Electronic copy available at: http://ssrn.com/abstract=2173067

1

Paving the Road to a Socialist New Countryside:

China’s Rural Tax and Fee Reform

Christian Göbel

Introduction

This chapter provides insights into the origins, process and outcomes of one of the

most important rural reform policies in the history of the People’s Republic of China:

the Rural Tax and Fee Reform (RTFR), often mistakenly termed “tax-for-fees.”1 Its

significance is equal not only to the land reform that marked the beginning of

Communist rule in China, but also the liberalization of agricultural product markets

that started in the late 1970s. Therefore, policy makers have nicknamed the RTFR

“the third rural revolution” (Zhang 2003a).

What makes this particular reform so significant? First of all, the RTFR marks the end

of a development model based on supporting strong and neglecting weak regions.

This development model had increased the inequality between as well as within

regions, and has resulted in increasing social tensions and declining agricultural

productivity (Gustafsson, Li and Sicular 2008). The policy was designed to

simultaneously reduce the fiscal burden of the peasants and increase their income,

improve local governance, and develop the countryside (for example by paving all

inter-village roads). By transferring a larger part of the GDP to the peasants, the

purchasing power of the majority of China's population would be increased and

agricultural productivity enhanced (Zhongfa [2000] No. 7). Concurrently, an

understanding of this policy, especially its unexpected outcomes, is necessary to place

current rural development policies such as Building a New Socialist Countryside

(shehuizhuyi xin nongcun jianshe, hereafter BNSC) in their proper context (see Ahlers

and Schubert 2009 and the contribution by Thøgersen in this volume).

Second, the policy is remarkable for its intentions. Most importantly, the policy

mandated the abolishment of most regular and irregular taxes and fees at the price of a

tripled agricultural tax. Moreover, it set out to improve local governance in a

sustainable way. For example, local governments at the county level and below were

Electronic copy available at: http://ssrn.com/abstract=2173067

2

required to streamline their administration apparatus, shed superfluous employees,

privatize services, merge village schools, and reduce the number of teachers. It was

the central government’s conviction that local administrative structures were

cumbersome, the payrolls bloated, and that too much money was wasted on show-off

projects that stood in marked contrast to the developmental necessities of most

agricultural regions (Göbel 2010: 59-62). Central government leaders believed that

the key to improving local governance lay in simplifying administrative structures and

downsizing local public sector employment. This, it was reasoned, would not only

make local politics more transparent and responsive, but also free funds that could be

put to better use elsewhere. Ironically, the central government made local leaders

responsible for the malaise in rural administration, but nevertheless trusted them to

come up with solutions to improve governance.

Third, the analysis of the RTFR highlights how the complex dynamics of policy-

making in a multi-level system involving a large and diverse cast of actors with

different interests produce unintended and unforeseeable outcomes. A great number

of individuals and administrative units had supported the RTFR, but others resisted it

so severely that the initial reform design was capsized. The central government had to

accommodate many of the demands posed by the resisters, thereby compromising

many, if not most, of the reform’s original intentions. The abolition of the agricultural

tax in 2006 was a direct consequence of these developments, as was the considerably

more centralized BNSC policy. As the contributions by Trappel and Thøgersen in this

volume make clear, the design of rural development policies such as agricultural

modernization and rural education is no longer left to the sub-national governments,

but increasingly has to meet benchmarks set by the center. The same, one might add,

is true for hiring service personnel at the township-and village levels. Furthermore,

both contributions highlight that it is next to impossible for the localities to ignore the

central government’s attempt to create not only new villages, but also new peasants.

Most important, however, is the fact that the abolition of the agricultural tax has made

governments in agricultural regions more than ever dependent on ressource flows

from the center, a good part of which allocated as earmarked transfers. Thus, although

BNSC continues to allow localities to experiment with new policies (if they can

afford it), the programme has contributed to the recentralization of political,

administrative and, most importantly, fiscal powers at the sub-provincial levels.

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The chapter begins by briefly sketching how pressures emanating from economic

modernization, the nature of the fiscal system and tax reforms provided incentives for

local cadres to exploit the peasants. Below it will be shown that it was not the central

government, but grassroots politicians who first implemented policies to address this

problem. Interestingly, the progression of the reforms was mainly slowed by conflicts

of interest both within and between the different regional and local levels, while the

central government remained largely neutral. This changed after the center had

appropriated the reform, and the subsequent analysis of the policy reveals that the

RTFR repeated many of the mistakes that had been responsible for the peasant burden

in the first place. The final section is devoted to examining how this flaw in policy

design influenced policy implementation at the county, township and village levels,

and again illustrates that both proactive support and resistance contributed to shaping

policy outcomes in an unpredictable way. In sum, the reform is portrayed as a

contingent process shaped by ad-hoc coalitions spanning different levels, radical

junctures, unpredictable events, and influential individuals.

The findings presented in this chapter are based on primary and secondary sources,

but the most important insights were gained by interview material from a total of 18

weeks of fieldwork in late 2004 and early 2006. Interviews with central government

officials in Beijing, cadres from the Ministry of Finance of Anhui province, and city-,

county-, township- and village-level officials as well as peasants in Anhui, Hebei and

Shandong provinces helped me to make sense of the often contradictory information

presented in existing accounts of the reform, and helped me to identify factors and

processes that had previously been overlooked or considered unimportant.

Modernization, inequality and the peasant burden

To properly understand the history of the reform and how it came to influence present

rural development policies, one needs to go back in time. If one wanted to identify

one root cause that prompted the reform of rural taxation and administration, it would

be the inequality that was the product of economic modernization and breakneck

development. Most readers will be familiar with the geographical dimensions of

income inequality in China: the coastal provinces prospered, while the inland

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provinces developed much slower, and incomes increased much faster in the cities

than in the countryside (Riskin, Zhao and Li 2001). While peasants initially profited

from the liberalization of agricultural markets, they were soon overtaken by urban

factory workers. In the late 1990s, the problems of an inefficient agricultural sector,

underdeveloped villages and underprivileged peasants became known as the “three

rural problems” (san nong wenti).

However, there is another dimension of inequality that is important for the present

analysis, one that follows almost directly from the income inequality problem. The

fact that peasants make up 90 percent or more of the population in rural counties

means that the tax base is very small. The average income of a Chinese peasant is so

low that they would be exempt from taxes if they lived in a city, but for many rural

villages and townships their meager earnings were the only source of revenue. In this

way, income inequality directly fed into the inequality of local government revenues.

Intergovernmental transfers did take place, but they were very small and by far not

enough to offset these structural differences. In fact, there was not much to

redistribute to start with. After reform and opening, the central government delegated

economic development, administration and revenue generation to the provincial and

sub-provincial levels. Accordingly, the percentage of the central government in total

governmental revenue declined rapidly and steadily. At the same time, it became

common practice for townships and villages not to tax collective enterprises, but fill

their coffers by directly appropriating enterprise profits (Whiting 2001: 96-98). As a

result, overall budgetary revenue grew much slower than the GDP.

Worried by the phenomenon of the decline of the “two ratios” (the ratio of central

government revenue in total governmental revenue, and the ratio of governmental

revenue in China's GDP), the central government reformed the tax system in the mid

1990s. A distinction was made between central, local and shared taxes, and the result

was that the central government, which before the reform had received only one fifth

of all budgetary revenues, now was allocated more than half. Subsequent reforms

were implemented to integrate non-budgetary revenues into the budget, and prevent

local governments from directly acquiring enterprise profits (Hauff 2003).

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In the old system, the amount of revenues local governments had to transfer to higher-

level governments was subject to contracts, so poor provinces had in effect been able

to keep most of their revenue. One downside of the new system was that they were

treated the same as all other provinces, and since redistribution was not on the central

government’s agenda, these tax reforms accelerated the growth of the revenue gap

between China’s provinces, cities, counties and townships.

-- Figure 9.1 about here --

Figure 9.1 makes this inequality visible for the provincial level. It shows the

development of the Gini coefficient, a measure of inequality, for both aggregated

province-level revenues and expenditures. As can be seen, revenue inequality has

almost steadily increased until 2004, and expenditure inequality has roughly followed

the trend. This illustrates that for a long time, the central government’s transfer

payments to disadvantaged provinces were negligible, at least not large enough to

offset their disadvantage to their richer counterparts.

What does this have to do with the RTFR? First of all, local governments were

required to maintain their expenditures despite the decrease in revenue, and after

having exhausted all other sources of financing, i.e. loans and credits, the only way to

generate revenue was to take as much as possible from the peasants. In the late 1980s,

protests began to spring up and rapidly increased in scale and intensity, and “ugly

incidents” (e’xing shijian) such as peasants being beaten up, killed, or driven to

suicide over taxation matters became more wide-spread. Apart from the human

tragedies they involved, these developments poisoned peasant-cadre relations,

prevented rural development in most inland provinces and stifled the productivity of

China’s peasants (Chen and Chun 2004). A direct outcome of these problems were

grassroots attempts to reform rural taxation.

Another issue concerns local finances. Given that peasant income, local government

expenditures and local development in China are so intimately connected, one would

expect that a local tax reform would also address the problem of government revenue

and expenditure inequality. As Figure 9.1 shows, this was not the case. Revenue and

expenditure inequality decreased only after 2004, the year the original reform design

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was abandoned in favor of more centralized rural development models. This is

another indicator that the initial reform design had many perverse consequences and

had to be abandoned for the more equalizing BNSC reform program.

The reform origins: agency, contingency and local innovation

Official sources seldom mention that the RTFR, as so many other reforms in China's

history, has local origins. As will be seen, local actors battled over the features of a

rural tax reform long before the RTFR was on the central government’s agenda, and

the ideas for such reforms had been formulated even before that. This was by no

means a steady process, but one that was influenced by powerful individuals, local

rivalries and surprise events.

As for agency, the RTFR started out as the brain child of He Kaiyin, an agricultural

economist and high-level adviser to the government of Anhui province (Li 2006).

Wang Yuzhao, a former governor of Anhui province who in 1988 had been promoted

vice-head of the Central Committee's Rural Politics Research Office, called upon He

to help him formulate new ideas for improving China's rural development. He happily

complied and wrote an article championing long-term land leases for peasants, the

reduction of their fiscal burdens, and the reform of the agricultural tax. Among others,

He raised the idea of officially and uniformly reverting to the century-old practice of

levying the agricultural tax in kind. In this way, township governments would

automatically fulfill their grain purchase quotas. Furthermore, the fusing of taxation

and purchasing grain would help reduce administrative outlays and lessen the

aggravation of peasants being cheated at grain purchase stations. However, He’s

proposals were quickly shelved in the conservative climate permeating post-1989

politics. Although he continued to lobby for his ideas with local governments in

central China and found many willing collaborators, a mixture of political

considerations, the promotion of his local supporters and bad weather prevented the

implementation of his reform ideas (Chen and Chun 2004: chapter 9).

It took five years until some of He’s ideas were finally realized, and the central

government had only little part in it. Premier Li Peng supported He’s ideas, but only

tacitly, and in any case not strongly enough to prevent local forces from subverting

two of the initial experiments that eventually took place in central China in 1993 and

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1994 (Chen and Chun 2004: chapter 9). The way these experiments developed reveals

a lot not only about the importance of informal institutions in central-local relations.

The initiative taken by these pioneers also illustrates that grassroots-level cadres are

not necessarily allergic to innovations and reforms, and that some even risk demotion

and administrative punishment to improve the lot of the peasants.

The first experiments

Judging by the available evidence, the first attempts to simplify and regularize rural

taxation were made in Xinxing town of Anhui province. After reading an article that

Yang Wenliang, a member of the Policy Research Department of the Party

Committee of Hebei province, had published in the Farmer's Daily (Nongmin Ribao),

the leadership of Xinxing town decided to give such reforms a try. One passage of a

lengthy interview given by then mayor Li Peijie neatly summarizes the motivations to

engage in such experiments and is worth quoting in full:

“It was absolutely necessary to change the existing system! When I became mayor of Xinxing

town in June 1992, peasant burden was very heavy already. […] Actually, after sending

cadres to every administrative village to investigate, I found out that the problem of village

cadres presumptuously raising quotas was extraordinarily serious. Between 1990 and 1992,

average peasant burden in each village ranged between RMB 140 and 190. At that time,

however, the town’s average peasant income per year did not even reach RMB 600! Several

cadres stood together and remarked in a casual way that because the funds were a bit tight,

they would just charge everyone RMB 10 more. And so they did. In the eyes of the peasants,

the cadres were constantly demanding money, grain and lives [this refers to birth control], and

the relationship between cadres and peasants had become very tense.” (Zhu and Yao 2003).

As Li’s account makes clear, the size of peasant burden was a function of four major

factors, which have been briefly mentioned above: the need to fulfill tax quotas set by

the higher levels, the obligation to achieve development targets, mounting

administrative costs, and outlays for tax collection. Since peasants were reluctant to

pay their taxes and fees, tax-collecting teams consisting of hired labor, grassroots

cadres and even the local leadership had to be formed, often accompanied by local

police or militia forces. According to Li Peijie, the cost of tax collection averaged

between 10 and 30 percent of the collected tax and had to be extracted from the

peasants as well (Zhu and Yao 2003).

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Reasoning that considerable costs could be avoided if the peasants paid their taxes

voluntarily, and corruption be reduced if taxation was made more straightforward and

transparent, the reformers decided to simplify and standardize tax collection

procedures. They calculated that levying RMB 30 per mu land would suffice to meet

tax quotas, cover administrative outlays and the costs of social service provision,

thereby reducing the average burden by more than two thirds. Apart from this tax, the

farmers only had to meet their labor obligation, and all other levies were illegal. The

town government signed a contract to this effect with each household, making the

reform known as the “tax and fee contracts” (shuifei chengbao) system (Zhang 2001).

Although the County leadership supported this experiment, for reasons not entirely

clear it was attacked by the county's People's Congress. The People's Congress of

Anhui province sided with its lower-level counterpart, the legal document that

regulated the reform experiment was nullified, and the party secretary of Xinxing

town demoted. However, with the tacit backing of the county government, Li Peijie,

who was left in office, continued with the experiment and reached impressive results.

Virtually everyone paid their taxes fully and on time, and illegal fee-taking reportedly

did not occur. In addition, Xinxing Town was able to reduce the peasant burden by

one third and get rid of 300 village cadres, because now that the peasants paid their

taxes voluntarily tax collection teams were no longer necessary (Chen and Chun

2004: chapter 9).

While another famous reform experiment in Anhui's Taihe County encountered

similar resistance, the experiments conducted in three townships of Hebei’s

Zhengding County progressed without any problems. Obviously, the success of these

experiments, which at the time were not reported at all in China’s public media,

caused several provincial leaders to travel to Anhui and Hebei, learn about the

experiments and join the ranks of the pioneers (Chen and Chun 2004: chapter 10). By

1997, experiments were conducted in more than 50 counties in seven provinces,

although the highest density was no doubt in northern Anhui, where 20 counties had

implemented reform experiments of some sort (He and Sun 2000).

The reform takes center stage

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Although some central-level officials of vice-ministerial rank had continuously

endorsed the reform experiments (while others opposed it), it was only in 1996 that

these experiments were for the first time officially recognized and approved (Zhongfa

[1996] No. 13). However, only two years later did a rural tax and fee reform suddenly

and quickly move to the top of the national rural reform agenda. There is much

evidence that it was personal considerations rather than objective necessities that were

responsible for this change. The key person at this stage seems to have been the new

premier Zhu Rongji. After the Communist Party’s secretary-general Jiang Zemin had

publicly supported such a policy during a study tour to Anhui Province in September

1998, Zhu quickly formed a small team consisting mainly of the ministers of finance,

agriculture and the head of the Finance and Economy Leading Small Group.

Moreover, he urged the group to see to it that a reform of rural taxation would take

effect only one year later (Zhu and Yao 2003).

Thereafter, things happened in quick succession. In early 1999, Zhu’s team hammered

out an RTFR policy proposal. The proposal was based on an evaluation of various

reform experiments written by Anhui’s Ministry of Finance and took the team only a

few weeks to prepare. Many of He Kaiyin’s ideas were integrated in the proposal,

most notably collapsing village and township level taxes and fees into an increased

agricultural tax. A novelty was the establishment of a “public reserve fund” at the

village level, whereby all villagers should democratically decide on village-level

projects that could not be financed out of the budget. In a decision-making process

called “a decision for each project” (yi shi yi yi), villagers voted on each such

appropriation and were then expected to transfer their share of the costs to the village

committee.

The rural tax and fee reform

The general principles of the reform were summed up in a linguistic trio: reducing

(jianqing) the peasant burden, standardizing (guifan) revenue collection, and

stabilizing (wending) the tax and fee level. The concrete measures to be applied were

also packed into an easily memorable phrase: “three abolishs, two adjustments, one

reform” (san quxiao, liang tiaozheng, yi gaige). Along with the township

comprehensive fee and all irregular fees, funds, allotments and fines, the slaughter tax

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was to be rescinded. The latter had been a source of peasant discontent, as it was

levied on a per capita basis regardless of the number of animals actually slaughtered

by a person. Adjustments were foreseen for the agricultural tax and the tax on

agricultural special products, i.e. cash crops such as tea and tobacco leaves. Zhu’s

team suggested setting the agricultural tax rate at 7 percent of a locality’s average

harvest between 1993 and 1998. The “one reform” referred to the “village retention”

(cun tiliu), a levy that had been collected from the peasants to finance cadre wages,

social welfare and public projects at the village-level. The reform proposal advocated

collecting it as a surcharge to the agricultural tax, instead of levying it separately. This

surcharge, which was not to exceed 20 percent of the agricultural tax rate, was to be

“administered by the township and used by the village” (xiang guan cun yong).

Already in May 1999, four counties of Anhui province were chosen as reform pilots,

and barely one year later, on March 2, 2000, the “Notification by Communist Party’s

Central Committee and State Council Concerning the Promotion of Work in Rural

Tax and Fee Reform Trial Areas,” often referred to as “Document No. 7” (qi hao

wenjian), was officially passed (He and Sun 2000). Although a large number of policy

circulars were later passed to fine-tune the reform, this document must be considered

the main legal source of the RTFR.

Document No.7 is rather short, and it is remarkable that the justification of the reform

is almost as long as the rules guiding its implementation. The central government

portrayed itself as a pro-peasant reform force and made no mention of the fact that the

reform had in fact originated at the local level. Yet at the same time, the reform

document was not much more than a blueprint of what had been achieved at the local

levels, lacking a comprehensive approach to tackle the systemic deficiencies outlined

above. Against this background, it is remarkable that the document made local leaders

responsible for the “burden problem” and sought to reduce their decision-making

powers, while at the same time making clear that the success of the rural fiscal reform

experiments depended on local initiative. In particular, the burden reduction policies

just outlined were flanked by “complementary policies” whose realization almost

entirely depended on local initiative (Zhongfa [2000] No. 7). Table 9.1 sums up these

measures.

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-- Table 9.1 about here --

A closer look at the document reveals that the complementary reforms were not as

complementary as the term might suggest. As one central passage in the document

makes clear, the implementation of these measures was in fact a precondition for

burden reduction:

“After the Rural Tax and Fee Reform, reduced revenue will affect expenditures. The county

and township-level governments must solve this problem mainly by transforming government

functions, simplifying the administrative structure, reducing the number of persons supported

by public finances, and readjusting the expenditure structure.”

Sustained burden reduction thus hinged on the localities’ proactive contribution to the

austerity policies directed against them. If the localities did not implement the

policies, peasant burden would not be reduced. In this way, the center played peasants

and cadres out against each other in a zero-sum game in which the peasant’s gain is

the local government’s loss, and vice versa. Given the fact that the existence of

peasant burden was portrayed as the direct consequence of local government greed,

the cadres were on no moral grounds to resist the implementation of the policy. This

and the center’s continued manipulation of the tensions between peasants and cadres

put enormous pressure on the local governments.

Hence, the situation at the commencement of the RTFR was one where local

governments were instantly faced with revenue reductions. This was especially

detrimental for poor localities where government revenue depended almost entirely

on agricultural income. In many of these places, budgetary revenue was in fact halved

(Göbel 2010: 140). It was not difficult to foresee this problem and utilize the

experience accumulated in the reform experiments, but it seems as if the central

leadership did not award this problem the attention it deserved.

Given the rush on the side of Zhu Rongji, the bottom-up reformers were completely

bypassed when the RTFR was formulated. The central government did ask the leaders

of all provinces to draw up cost estimates for the reform, but Zhu Rongji was so eager

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to quickly implement this reform that he did not wait for these estimates. The result

was a reform that from the start suffered from serious deficiencies, especially as it

repeated old mistakes (Li 2007: 99-100).

Central and local actors in policy implementation

The transition from the local experimentation stage to the national implementation

stage coincided with a change of policy implementation instruments employed by the

center. While the central government had by and large tacitly supported the

decentralized experiments that were conducted in hierarchical and informal networks,

this was no longer so after the nationalization. The RTFR followed many earlier

reform policies in that it was implemented by a mode of policy steering that can be

best described as “competition under hierarchy” (Göbel forthcoming).

Competition under hierarchy combines the hierarchical prescription of more or less

specific outcomes and the stimulation of competition to achieve or even surpass these

targets. More specifically, only abstract achievement standards are formulated (often

called “unified policy” (tongyi zhengce)),but no guidelines on how to achieve them

(called “dispersed policy making” (fensan juece)). This method is the result of a

paradox that has characterized central-local relations since reform and opening and

even before. To prevent the localities from distorting central policies or not

implementing them at all, the application of “hierarchical” instruments of regulation,

supervision and punishment is deemed necessary. On the other hand, however,

policies cannot be implemented uniformly in China’s nearly 50,000, vastly different

township-level entities if gross unfairness is to be avoided. Hence, the localities must

be counted upon to work out the implementation details.

Although such competition among unequals had severely affected poor rural

governments and contributed to increasing regional inequality, the RTFR was

implemented in the very same way. The center again provided targets to achieve, but

left it to the provincial and local levels to compete in working out the details. This put

local governments into an awkward position, because they were forced to compete in

finding ways to reduce their own power and autonomy. While the central government

probably sought to combine the positive aspects of hierarchical steering and

Dan Druff� 8.11.10 17:03Borttagen: national

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competition to implement nation-wide a sustainable policy sensitive to local contexts,

policy makers most likely underestimated the negative aspects of these instruments.

The consequence was that some took up the challenge and came up with meaningful

reform proposals, while others chose to resist because they either lacked the means to

do so or had from the start rejected this policy.

Downward delegation of responsibilities

A closer look at the developments in Anhui province, which served as a test base for

the nation-wide implementation of the RTFR, exemplifies well the processes that take

place when competition under hierarchy steers policy implementation along all five of

China’s administrative levels. Such processes are inevitably very complicated, as they

involve a large cast of different (collective) actors with different interests belonging to

both formal organizations and informal networks, but some general trends can be

formulated without unduly simplifying these matters. First of all, the central

government was not the unitary actor it is often presented to be. In particular,

important differences existed between premier Zhu Rongji and minister of finance

Xiang Huaicheng regarding the financing of the reform. While the latter held that

high central subsidies would contradict one purpose of the reform (forcing local

governments to streamline and become more efficient), the former implied that the

central government would, if necessary, increase its financial commitment to the

reform (Göbel 2010: 102).

A second observation is that the center did not play much of a creative role in the

reform process. It cooperated with provincial units such as the Ministries of Finance

and Agriculture to specify the reform parameters and outline abstract reform targets,

but did not regulate the processes leading to these targets. As will be seen, the course

of the reform was charted mainly at the county and sub-county levels. In contrast to

the central government, which fixed the parameters and outlined the directions of the

reform, and these local actors, which fine-tuned, implemented or resisted it, the

provincial governments played the role of a switchboard without getting too deeply

involved into the reform. For example, less than one month after having been granted

trial status, the provincial Party Committee and government handed down nine

documents addressing several reform arenas, but these documents were very vague

14

and in essence only served to repeat the center’s stance. Basic problems such as how

to deal with revenue losses were not addressed (cf. Wanbanfa [2000] No. 11).

As a result, most of the responsibility to breathe life into the rather abstract targets

formulated and by the center and delegated by the province fell to the county and sub-

county levels. In particular, pioneering counties devised polices that, if they worked,

were implemented all over China, and even non-pioneering counties could not stay

passive because they had to find a way to achieve at least the targets specified in the

“main reform”. However, the austerity policies were seldom directed at their own

administration, but rather targeted the township and village levels, which in this way

had to bear the brunt of the reform. For example, while the initial idea was to simplify

county-level administration and shed at least ten percent of their administrative

workforce, the latter even increased with the onset of the reform after having been

stable for almost a decade. For this reason, the following paragraphs will mainly

concentrate on the county level.

The case of Anhui’s F county is a good example of the negative impact of

competition under hierarchy at the very beginning of the reform. To recall, this mode

of policy steering supports innovation within prescribed and immutable goals. For F

County this meant that attempts to negotiate the percentage of tax and fee reductions

to be administered were in vain. Faced with a 25 percent reduction in revenues, F

county pleaded to reduce exactions only a token six percent. In an internal document

submitted to the government of Anhui province, the leadership argued that it “had

strictly followed the burden reduction rules set by the center, the State Council, and

the province.” As a consequence, “the overall level of peasant burden has always been

low.” Also, it expressed worries that the “regular exercise of political power” could

not be guaranteed anymore if the reform was implemented to the letter, a problem that

many other counties and especially townships faced as well. Furthermore, it laid its

finger on one major weakness of the reform: it disadvantaged counties that had been

honest and where, for various reasons, the village levy had formed a comparatively

large part of local revenue (F county, RTFR Office 2000). However, the complaints

were to no avail, and F county later reported to have reduced the peasant burden more

than 20 percent (F county, RTFR Office 2001).

15

As can be seen from this example, with regards to these goals, the center and the

provincial levels played less the role of co-reformers than of referees that ascertained

if certain aims had been met or not. Besides sending work teams to counties and

townships to ascertain if the policies were duly implemented, the higher-level

governments also enlisted the help of the peasants. They were informed of their rights

not only with the help of newspaper articles and TV programs, but also by means of a

“letter addressing the peasant masses of the whole province” sent to every peasant

household in Anhui and complaint lines listed at the back of the “tax notification” and

“tax supervision” cards handed out to every peasant. Officials unable to comply with

the policies formulated by the center were punished by a warning, demotion or, in the

worst case, revoking Party membership (Anhui nianjian 2001).

Support, resistance and reform outcomes

As the above paragraphs make clear, the politics in this tense environment were

mainly shaped by two kinds of collective actors, the pioneers and the resisters.

Competition and hierarchy stimulated innovation, refined the RTFR and extended it

even against massive resistance. On the other hand, it also increased intraregional

inequality and prompted attempts to shirk and sabotage policy implementation. The

central government eagerly integrated policy innovations produced by the pioneers,

but also had to address the concerns of the resisters. This largely explains the

considerable twists and turns of RTFR implementation (Göbel forthcoming).

Hence, despite the problematic nature of the policy, there was no shortage of pioneers

who were crucial for devising best solutions that could then be implemented at a

larger scale. In Anhui for example, the idea to put township-level finances under

county management (xiang cai xian guan) originated in Anhui’s He county in 2003,

and the abolition of the tax on special agricultural products was first tried in Wuhe

county. Wuhe county had also pioneered in devising personnel reduction schemes.

These are no isolated cases. In Anhui alone, 274 officials and 178 units were honored

in 2003 for their proactive role in contributing to the development of the reform (Wan

[2003] No. 38).

The role of the pioneers in shaping the RTFR has become apparent especially in the

initial stage, when local experiments were turned into national policies. However,

16

resistance played an equally important role in shaping outcomes. This becomes

especially clear with respect to the question of who was responsible for financing the

reform, the issue that lay at the heart of resistance against the RTFR. As mentioned

above, minister of finance Xiang Huaicheng was adamant in keeping subsidies from

the center at a minimum, something that local governments clearly did not appreciate.

They demanded a more substantial commitment by the central government reasoning

that, as the head of W county’s RTFR Small Group retrospectively put it, “it was the

center’s reform, so the center had to pay for it.”2

As opposed to the pioneers, the resisters refused to implement these reforms, pointing

out, as one interviewee put it, that they were “unreasonable” and “impractical.” In

consequence, illegal fee-collection persisted in several regions, and local cadres

frequently applied violent means to collect tax arrears (Gao 2004, Zhang 2003b).

Other townships prevented direct conflicts with the peasants and instead chose to

reduce the outlays for the provision of rural services (Kennedy 2007). Those

townships that were eager to uphold the provision of vital government services

despite the grave reduction of revenues were forced to borrow even more money. The

head of the RTFR Small Group of Anhui’s W county made clear that, although

forbidden, the county leadership fully endorsed this practice.

The central government reacted to these worrying developments first and foremost by

increasing subsidies to the local level. In addition, greater care was taken to ensure

that poorer counties indeed became the beneficiaries of these subsidies (Göbel

forthcoming). It is astonishing that the reform was extended nation-wide in 2002

despite these problems, but upon closer inspection it would probably have been

difficult to abandon the RTFR and return to the previous practices of local taxation.

As can be expected, however, the problems faced by poor counties and townships in

Anhui were now replicated in localities all over China. Given the fact that the center’s

vigilance over the reform implementation made it very difficult to punish peasants for

not fulfilling their fiscal responsibilities, less and less peasants paid their taxes. One

village leader told the author that he managed to fulfill only 70 percent of his tax

quota in 2004, which he considered decent: the neighboring village collected only 50

percent.

17

As a result of these difficulties, which are reflected also in the increasing income and

expenditure inequality depicted in Figure 9.1 above, the central government declared

in March 2004, only one year after the RTFR had been implemented all over China,

that the agricultural tax would be gradually phased out (Guofa [2004] No. 21). The

phasing out of the agricultural tax also marked a change in central-local relations.

Instead of pushing the localities to think up ways to improve rural development, as in

competition under hierarchy, the central government took the matter into its own

hands. Two months after the aforementioned document was promulgated, another

State Council circular approached all relevant ministries to form inter-ministerial

“specialized small groups for drafting guiding documents to deepen the work in the

RTFR pilot regions” (shenhua nongcun shuifei gaige shidian gongzuo zhidaoxing

wenjian zhuanti xiaozu). In particular, ten areas were to be covered by one group

each: township-level structural reforms, the administration of rural compulsory

education, rural finances, rural public hygiene, grassroots-level liabilities, rural tax

and fee arrears, ‘one undertaking, one reform’ and rural public services, state-owned

farms, the overall tax system, and legal reform (Guobanfa [2004] No. 68).

This transition was reflected not only in an increasing amount of central subsidies,

which again helped to narrow the expenditure gap, but also in a change of names. The

Rural Tax and Fee Reform was officially ceased in 2006 and seamlessly gave way to

the Rural Comprehensive Reform (nongcun zonghe gaige) which was part of the

BNSC program. On August 24, 2006, the RTFR Small Groups and Offices were

accordingly renamed by order of the State Council (Guobanhan [2006] No. 63).

Rural reforms under conditions of uncertainty

With hindsight, it is astonishing how much an important and far-reaching policy such

as the RTFR was shaped not by careful planning, intergovernmental coordination and

cost-benefit considerations, but by decentralized idealism, personal considerations

and pure chance. Although the tensions between peasants and cadres had been

worsening since the late 1980s, they arguably did not make this reform a necessity,

and neither the timing nor the content of the reform were preordained. Unlike some

local cadres who found it necessary to improve peasant-cadre relations, the central

government for a long time did not see a need for action and contended itself with

18

regularly sending out recriminations against “excessive peasant burden” (nongmin

fudan guozhong).

There are strong indications that it was not the “peasant burden problem” that

prompted the centralization of rural reforms, but the fact that Jiang Zemin’s backing

of the Anhui experiments served as a window of opportunity for Zhu Rongji to restore

his tarnished image as rural reformer (Göbel 2010: 93). What followed, however, was

not a consistent policy process aimed at improving the lot of China’s peasants. As

Linda Li has shown, it was rather a mix of strategic interactions in a multi-level

system complicated by unintended consequences, departmental power struggles, and a

lack of expertise and interest especially in the Ministry of Finance (Li 2006).

This chapter has thrown some light on these processes. It has shown how once again

an important rural reform policy has emerged from the grassroots and had to

overcome many obstacles before being implemented nationwide (for another such

policy, village elections, see the contribution by John James Kennedy in this volume),

and it has identified some of the (collective) actors and in this process, and how they

formed coalitions in favor and against the policy. As was also shown, pioneers and

resisters both contributed to the eventual reform outcome: the former by helping the

center with fine-tuning and implementing the policy, the latter by forcing it to make

financial concessions and eventually abandon the initial reform design.

The policy package of the BNSC program must to a large degree be seen as the result

of these developments. It represents the return to more financial involvement of the

central government in rural affairs, the return to more centralization in policy

formulation and implementation, and more generally the return to the hope that rural

life can be improved by careful planning.

19

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22

Endnotes

1 As was explained to the author by one of the architects of the RTFR, “Tax-for-fee”

(fei gai shui) was a very limited experimental approach later abandoned for the more

comprehensive “Rural Tax and Fee Reform” (nongcun shuifei gaige). See Göbel

2010: 77-80.

2 Small groups (usually “leading” or “coordinating” small groups) are a common

feature in China’s political system. They bring together heads of different Party or

government departments in order to coordinate decision making in a certain policy

field or, in this case, help implementation of a particular policy.