1. Decentralization and
Centralization of
Compulsory Education
Finance in China
Mingxing Liu
China Institute for Education Finance Research
Peking University

2. Outline
 Provide an understanding of the evolution of
institutional setting for primary and junior
secondary levels of the education sector from
1980s to the present day.
 Examine the impacts of recentralization reform
on school finance and education service
delivery since 2002.

3. Governance of Compulsory Education
Sector in China
 China has the largest educational system in the
world. Total enrollment at regular schools of
9-year compulsory education amounted to
162.85 million in 2007.
 The primary and secondary education is
overwhelmingly provided by the local
government in China.

4. Roles and Responsibilities
 The central government
Policy-making and overall planning role , e.g.
determining teaching contents and textbooks.
 The provincial governments
Formulating the development plan
Providing assistance to lower-level governments to
help them meet recurrent expenditures in
education.

5. Role of County Government
 The management and finance of compulsory
education sector has been largely the
responsibility of the county (or district,
county-level city) government.
 The education governance system is
centralized at county level, or decentralized to
the township level, while the degree of
centralization differs cross counties.

6. Governance of Education at County Level
 The county government: raising the revenue needed for
supporting the staff, building schools, and implementing
house restructuring programs.
 The county education bureau: the routine management of
the education sector and the quality evaluation of schools.
 Township government: taking a certain complementary
responsibility such as repairing houses, financing the
operation cost of schools, and safeguarding the right to
compulsory education of school-age children and
adolescents.

7. Governance of Rural Education
 No matter what kind of administrative and financial
institution exists between the county-level and
township-level governments, the task of routine
education management is mostly undertaken by
township-school-district governor ( 学区校长 ,
TSDG) in co-ordination with rural school heads at
primary and junior secondary levels.

8. Quality Assurance Mechanism
 The objective of such system is to enforce
educational responsibilities and commitments of local
education units, and contents of the evaluation are
mainly concerned about educational works and
fulfillment of their designated responsibilities.
 At the outset of the semester or academic year,
county education bureau signs the ‘education
objective-accountability agreement assessment
(EOAA)’ with the TSDGs, who also sign the EOAAs
with school heads and teachers correspondingly.

9. Education Finance
 The decentralization policy in 1980s reiterated the
necessity to raise education funds from a diversity of
sources.
 Although government budgetary appropriation
remains the major source of funding for compulsory
education, it should also be supplemented with
various channels, such as education surcharges,
revenues of school-run enterprises, donations and
gifts from society, and so on.
 Students receiving compulsory education should be
exempt from tuition but must pay necessary school
fees.

10. Impacts of Decentralized Finance Mode
 The decentralized framework for revenue collection
is accompanied with the decentralized regime for
education expenditure.
 This funding framework has had its merits.
 It established local finance, county-level finance in particular, as the
main source of funding for compulsory education.
 It fired up grass-roots governments and villagers with enthusiasm to
run schools, and made up funding shortages by collecting rural
education surcharges, raising school management funds from villagers,
charging miscellaneous school fees from students, and tapping the
incomes of collective economic businesses.

11. Shortfalls of Decentralization Strategy
in Financial Side
 The upper-level government excessively loads the
policy mandates on local governments without the
corresponding financial subsidy. Then it resulted in
vertical imbalance of fiscal responsibilities versus
fiscal capacities of governments at various levels.
 The decentralization strategy induced the imbalanced
funding mode of schools and exaggerated the
regional and urban-rural disparity of the compulsory
education development.
 Schooling became too expensive for poor families.

12. Centralization Reform from 2001 to 2005
 Rural taxation reform
 County centered management
 Increasing role of central fiscal transfer
 Price ceiling reform
 Two exemption and one subsidy ( 两免一补 )
 Fiscal Appropriation Guarantee Mechanism

13. First-stage Reform
 Remove extra-budgetary sources of educational revenues for
rural schools: rural educational surcharge and rural social
donations and gifts.
 The responsibility to manage and pay salaries of teachers in
rural schools lies with the county government
 Rural primary and middle schools in 22 provinces,
autonomous regions and municipalities were partially financed
by both central budgetary transfer payments
 Price ceiling reform

14. Fiscal Appropriation Guarantee Mechanism
 The public expenditure for compulsory education
in western and middle region is financed by the
central and provincial governments.
 From 2006 to 2010, the fiscal appropriation for
rural compulsory education totals 218.2 billion
yuan, among which 125.4 billion yuan are from
the central finance and the rest fund from the local
finance.

15. Evaluating the Ongoing Reform
 Impacts of centralization reform
Education finance
Family burden
Autonomy of school

16. Educational Expense and Budgetary Educational Expense per
Student
2001 2007 2007/2001Types of Schools
Education
Expense
per student
Budgetary
Expense
Per student
Education
Expense
per student
Budgetary
Expense
Per student
Growth Rate
of Education
Expense per
student (%)
Growth Rate
of Budgetary
Expense per
student (%)
Regular PS 971 658 2751 2231 183 239
Regular JMS 1371 839 3485 2731 154 226

17. The coefficient of variation for education expense per
student at provincial level

18. The coefficient of variation for budgetary education
expense per student at provincial level

19. Incentive for Local Education Finance
 The centralization finance mode has been enforced by
the top-down mandate instead of incentive-
compatible way, which generates the substitution
effect and weakens the motivation of local
government to provide the additional budgetary
appropriations for schools.
 Declining ratio of fiscal education input to total fiscal
spending at provincial level from 1998 to 2009.

20. School Fee per Student (Unit: Chinese
Yuan/person, year)
School Fee Per St udent of PS School Fee Per St udent of JMS
Provi nces
2000
年
2004
年
2007
年
2007/2000
%)
2000
年
2004
年
2007
年
00-07 变化(%)
Tot al Sampl e
Sampl eSampl e
447 606 757 69 970 1226 1730 78
JI ANGSU 811 1100 1303 61 1674 1996 3343 100
SI CHUAN 406 578 586 44 765 933 945 24
SHANXI 366 412 380 4 819 960 1259 54
JI LI N 384 502 936 144 998 1148 1781 78
HEBEI 269 310 882 228 760 1056 1719 126
FUJI AN 442 683 398 -10 802 1241 1237 54
Source: Surveys by authors in 2005 and 2008.

21. Probability distribution of school fee per primary
school student
05.0e-04.001.0015.002
0 2000 4000 6000 0 2000 4000 6000
2000 2007
Probability Density Distribution Line
Density
Tuition Per pupil

22. Probability distribution of school fee per
junior middle school student05.0e-04.001.0015
0 5000 10000 15000 0 5000 10000 15000
2000 2007
Probability Density Distribution Line
Density
Tuition Per junior

23. Family Burden of Education Expenses
 The compensation policies by the central government and
provincial governments couldn’t fully take the discrepancy of
funding structure into the consideration.
 Serious fiscal shortage of rural schools in the middle region
 Local government takes various tricks to sabotage the central
mandates and push the fiscal burden to parents and local
communities.
 Transform the public school to the school with public-private joint
partnership in order to circumvent the fee-control policy.
 Withdraw the village and township schools
 Quality assurance mechanism weakens in the fee-exemption school

24. Governance Autonomy
 Impacts on personnel autonomy at township
school district level
 Impacts on quality assessment and incentive
schemes

25. Governance Modes for Deploying Staff in School Districts in 2007
Year
Jiangsu
Province
Hubei
Province
Gansu
Province
Appointment of TSDGs:
（1）Appointed by the county government leaders 3 2 15
（2）Appointed by the county education bureau. 9 16 31
（3）Recommended by the township government and appointed by
the county education bureau.
3 6 4
（4）Appointed by township government. 15 6 0
Total Number of School Districts: 30 30 50
Appointment of Village School Heads:
(1)Appointed by the TSDG 19 5 17
(2) The TSDG has much influence to recommend and the township
government appoints.
5 10 6
(3)The TSDG has little scope to recommend and the township
government appoints.
0 0 7
(4)The county education bureau appoints. 4 15 16
(5)The TSDG, township government and county education bureau
jointly appoint.
2 0 4
Total Number of School Districts: 30 30 50
Approval for teacher transfers within the district:
（1）The TSDG or school head approves. 19 18 16
（2）The county bureau of education approves. 5 4 13
（ 3 ） The TSDG has weak recommendation power and the
township government approves.
2 5 4
（ 4 ） The TSDG has strong recommendation power and the
township government approves.
1 2 14
（5）Transfers require joint approval from the TSDG, the township
government and the county education bureau.
3 1 3
Total Number of School Districts: 30 30 50
Source: Surveys by authors.

26. Changes in Jurisdiction for Deploying Staff in School Districts, 2000 - 2007
Year 2000 2003 2005 2007
Appointment of TSDGs:
（1）Appointed by the county government leaders 4 4 8 15
（2）Appointed by the county education bureau. 28 30 32 31
（3）Recommended by the township government and appointed by the
county education bureau.
11 9 6 4
（4）Appointed by township government. 7 7 4 0
Total Number of School Districts: 50 50 50 50
Appointment of Village School Heads:
(1)Appointed by the TSDG 0 9 14 17
(2) The TSDG has much influence to recommend and the township
government appoints.
14 13 7 6
(3)The TSDG has little scope to recommend and the township
government appoints.
35 19 15 7
(4)The county education bureau appoints. 1 9 11 16
(5)The TSDG, township government and county education bureau
jointly appoint.
0 0 3 4
Total Number of School Districts: 50 50 50 50
Approval for teacher transfers within the district:
（1）The TSDG or school head approves. 0 9 14 16
（2）The county bureau of education approves. 1 10 9 13
（3）The TSDG has weak recommendation power and the township
government approves.
35 10 7 4
（4）The TSDG has strong recommendation power and the township
government approves.
14 18 15 14
（5）Transfers require joint approval from the TSDG, the township
government and the county education bureau.
0 3 5 3
Total Number of School Districts: 50 50 50 50
Source: Gansu Survey by authors in 2005 and 2008.

27. Negative Impacts of Fiscal Centralization I
 When the county government takes the duty
for financial input for rural school, it is also
likely to control the power of teacher
allocation and school head appointment. The
autonomy of education masters should be
weakened in this process.

28. Negative Impacts of Fiscal Centralization II
 The county government might not be able to sufficiently provide
the financial input for the rural education sector, and then the
sharing of administration power has to be politically bargained
among the authorities in charge of financial responsibilities, such
as county government, education bureau, and township
government.
 This induces the allocation of power and responsibility more
inexplicit and indeterminate.
 As the education administrative system becomes more unstable,
the implementation of quality evaluation scheme will deteriorate
unavoidably.

29. Main Arguments
 The fiscal subsidy by central and provincial governments is
still not sufficient for reversing the increasing disparity of
education input cross regions.
 The reform has not impelled the incentive of local government
to provide the enough shares of the needed funds, while the
financial burden of families has not fundamentally alleviated.
 The centralization reform also gradually caused the over-
centralization or incessant political struggles of educational
personnel powers by the various government bodies, which
inevitably affected the approaches to teacher management and
to the structuring of teachers’ incentives.

30. Conclusions
 Fiscal centralization approach by the current
top-down mandate is incompetent to the task
of ensuring the adequacy and effectiveness of
education finance.
 We appeal for the further policy innovation to
rebalance the decentralization/centralization
approaches for compulsory education
development.

31. Thanks!