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World Bank Document Report No.41579-CN Report No. fortheHarmoniousSociety PublicFinance Rural China Improving 41579-CN China Improving Rural Public Finance Public Disclosure AuthorizedPublic Disclosure Authorized for the Harmonious Society November 21, 2007 Rural Development, Natural Resources and Environmental Sustainable Development Department East Asia and Pacifi c Region FOR OFFICIAL USE ONLY Public Disclosure AuthorizedPublic Disclosure Authorized Public Disclosure AuthorizedPublic Disclosure Authorized Document of the World Bank Public Disclosure AuthorizedPublic Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their offi cial duties. Its contents may not otherwise be disclosed without World Bank authorization. Acknowledgments The study on public finance in rural areas was led by Achim Fock (Task Team Leader) and Christine P. Wong. They are also the main authors of this report. This study was largely undertaken in 2004 and 2005. Beginning in early 2004, we conducted three field visits to counties in Sichuan, Yunnan, and Henan provinces. Hana Brixi, John Burns, Aiwu Wang, Feizhou Zhou, Hongwei Zhao, and Zhengxuan Zhu participated in one or more of the case studies. We further commissioned a survey of public finance that focused on the township level in 16 townships of 8 counties in the four provinces (municipality) of Chongqing, Hubei, Jiangsu, and Jilin. The team for this work was led by Feizhou Zhou and included Haihong Chen, Xiaolin Wang, Licheng Zhang, Yanglong Zhang, and Yixiang Zong. Christine Wong led a study on intergovernmental transfers that looked at transfers at all levels, from the center to a county and its townships and villages in Jiangxi. Guobao Wu participated in this study. A team from the Center for Chinese Agricultural Policy, led by Linxiu Zhang, Scott Rozelle, and Loren Brandt, undertook a survey of public finance and governance that focused on the village level, but also included substantial township-level information that was utilized in this study. Contributions on specific issues were provided by Guo Li (extra-budgetary revenues from land), Mei Wang (county indebtedness), and Xing Wei, who, together with Yanlong Zhang, also provided excellent research assistance. Hongwei Zhao provided assistance and logistical support for the team. This report was edited by Nancy Hearst. We are grateful to a number of other people who contributed to this study at various stages, including the participants in the brainstorming workshops on various occasions, the participants at the International Seminar on Public Finance for Integrated Rural Development held on October 18, 2005, as well as Stephen Mink (Lead Economist, EASRD) and Bert Hofman (Country Economist, China), and the peer and other reviewers, including Stuti Khemani, Severin Kodderitzsch, Zhu Ling, Andrea Pape-Christiansen, Ulrich Schmitt, Iain Shuker, and Dana Weist, who provided comments at different stages of the study. Finally, we would like to thank the Department for International Development (DFID), U.K., for providing funding to support this study and especially Mark George for his support and willing cooperation. ii Abbreviations and Acronyms ABC Agricultural Bank of China KWV Key Working Village ADBC Agricultural Development Bank of LGOPR Leading Group Office of Poverty China Reduction AQSIQ State Administration of Quality MDG Millennium Development Goal Supervision and Inspection and MOLSS Ministry of Labor and Social Security Quarantine M&E Monitoring & Evaluation ACWF All-China Women’s Federation MLR Ministry of Land and Resources ATA Agricultural Tax Abolition MOA Ministry of Agriculture BOF Bureau of Finance MOC Ministry of Communications BT Business Tax MOCA Ministry of Civil Affairs CBRC China Banking Regulatory MOE Ministry of Education Commission MOF Ministry of Finance CYL Communist Youth League MOH Ministry of Health CAD Comprehensive Agric. MOLSS Ministry of Labor and Social Security Development MOST Ministry of Science and Technology CASS Chinese Academy of Social MWR Ministry of Water Resources Sciences NBS National Bureau of Statistics CEP Compulsory Education Program NCMS New Cooperative Medical Scheme CFY China Financial Yearbook (MOF) NDRC National Development and Reform CMA Central Meteorological Commission Administration NPL Non-Performing Loans CSO Civil Society Organizations NSC New Socialist Countryside CSY China Statistical Yearbook (NBS) PBC People’s Bank of China CT Consumption Tax PIT Personal Income Tax DFID Department for International PSE Producer Support Estimate Development PSU Public Services Unit DRC Development Research Center of RCC Rural Credit Cooperative the State Council RCF Rural Cooperative Foundation EIT Enterprise Income Tax RFR Rural Fee Reform FDF Fiscal Development (Poverty RMB Renminbi Alleviation) Funds RTFR Rural Tax and Fee Reform FFW Food-for-Work SAT State Administration of Taxation FPC “Fiscally poor” county SCPSR State Commission on Public Sector GIS Geographic Information System Reform GPT general-purpose transfers SFA State Forestry Administration GTZ Gesellschaft für Technische SGA State Grain Administration Zusammenarbeit SOCAD State Office of CAD Ha Hectare SPT Specific-purpose transfers HHS (US) Department of Health and TCC Technical Cooperation Credit Human Services TEOS “two exemptions and one subsidy” IFS Intergovernmental Fiscal System TSS Tax Sharing System IIT Individual Income Tax TVE Township and Village Enterprise ICT Information and Communication UMCT Urban Maintenance and Construction Technology Tax KWC Key Working County VAT Value-added Tax iii Glossary of Chinese Terms 村 cun village 村村村员 村 cunmin weiyuanhui village committee 村村村组 cunmin xiaozu village groups 村长 cun zhang village head 村村书 cun zhi shu village party secretary 党党办 党党 dangzheng bangongshi “the office of the Party and the government” 低低 dibao minimum living standard 费改改 feigaishui Rural Fee Reform or Tax-for-Fee Reform 户口 hukou household registration system 核核 heding “fixing” 机机编员 机村 村 jigou bianzhi weiyuanhui post establishment committee 机机编办 机 党党 jigou bianzhi bangongshi post establishment general office 集资 jizi special assessments on farmers 可村可财 可 kezhi peicaili disposable funds 七七七七 qizhan basuo “seven stations and eight offices” 三核 sanding “three fixes” (functions of official posts) 三核三三 sanding fang’an “three fixes plan” 三农农农 sannong wenti issues related to farmers, agriculture, and rural 事事业业 shiye danwei development 特特 tekun public services unit 提提 tiliu very poor household 统统 tongchou (three) regular fee assessments (to villages) 五低户 wubaohu (five) regular fee assessments (to township) 县 xian “Five Guaranteed” households 乡 xiang county 县县 xianjí township 县乡财党政机 xianxiang caizheng tizhi county-level 村小小村 xiaokang shehui “county-township fiscal system” 村组 xiaozu “moderately well-off society” 行党村 (xingzheng) cun natural village or village group 系统 xitong administrative village 一三一一办 yiban sanzhongxin ‘systems’ 一事一议 yishi yiyi “one office and three or four centers”. 以以县县 yixian weizhu “one (village) assembly for one affair” 杂费 zafei reform reassigning teacher salary to county level 镇 zhen miscellaneous (education) fees 一中机机编 机 zhongyang jigou bianzhi town 村村员 weiyuanhui State Commission on Public Sector Reform 专专专专 zhuangxiang butie earmarked transfers 转移村移 zhuanyizhifu transfer 自自村 zirancun natural village iv Contents Executive Summary ……………………………………………………………………………. 1 Chapter 1. Introduction ................................................................................................................ 11 1.1. Rationale ....................................................................................................................... 11 1.2. Objective and Scope ..................................................................................................... 14 1.3. Methodology and Outline ............................................................................................. 16 Chapter 2. Reforms and their Outcome ....................................................................................... 18 2.1. The Rural Tax and Fee Reform .................................................................................... 18 2.2. Associated Reforms of the RFR Program..................................................................... 26 2.3. Other Adjustments to Revenues.................................................................................... 28 2.4. Changes in Expenditure Assignments .......................................................................... 31 Chapter 3. The Intergovernmental Fiscal System........................................................................ 32 3.1. Concepts and Framework ............................................................................................. 32 3.2. The Organization of Rural Public Finance in China..................................................... 33 3.3. Expenditure Assignments ............................................................................................. 38 3.4. Revenue Assignments................................................................................................... 41 3.5. Trends in Rural Public Finance..................................................................................... 44 Chapter 4. Intergovernmental Fiscal Transfers............................................................................. 47 4.1. The Role of Intergovernmental Transfers..................................................................... 48
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