The malpractice can be attributed to many factors, where loopholes in the current rural financial system is a key one. To save farmers from excessive fee charges, systematic restructuring is a must.

Township budgets were first listed as part of the national budget plan in 1953. That year, township revenues were also turned in to the county budget for the first time. Then, township governments had two channels for money to cover expenditures: Allocation from the county budget, which covers current expenditures, and self-collection by township government themselves, which covers incidental expenditures.

Though the rural financial system has undergone various restructuring since 1953, the self-collection mechanism remained intact. It is here that loopholes allow for excessive fee charges, which imposes heavy burdens on farmers.

Under the planned economic system, the development of heavy industry was the priority, and the national budget tilted in favour of industrial development.

As a result, the central budget was unable to give enough financial support to the operation of township governments and rural development. Under such conditions, a mechanism was needed to ensure township governments get extra income to make up deficits. Thus self-collection was used more and more.

The self-collection mechanism to some extent also eases national and local clashes.

Whether under a planned economic system or a market one, the central government's economic development plan and investment priorities, which are based on a national perspective, cannot always cater to the interests of each location.

To take into consideration local interests, township governments need to be given some autonomy and flexibility in local finance, and the self-collection mechanism satisfies such a demand.

It has thus survived each round of financial reform.

When the self-collection mechanism was designed, the collection items, targets, and how the collected money was spent were clearly defined. But a lack of strict management and a supervision system made the self-collection gradually surpass defined spheres and become an excuse for township governments to charge irrational fees.

The legal status of the self-collection mechanism has led to the increase of extra-budget funds in township coffers. From 1986 to 1996, the share of extra-budget funds in township revenues increased from 4.99 per cent to 35.42 per cent, coinciding with the increase in the financial burdens of farmers.

As early as in the 1980s, irrational fees have been imposed on farmers. But during that period, farmers' income growth outpaced fee charges, so the problem was not as noticeable.

In the 1990s, when the income growth of farmers was slowing down, the financial burdens shouldered by them became more and more conspicuous and have constituted a threat to rural economic and social progress.

So it has therefore become a pressing task to reform and redesign the self-collection mechanism.

Towards this end, the tax-for-fee programme is being promoted on a trial basis. Under the programme, items that are charged a fee are re-examined with irrational ones being cancelled, while the rest are converted into tax items.

With the collection items strictly defined, irrational charges under various pretexts are expected to end.

The tax-for-fee programme and a regulated collection mechanism can help in relieving farmers' burdens, but as a direct result, the income of township governments will suffer a sudden decline. If township governments function under long-term tight budgets, irrational charges may threaten to resurge.

Another aspect of the current financial system that burdens farmers is the imbalance between the enlarged administrative duties of township governments and their shrinking power in revenue control.

The tax division system introduced in 1994 brought further revenue resources to the central government. While the central revenue took control of tax items that brought about higher revenues for taxes shared by central and local revenues, a higher proportion was given to the central one.

Take the value-added tax for example. The central revenue takes over 75 per cent of this tax income, while 25 per cent goes to local coffers.

Provincial and county-level governments have also managed to transfer some revenues from township governments to their own coffers. Limited revenue resources put many township governments into financial trouble, which also triggered excessive fee charges.

Accompanied by the shrinking power in revenue control, more administrative work was transferred from higher level governments to township ones.

The work of township governments now cover almost every sector in rural economic and social development, and new institutions and staff are needed for the new work.

The regular staff members in a township government include almost two dozen offices, such as the committee of the Party, the people's congress, the Communist Youth League, the women's federation, family planning, civil affairs, culture and education and finance and jurisdiction. Though some positions are held concurrently by township government officials, there are still several dozen personnel within a township government that are supported by the local revenue.

A survey by the Ministry of Civil Affairs targeting 90 towns in 15 provinces found that a large part of paying for work staff came from irrational fee collection.

To stop irrational fee charges, government institutional reform should be implemented in step with fiscal reform. Work duties should be equally divided among each level of government to prevent township governments from being overburdened.

At the same time, reforms to trim government institutions should continue to be carried out to keep staff numbers at township governments from ballooning.

The author is a researcher with the Institute of Rural Development at the Academy of Social Sciences.

(China Daily August 14, 2002)