Financing Rural Development for a Harmonious Society in China : Recent Reforms in Public Finance and Their Prospects

The Government of China has placed
strong emphasis on addressing problems related to
agriculture, farmers, and rural society, with the
development of a "new socialist countryside"
designated as a top priority for the Eleventh Five-Year Plan
(2006-2010). The financing of public services in rural
areas will be a key determinant of the Plan's success.
This report analyzes the performance of the
intergovernmental fiscal system - the financing of rural
development through counties, townships, and villages - and
the impact of recent reforms. The authors show that
achieving the government's objectives will require
channeling substantial new resources to rural areas. In
addition, ensuring the effective transfer of resources and
their efficient utilization will require fundamental reforms
to a wide range of public institutions, including budget and
planning processes, personnel management systems, and the
organization of government agencies. The authors argue that
a comprehensive reform strategy is needed to address
fundamental vertical and horizontal imbalances in the
intergovernmental fiscal system The reforms must reach
beyond the fiscal system to build improved accountability
mechanisms to improve public service delivery at the
grassroots level. And, given China's size and
diversity, reform efforts must focus on improving incentive
structures at the county, township, and village levels.