A focus in rural development has been the popularization of nine-year compulsory education at a high quality and high level. To ensure the continuous development of rural compulsory education, a long-term effective and stable expenditure guarantee Fig. 1.7 Change infiscal appropriation per student in primary school in China, 1993–2006 (Yuan)
1People’s Education Financed by People refers to 50 % of rural compulsory education expendi- tures from the government and another 50 % from non-government before 2001. People’s Education Financed by Government refers to expenditures in rural compulsory education, which have been nearly 90 % from the government after 2001.
mechanism should be established. In China, since the Reform and Opening Up policy, reforms in thefiscal system have been deepened gradually. The compulsory education finance system was also reformed after fiscal system reforms. The responsibility of investment for compulsory education at all levels of government has been more clearly stated. Also, compulsory education has been incorporated into the scope of the publicfiscal guarantee. Reforms in the Chinese compulsory educationfinance system have undergone mainly four phases, as described in the following sections.
1.2.1 Decentralized Financing and Decentralized Management
In the initial phase of Chinese economic system reforms, in order to mobilize the initiative of local governments, a transitional system reform of fiscal all-round responsibility was started in the early 1980s under the idea of decentralizing power and granting interests. In February 1980, the State Council decided to carry out the fiscal management system by compartmentalizing the scope of revenues and expenditures and responsibility contracts at various levels. It divided income into fixed income, fixed share cropping of income, and equalized income by catego- rizing and share cropping. Thefiscal expenditure was mainly divided according to the affiliate relations of enterprises and institutions; local fiscal expenditure is limited to the designated scope based on their revenue and localities were responsible forfiscal balance.
In 1983 and 1985, the governments carried out a two-step profit-tax reform, and state-owned enterprises began to pay tax instead of submitting profits. Meanwhile, some new types of taxes were also launched to further improve the tax system.
Since 1985, adjustments have also been made in the fiscal system, compartmen- talizing categories of taxes, designating scope of revenues and expenditures, and adding responsibility contracts at various levels. In 1987, a contract managerial responsibility system was carried out in China; thefiscal system did not match this system in some aspects. In 1988, fiscal contract system reform was carried out, which made local governments independent interest bodies and formed the decentralizedfiscal system.
To match the decentralized fiscal system, the basic education finance system began to carry out decentralizedfinancing and decentralized management reform.
In 1985, the Decision on the Reform of the Education System by the Central Committee of the Communist Party of China set forth the principles of decentral- izedfinancing and decentralized management. The Compulsory Education Law of the People’s Republic of China was promulgated in 1986, which set forth that under the leadership of the State Council, local authorities shall assume responsibility for compulsory education. In particular, county governments, township governments, and even villages assume the responsibility offinancing rural compulsory educa- tion. County governments and township governments assume managerial
responsibility. The State Council and the local governments at various levels are responsible for increasing the recurrent expenditures and capital expenditures needed for the implementation of compulsory education, and the expenditures must be fully guaranteed. Therefore, managerial responsibilities and authorities of gov- ernments at all levels for compulsory education were specified more clearly and local governments were mainly responsible for raising expenditures for compulsory education. Rural compulsory education basically formed the model for financing schools at three levels of county, township, and village and administered education at county and township levels. Fiscal educational expenditures were mainly borne by county and townshipfiscal revenue. Under the compulsory education manage- ment system, the local authorities assume responsibility for compulsory education, which is administered at different levels; county and township governments played a key role in guaranteeing expenditure inputs in compulsory education.
Raising school revenue through multiple channels has been another feature of educationalfinance reform since the 1980s. In multiple channels, government input is still the main source of compulsory education expenditure; the non-government source is supplementary to government input. The major channels of nongovern- ment resources included educational surcharges (the Notice on Raising Expenditure to Finance Rural Schools in 1984, the Provisional Regulations on Collection of Educational Surcharge in 1986), expenditures collected from farmers, encouraging schools to create income, and mobilizing social expenditures to develop non-governmental education, among others. The Outline of Chinese Education Reform and Development released in 1993 and Law of Education promulgated in 1995 further clarified that the state shall establish a mechanism based mainly on fiscal appropriation and supplemented with various approaches to raising non-government educational expenditures.
To guarantee the increase of education expenditures, these two documents also regulated increase and ratio requirements forfiscal appropriation: the increase of the fiscal appropriation to education should be higher than the growth of the national economy andfiscal revenue, educational expenditures per student should increase yearly, and teachers’salaries and non-personnel expenditure per student should also increase proportionally. The percentage offiscal appropriation of education in GDP in 2000 was to reach 4 % and the ratio offiscal expenditure in education should reach 15 % on average in the Eighth-Five Year Period.
1.2.2 The New Problem of the System of Decentralized Financing and Decentralized Management Due to Tax Sharing Reform
To strengthen the macro-control ability of central government, China began to reform the decentralized fiscal system in 1994; this reform is referred to as tax sharing reform. The main contents of the tax sharing reform were“three sharing
and one return.”Thefirst“sharing”refers to specifying the expenditure scopes of the central government and local authorities. The second sharing is to specify the scope of income of the central government and local authorities, concerning the different kinds of taxes. The third sharing is to establish the State Administration of Taxation and Local Taxation Bureau to collect taxes for the central government and local authorities. “One return”refers to establishing tax returns from the central government to local authorities. This reform also considers classifying the responsibility between central and local governments.
The main achievements of the tax sharing reform were the establishment of new relations between state and enterprises, state and individual, and central government and local governments; creation of a unified and fair competition market for the microeconomy; establishment of a tax sharing framework suitable for requirements of a market economy; stabilization offiscal allocation relations between the central government and local governments; mobilization of the enthusiasm of central and local governments; formation of a stable growth mechanism for fiscal revenue;
realization of remarkable growth of fiscal revenue; and enhancement of the macroeconomic control ability of the central government.
The tax sharing system expanded the revenue of the central government, but it did not adjust the central government’s expenditure structures. As a result, thefiscal situation of the central government became better and better, while thefiscal ability of local governments, especially the county-level governments in poor regions, was further weakened and unable to take up the responsibility of compulsory education financing to some extent. In the late 1990s, the problem of delayed salaries for teachers in rural areas around China was centralized as a reflection of the contra- diction. To achieve the objectives of the two basics in 2000, although the central government strengthened fiscal transfer payments to local governments and implemented many education projects, such as national compulsory education projects in the same period in national poverty stricken regions, the fact that basic educational fiscal revenue in rural areas had been in difficulties remained unchanged.
1.2.3 Rural Tax-Fee Reform and the County-Centered System
Since 1999, China began to carry out rural tax-fee reforms gradually. The main contents included removing various fees that had been levied on farmers, such as township administration fees and expenditures raised for rural education; removing the slaughter tax and some other taxes and burden of farmers; and adjusting the policy of agricultural tax.
The tax-fee reform in rural areas has benefited farmers and effectively improved the income of farmers. However, because this reform removed two important channels of rural education investments—rural educational surcharge and
educational expenditure raising—it has made significant impacts on inputs into rural education. Taking 2002 as an example, the rural educational surcharge decreased by 9.8 billion Yuan since 1998 and the rural raising-expenditure has decreased by 3.5 billion Yuan since 1998.
Although central and provincial governments have gradually enhanced transfer payments from the Ninth Five-year Period to alleviate that gap, there are still many problems preventing rural schools from regularly operating that could not be solved by these schools, which leads to difficulties for rural compulsory education. To solve the problems in rural educational expenditure guarantees, the State Council promulgated the Decision on Reform and Development of Basic Education in 2001, proposing the establishment of a county-centered system. The new system has two obvious features compared with the previous system. First, both central and provincial governments should enhance transfer payments towards county-level governments. Second, it clearly states that county-level governments are the major administrator and provider (county-centered) of rural compulsory education. The salaries of teachers will be paid directly by county-levelfinancial departments. The main educational responsibility of a township government is to serve as an assistant to county-level governments. The new system mainly aims to remedy thefinancial gaps as a result of tax-fee reform and guarantee the timely payment of teachers’ salaries.
In 2003, the State Council convened thefirst national meeting on rural education since the founding of the People’s Republic of China, clarifying the strategic position of rural education in national education, making a significant and important decision on increasing educational input, and deciding on new increased expen- ditures mainly inputted into rural compulsory education. In 2004, the Chinese government initiated a plan to make nine-year compulsory education universal and to eliminate illiteracy among the young and middle-aged in the western region (2004–2007), launching a distance education project in rural primary and junior secondary schools, and implementing a policy to provide free textbooks and sub- sidies to poor students. In 2004, the Ministry of Education promulgated the Plan for Education Development 2003–2007 and further implemented the compulsory education project nationwide in poverty-stricken regions, as well as a project of renovating dilapidated school buildings in primary and junior secondary schools.
1.2.4 Fund Guarantee Mechanism for Rural Compulsory Education
Since 2005, thefinancial system reform in China has focused on the alleviation of burdens of farmers. As an important measure to reduce farmers’burdens, the central government issued a series of policies of alleviating the educational burdens of farmers and further established a publicfinancial framework and put forward a new guarantee system for rural compulsory education.
On 24 December 2005, the State Council promulgated the Notice on Reforming the Fund Guarantee Mechanism for Rural Compulsory Education2(hereafter called
“the notice”) to establish a fund guarantee mechanism for rural compulsory edu- cation. This fund guarantee mechanism is generally called “item-specific and proportional sharing.” Item-specific and proportional sharing refers to dividing education expenditures into some certain parts, such as teachers’ salaries, non-personnel expenditures, capital expenditures, and student assistance. In each part, the central government and local government share the expenditures in pro- portion. The notice clearly put forward that, from 2006, the tuition and fee for students of rural compulsory education in western areas would be exempted. The new Law of Compulsory Education promulgated in 2006 further clarified conno- tation of the new mechanism. The fund guarantee mechanism of compulsory education should include six key points: teachers’ salary guarantee mechanism, non-personnel expenditure guarantee mechanism, school buildings construction and renovation guarantee mechanism, student assistance guarantee mechanism, speci- fied responsibilities of governments at various levels, and school budget systems.
In 2007, according to the implementation plan of the new mechanisms, exemptions from tuition and fees were expanded to central and eastern regions;
meanwhile, the policy of providing free textbooks was expanded to cover all rural students and living subsidies were provided for low-income boarding students. In 2008, the non-personnel expenditure standard was further improved, with average non-personnel expenditures reaching 300 Yuan per student per year for rural pri- mary school students and 500 Yuan per student per year for junior secondary school students. In addition, the living subsidy for low-income boarding students were evenly shared by central government and local governments. The expenses for renovating school buildings will also be shared by central and local governments, with an annual input of about 7.5 billion Yuan. According to the current depreci- ation of school buildings, it will basically meet the demands of renovation of school buildings in rural compulsory education.
The implementation of the fund guarantee mechanism for compulsory education is a milestone in Chinese rural compulsory education development. It clarified the responsibilities of governments at various levels for compulsory education, incor- porated expenditures for compulsory education into the scope of financial guar- antee, and realized the important transition of people’s education financed by governments in rural areas. However, as a new mechanism, it still needs long-term efforts before complete implementation and improvement.
2Fund Guarantee Mechanism for Compulsory Education is short for“new mechanism”.