: Tingsong Jiang, Zhiyun Zhao, “Government Transfer Payments and Regional Development in China,” Proceedings of the 15thAnnual Conference of the Association for Chinese Economics Studies Australia (ACESA) See also Christine P.W Wong, “Central-local Relations Revisited: the 1994 Tax-sharing Reform and Public Expenditure Management in China,” Paper for the International Conference on “Central- Periphery Relations in China: Integration, Disintegration or Reshaping of an Empire?” Chinese University of Hong Kong, 24-25 March 2000.

system (caizhengbaoganzhi) On the contrary, it created stronger incentives for all

levels of governments to pursue additional revenue In order to secure its ownproportion in the sharing of fiscal resources, each level of the government setincreasingly higher targets for its subordinate levels.75And the absence of effectivemonitoring within the current fiscal system has led to low efficiency in publicresource utilization, which in turn adds to the financial burden on peasants.76

Above all, the non-progressive agricultural taxation system is outdated,inadequate for a market economy, unfair to peasants, and hinders agricultural andrural economic development.77 With the commencement of the tax-sharing system,local authorities with limited revenue sources have strong incentives to increase theagricultural tax and the agricultural specialty tax as both were local taxes.78Furthermore, the low rate of the agricultural tax has not only made its collection cost-inefficient, 79 but also forced local governments to impose other extractions on

75 Shouyin Zhu, “Nongcun Jiceng Zhidu Chuangxin yu Shuifei Tizhi Gaige Wenti Yanjiu” (“Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform”), in Ministry of Agriculture Rural Economy Research Center (eds.), Zhongguo Nongcun Yanjiu Baogao 1999 (China Rural Research Report 1999) (Zhongguo Caizheng Jingji Chubanshe, 1999), p 114.

76 Chen Xiao, “Nongcun Shuifei Zhidu Gaige de Nandian yu Silu” (“The Difficulties and Consideration on Rural Tax and Fee System Reform”), Zhongguo Nongcun Jingji (Chinese Rural Economy), No 10 (1999), pp 4-10.

77 Yuanhong Zhang, “Lun Zhongguo Nongye Shuizhi Gaige” (“On China’s Agricultural Taxation Reform”)Zhongguo Nongcun Jingji (Chinese Rural Economy), No 12 (1997), pp 4-11, 16; Qinglin

Duan, “Woguo Nongye Shuishou jiqi Tidai Jizhi de Ruohua yu Gaige Wenti Yanjiu” (“Study on the Weakening of the Substitution Mechanism of Our Country’s Agricultural Taxation and Its Reform”),

Zhongguo Nongcun Jingji (Chinese Rural Economy), No 2 (1998), pp 49-56; Renjian Tang, “Nongye

Shuifu Zhidu Gaige Yanjiu” (“Study on Agricultural Taxation System Reform”) Zhongguo Nongcun Jingji (Chinese Rural Economy), No 1 (1995), pp 37-42; Asian Development Bank, “Technical Assistance to the People’s Republic of China for the Agricultural Taxation Reform Project,” September 2004; Shouyin Zhu, “Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform,” pp 131-132; Tiejun Wen,Zhongguo Nongcun Jiben Jingji Zhidu Yanjiu: ‘Sannong’ Wenti de Shijie Fansi (Research on Basic Economic Institution in Rural China: Reflection on

“Sannong” Issue in the New Century) (Zhongguo Jijing Chubanshe, 2000), Chapter 11.

78 Yuanhong Zhang, “On China’s Agricultural Taxation Reform”; Tiejun Wen, Research on Basic Economic Institution in Rural China.

79 Shouyin Zhu, “Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform,” p.

132 Tiejun Wen,Research on Basic Economic Institution in Rural China.

peasants.80 Thus the township and village levies are the main sources foradministrative fees and the provision of local public goods Claude Aubert andXiande Li argued that, “Whereas in the collective era the upper levels of governmenttook a part of farmers’ harvest for the working of administration and provision ofpublic goods, such as education, cooperative medicine, infrastructures, etc., under thenew institutional framework the individual farmers were to pay directly the variousfees for the local government.”81

However, the quasi-taxes of township and village levies system were also widelycriticized.82 Researchers like Yanxin Huang pointed out that the establishment oftownship levies is “extra-economic coercion” on peasants, which penetrates theproperty rights of the peasants and the village collectives Thus it is not strange thatHuang believes the famous Administrative Regulations on Fees and Labor Services Borne by Peasants issued by the State Council in 1991 actually legalized these

unjustified burdens on peasants.83

Since local governments are responsible for local public goods provision and forfulfilling numerous unfunded mandates from upper levels at the same time,insufficient funding would force townships and villages to impose legal or illegalextractions on peasants The inefficient administrative and rural management system

80 Meijun Sun, “Current Situation of Peasant Burden and the Roots for Its Overweight”, p 10 Tiejun Wen,Research on Basic Economic Institution in Rural China.

81 Claude Aubert and Xiande Li, “Peasant Burden: Taxes and Levies Imposed on Chinese Farmers,” in

Agricultural Policies in China after WTO Accession, OECD, Paris, 2002, pp 160-179.

82 Shouyin Zhu, “Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform”; Jianmin Liu, Huang Ouyang, Jinguang Wu, “Feigaishui: Nongcun Gonggong Fenpei Guanxi Gaige de Tupokou” (“Fee-to-tax: Breakthrough in Reform Rural Public Distribution Relationship”) Nongye Jingji Wenti (Issues in Agricultural Economy), No 2 (2000), pp 34-39.

83

Yanxin Huang, “Nongmin Fudan Guozhong de Zhiduxing Genyuan he Duice” (“Institutional Roots

of Excessive Peasant Burden and the Couter-measures”)Zhongguo Nongcun Jingji (Chinese Rural Economy), No 5 (1994), pp 38-42.

has made the situation worse Without sufficient supervision on governmentalbehavior, imposing illegal extractions or collecting illegal funds together with legalones became more tempting for the local governments who were desperately seekingmoney.84In addition to that, politically powerless peasants were in a disadvantagedbargaining position as there are no organizations and institutions to protect their rightsand interests.85Given that the monitoring system is absent or ineffective, they are notable to refuse the arbitrary charges imposed on them.

FEE-TO-TAX REFORM: VOLUNTARY EXPERIMENTS BEFORE THE

NATIONAL REFORM

Like many other reforms in contemporary China, local authorities took the initiative

to amend the rural taxation system So although the fee-to-tax reform was not pushedforward nationwide until 2002,86it was experimented in certain localities as early as

in 1992.87The watershed of the reform was 2000, when the entire Anhui Provincewas designated as a pilot district by the central state There are no statistics on howmany localities experimented similar reforms before Anhui Province, but it is evident

84 Yanxin Huang, “Institutional Roots of Excessive Peasant Burden and the Counter-measures”; Shouyin Zhu, “Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform”; Chen Xiao, “The Difficulties and Consideration on Rural Tax and Fee System Reform,” p 8 See: Ran Tao

et al., “The Problem of Taxing Farmers in China”; Meijun Sun, “Current Situation of Peasant Burden and the Roots for Its Overweight”.

85 Shouyin Zhu, “Study on Rural Grassroots Institutional Innovation and Tax-fee System Reform”; Bernstein and Lü,Taxation without Representation in Contemporary Rural China.

86 As has been introduced in the Chapter 1, twenty provinces were included in the piloting scheme in

2002, covering 620 million peasants, or ¾ of the agricultural population Zhu Shouyin et al., “Nongcun Shuifei Gaige Shidian he Xiangcun Guanli Tizhi Gaige Genzong Yanjiu Baogao” (“Research Report

on Rural Pilot Fee-to-tax Reform and Rural Administrative System Reform”),Economics Research Review (Jingji Yanjiu Cankao), No 40 (2003), p 2.

87 The notion of the reform can be traced back to the late 1980s when the famous advocator, Kaimeng

He, who was then a consultant of Anhui Province, proposed to regulate the fee and tax collection in rural China And in 1992 the first attempt was witnessed in Woyang County, Anhui Province, where the peasant burden problem was most acute See Bo Ren, “Nongcun Shuifei Zhibian” (“Transformation in Rural Taxation”),Caijing Magazine, No 15 (August 2002), p 49.

that various pilot schemes were conducted in at least 50 counties in 7 provincesbetween 1993 and 2000.88Xiaohe Ma classified all these pilot schemes into threepatterns The first is to collect agricultural taxes and fees in kind, like the “PublicGrain Reform” (gongliangzhi gaige) in Zhengding County, Hebei Province and Taihe

County in Anhui Province In these reforms, agricultural fees and taxes were mergedand collected in the form of public grain The second is “fee-to-tax” reform, as wascarried out in Wugang, Hunan Province In Wugang, the township unified plannedfees and village retained fees were turned into a new “rural public welfare tax” andcollected in cash while the agricultural tax, the agricultural specialty tax and theslaughter tax were untouched The rate of the new public welfare tax was strictlyrestricted to 5% of the peasants’ net income provided by the local statistical organs.The third is “comprehensive burden contract based land”, represented by the reform

in Yangdang Township, Zhaoyang City, Hubei Province This time, all the variousburdens including both the taxes and the local levies were put into a contract whichshould not exceed the amount of 250yuan/mu on average.89

88 This figure is cited from: Xiaohe Ma,Study on China’s Rural Fee-to-tax Reform, p 41 According to

Office of Rural Reform Pilot Districts, MOA, there were already around 50 county or cities in seven provinces involved in the trial by the end of 1994 See: Office of Rural Reform Pilot Districts, MOA,

“Nongye Shuifei Zhidu yu Liangshi Gouxiao Tizhi Tongbu Gaige de Tansuo: Guanyu Nongcun Jiceng Shuifei Gaige Shidian Qingkuang de Zonghe Fenxi Baogao” (“Exploration of the Agricultural Taxation System and Grain Procurement System Reform: Comprehensive Analytical Report on Rural Grassroots Taxation Reform Pilot”), Zhongguo Nongcun Jingji (Chinese Rural Economy), No 9

(1995), pp 16-22, 28 And Tiejun Wen mentioned that in 1998, the experimental reform has been extended to 70 counties (or county-level cities) in Anhui, Hebei, Hunan, Guizhou, Henan, Shaanxi and etc See Tiejun Wen,Research on Basic Economic Institution in Rural China, p 428.

89 Xiaohe Ma,Study on China’s Rural Fee-to-tax Reform, pp 41-42 See also Shouyin Zhu, “Study on

Rural Grassroots Institutional Innovation and Tax-fee System Reform”, pp 132-135 。As pointed out

by many researchers, this wave of experiments was not aiming at cutting down peasants’ burden in nature And the reform plans per se provide plenty of opportunities that can be manipulated by the local authorities to secure their revenue But these measures did succeed in reducing peasants’ burden under certain circumstances.

In fact it is not proper to categorize all the experiments into three patterns as theywere carried out with evident local color and were frequently adapted in each locality.

So it’s not strange that Tiejun Wen summarized the reforms differently Wen rightlyobserved that there were in fact two phases in the voluntary experiment period Heargued that between 1994 and 1996 was a period when preliminary pilots werecarried out in Taihe of Anhui, Xinhuang of Hubei, Meitan of Guizhou and Zhengding

of Hebei, which were under the instructions of the Office of Rural Reform PilotDistricts, MOA The second phase began in 1997 and ended in 2000, when thereforms were pushed by some local authorities on their own.90 By dividing theexperimental period into two phases, we can derive the basic logic and incentives oflocal governments in different localities which shape the experimental schemes Suchlogic and incentive structure was still in work when the nationwide reforms camelater According to Wen, the second phase differed from the first mainly in threeaspects First, there was a shift from fixing the total amount of public grain due andcollection in kind to setting the total amount of cash due and collecting money.Second, the total amount of the burden due varied each year in the second phaserather than remaining constant for three years once the amount was settled Third,there was a change in the content of the total amount included In the first phase, onlylegal taxes and levies were included in the scheme, while in the second phase, otherextractions were merged as well.91

Then why were local governments were so enthusiastic about the trial? And whatfactors have contributed to the changes between the two phases? Indeed, during the

90 Tiejun Wen,Research on Basic Economic Institution in Rural China, pp 428-430.

91 Tiejun Wen,Research on Basic Economic Institution in Rural China, pp 430-431.

first phase, almost all parties involved benefited from the reforms: the burden onpeasants was constrained if not cut down; the costs incurred by the local governmentsdeclined and the collection of taxes and fees much easier;92 banks saved cash asgrains were collected in kind; grain procurement stations also benefited as a bigportion of grain were collected without cash which in turn saved labor force and bankinterests.93

It seemed that the reform turned out to be a win-win model If that holds, thenwhy did local authorities seek to change in the second phase? One key variable thatmight explain the variation was the dual-track system of the grain prices.94In the firstphase, what contributed to the “win-win” outcome was the higher grain price in thefree market during 1993 and 1996 Renjian Tang and Yue Wu pointed out tricks inthe system, which provided convincing answers to both questions raised at thebeginning of the paragraph.95Tang and Wu disclosed that “According to statistics ofthe 11 years since 1985, there were only 2 years in which government-set quota

92 The simplification of collection mode greatly reduces the cost of taxation Scholars suggest that in the later half of 1990s, tax and fee-collection has become the heaviest load on township and village authorities Liming Xu and et al suggest that the weights of the three major tasks on local state varied greatly in different periods And the weight of fee and tax collection increased from 5% in the early and middle 1980s to 10% in late 1980s to early 1990s and finally to 70% in the late 1990s See Liming

Xu and et al.,Meager Opinions on Rural Fee-to-tax Reform, p 158.

93 Office of Rural Reform Pilot Districts, Ministry of Agriculture, “Exploration of the Agricultural Taxation System and Grain Procurement System Reform,” p 19 The report not only mentioned the above merits, but also carried out detailed explanations Several other effects were also mentioned in it.

94 In the initial phase, the agricultural taxation reform was closely related to the grain procurement system reformation See: Office of Rural Reform Pilot Districts, Ministry of Agriculture, “Exploration

of the Agricultural Taxation System and Grain Procurement System Reform.” To learn more about the grain distribution system and the evolution of the dual-track system, please refer to the following tow articles: Dewen Wang and Ji Huang, “Zhongguo Liangshi Liutong Tizhi Gaige: Shuanggui Guodu yu Shuanggui Zhongjie” (“Reform of Chinese Grain Circulation System: Double-Track Transition and the End of Double-Track”),Reform, No 4 (2001), pp 99-106; Hiromi Yamamoto, “Marketization of the

Chinese Economy and Reform of the Grain Distribution System,”The Developing Economies, Vol 38,

No 1 (March 2000), pp 11–50.

95

Renjian Tang and Yue Wu, “Zhongguo Liangshi Liutong Tizhi Gaige: Xianzhuang, Mubiao yu Silu” (“Reform of Chinese Grain Circulation System: Current Situation, Target and Logic”), Zhongguo Nongcun Jingji (Chinese Rural Economy), No 11 (1996), 3-8.

prices were higher than market-set prices And in the rest 9 years market pricesexceeded governmental prices by 20% to 100%.”96 Given this fact, it was notsurprising that peasants were unwilling to “sell” their harvest to governmental grainstations The measures taken in the reform, however, circumvented the problem to acertain extent Tiejun Wen suggested that besides the reduction in peasant burden,peasants in pilot areas welcomed the new scheme because it had made extractionsfixed, straightforward and understandable And since the amount of extractions wouldremain constant for three years once settled, there would be a ceiling of the burdenand arbitrary charges could be avoided In addition to that, by merging fees and taxes,local governments took advantage of the legitimacy of state taxes.97 In all, bycollecting grain in kind, local governments not only managed to make the collection

of taxes and fees much easier, but also benefited greatly from the gap between marketand governmental prices, together with local grain stations and banks

But the market was unpredictable Grain prices in the free market have declinedgradually since the latter half of 1996 When the market prices went below thegovernmental prices, problems emerged as no surplus would be generated bycollecting grain in kind and keeping the total amount constant for three years oncesettled On the contrary, local governments as well as the relevant grain stations andbanks would lose money if they stuck to the previous schemes Tiejun Wen regardedthis as the most fundamental reason why in the second phase, there was a shift fromcollecting grain to collecting cash or collecting grain according to the lower market

96 The authors further calculated that “In 1995, the price gap between the market and the governmental prices was 0.6 yuan/kilo to 1 yuan/kilo and the peasants lost 30 billion yuan in all if the amount of

governmental procurement was 50 million kilos.” See Renjian Tang and Yue Wu, “Reform of Chinese Grain Circulation System: Current Situation, Target and Logic,” p 4.

97 Tiejun Wen,Research on Basic Economic Institution in Rural China, p 432.

prices rather than the official prices.98The change in the content of the total amountincluded could be partly explained as the drainage of the surplus had severely reducedthe revenue of the local governments in pilot In order to make up the revenue loss, itwas a very tempting option for them to include other extractions in the total amount.Here, the author does not intend to criticize local governments for the pursuit ofrevenue and economic benefits In fact, the thirst for financial resources was common

in many areas, particularly in those backward agricultural provinces because localgovernments were assigned so many tasks without sufficient funds.99And as hasalready been mentioned earlier, the 1994 taxation system reform increased the fiscalstarvation of local governments as it increased the central state’s portion of revenuebut failed to strengthen its fiscal transferring capability.100 However, what ishighlighted here is that in general, cutting down the peasants’ burden was obviouslynot the primary drive for the local governments and should be viewed as a side-effect

of the innovation These pilot reforms can be viewed as helpful in probing in ruraltaxation reforms, but the impact on peasant burden should not be overestimated

FEE-TO-TAX REFORM AT THE NATIONAL LEVEL

Although the center was keeping an eye on the reforms and intervened to a certainextent, local governments were the dominating driving force in this period Asalready pointed out above, it is not rare in China’s transitional period that localgovernments take the initiative in trying certain policies within their administrationbefore the central state generalizes it and pushes it across the country With the

98

Tiejun Wen,Research on Basic Economic Institution in Rural China, p 432.

99 Thomas Bernstein and Xiaobo Lü,Taxation without Representation in Contemporary Rural China.

100 For details, please refer to the works listed in Footnote 74.

beginning of the new millennium, the central government decided to make a seriousattempt In March 2000, the Central Committee of the CCP issued its No 7Document, naming Anhui to carry out the rural taxation reform at the provincial level.The document also allowed other provinces to select certain counties or prefectures tocarry out the pilot With a temporary suspension in 2001, the State Council decided toresume and expand the trials to include most provinces in central and western China.The Province of Jiangsu in 2001, and Shanghai and Zhejiang in 2002, carried out thereform with their own financial resources and fiscal capabilities Unlike localauthorities, one of the primary goals of the central government was to alleviate theburden on peasants.101 In addition to that, the reform in this period was morefundamental compared with the local level trials because the taxation system per sewas under renovation as some taxes, fees and levies were abolished and transferpayments were allocated from the central government.

Being the blueprint of the fee-to-tax reform, the No 7 Document prescribed aseries of measures to achieve the goal of lightening the burden on peasants: (1)Township levies, fees for administrative and institutional purposes as well asgovernmental funds and fund-raising activities on peasants like rural educationalfund-raising should be abolished; (2) the Slaughter Tax would be cancelled; (3)unified corvee labor (yiwu gong) and accumulation labor (jilei gong) should be

abrogated; (4) policies concerning the agricultural tax and the agricultural specialtytax would be adjusted and the agricultural tax should not exceed 7% of the average

101 According to the Circular of CCPCC and State Council on the Pilot of Rural Fee-to-tax Reform, the guideline of the reform is to regulate the rural taxation system, to control arbitrary levies on peasants from the root, to reduce peasants’ burden effectively, to further consolidate the grassroots regime and

to promote healthy development of rural economy and the long term stability in rural society See:

“Circular of CCPCC and State Council on the Pilot of Rural Fee-to-tax Reform.”

output of the five years before 1998; and (5) the ways of collecting and spendingvillage retained fees should be modified and the retained fees would be collected inthe form of surcharge and the total amount should not exceed 20% of the agriculturaltax The directive left it for provincial governments to decide whether to collect theagricultural tax and its surcharge in kind or in cash Besides the above operationalguidelines, the document also put forward a set of supplemental innovations,including standardizing the management of rural fee extractions, streamlining thetownship institutions and staff, reforming and adjusting county and township fiscalmanagement system, establishing and strengthening the peasant burden supervisionmechanism and enacting supplemental documents to secure the piloting reform.Anhui has faithfully followed the guidelines in its experiment except that corveelabor and accumulation labor were annulled gradually instead of immediately.Sources confirm that the burden on peasants in the province decreased and threearbitrary levies (sanluan) were regulated.102

According to Xiaohe Ma, the reform hasachieved five fruits:

“First, the peasant burden has been greatly reduced and arbitrary levies wereeffectively regulated Second, the reform has standardized the rural distribution

102 The three arbitrary levies (sanluan) include arbitrary taxation (luan shoufei), arbitrary fines (luan fakuan) and arbitrary expropriation (luan tanpai).Although the reduction rate varied in different reports,

but in most cases the figure is over 30% A set of widely accepted data are as following: A total amount of 1.69 billionyuan fees and taxes has been cut in the province, with the burden on each

peasant decreasing from 109.4yuan to 75.5 yuan The reduction rate is 31% The rate could have been

higher if the abolition of corvee labor services and othersanluan extractions are calculated in See He

Ye, “Anhui Nongcun Shuifei Gaige de Shijian yu Sikao” (“Practice and Reflections on Rural tax Reform in Anhui”),Nongcun Jingji (Rural Economy), No 2 (2001), p 28; Lufeng Liu, “Anhui

Fee-to-Nongcun Shuifei Gaige: Jiejue ‘Sannong’ Wenti de Shijian yu Tansuo” (“Rural Fee-to-tax Reform in Anhui: Practice and Exploration to Settle ‘Sannong’ Issue”),Zhongguo Nongcun Jingji (Chinese Rural Economy), No 9 (2002), p 77; Zhonggong Guandong Shengwei Zhengyanshi and Guangdong Sheng

Caizhengting Lianhe Kaochazu, “Anhui, Jiangsu Liangsheng Nongcun Shuifei Gaige Shidian Qingkuang Kaocha Baogao” (“Investigation Report on Rural Fee-to-tax Reform Pilots in Anhui and Jiangsu”),Nanfang Nongcun (Southern Rural Areas), No 3 (2003), p 21.

relationship (nongcun fenpei guanxi) and promoted the reform of township financial

and fiscal system Third, the reform has perfected the village decision making systemand accelerated the development of grassroots democracy Fourth, the reform haspushed forward the township administrative reform and other complementaryreforms like the relocation of rural education resources, thus hoisted the adjustmentand amendment of superstructure in rural society Finally, the reform has greatlyimproved the party-mass relations (dangqun guanxi) and secured rural stability.”103

These achievements are by no means without cost Special transfer paymentswere pumped into the province in order to cushion the fiscal pressure on thegrassroots authorities In 2000, Central finance provided 1.1 billion yuan as

earmarked transfer payments for Anhui’s trial The amount increased to 1.7 billion

yuan in 2001, 1 billion more than the province had applied for No wonder some

observers have termed it as a “blood transfusion game”.104

Jiangsu’s case was a bit different as the province is economically better-off.105The province started the experiment in 2001 and relied on its own financialcapabilities to make up for the deficits created by cutting down extractions In thefirst year, the province had arranged 1.347 billionyuan for the fee-to-tax reform alone,

among which 0.3 billionyuan was from the prefecture and county level Meanwhile,

1.08 billionyuan of the transfer payments was spent adjusting the tax-sharing scheme,

103 Xiaohe Ma,Study on China’s Rural Fee-to-tax Reform, p 49 Similar conclusions can be found in

works of other researchers For instance, Yan Zhou listed six achievements in his article See: Yan Zhou, “Anhui Nongcun Shuifei Gaige Diaoyan Baogao” (“Research Report on Rural Fee-to-tax Reform in Anhui”), Jingji Lilun yu Jingji Guanli (Economic Theories and Economic Management),

No.5 (2001), pp 73-74.

104 Bo Ren, “Transformation in Rural Taxation,” p 60 Anhui Provincial finance arranged 0.2 billion yuan in 2001 as well to match the central transfer payments See Gansu Sheng Nongcun Shuifei Gaige Bangongshi, “Anhui Jiangsu Liangsheng Nongcun Shuifei Gaige Shidian Gongzuo de Jingyan yu Zuofa” (“Experience and Measures of Rural Fee-to-tax Reform Pilots in Anhui and Jiangsu”),Caikuai Yanjiu (Research of Finance and Accountancy), No 4 (2002), p 12.

105 Jiangsu is among the richest provinces in China However, there is a great gap between the north part and the south part of the province In 2003, the peasants’ net income was 6823yuan for the richest

county level city, while the figure of the poorest one was only 2730yuan See: 2004 Jiangsu Almanac,

p 597.