The current financing system underpinning rural education cannot pay for a free nine-year compulsory education. The system must be reformed to ensure adequate funding for the economically underdeveloped countryside.

Since the mid-80s, China has gradually established an educational funding system based on local resources, including both fiscal and non-fiscal funding. County-level fiscal funding has been the backbone of rural educational financing. In 2001, the State Council decided to reiterate the role of local governments in supporting compulsory education.

This allows both the public and local governments to develop compulsory education.

China suffers from wide income gaps between different regions. Official surveys show urban residents earn an average of three times as much as their rural counterparts. Considering the benefits city dwellers tend to enjoy, such as pensions, medical care and unemployment insurance, the gap could be said to be wider.

This has made it extremely difficult to pool funds in rural areas to support local compulsory education. Many poor farmers have to spend most of their income on the basics to feed their families and pay for agricultural production. They have to cut everyday expenditure or production costs if they are to come up with tuition fees for their children.

Local governments are not rich enough to pay for compulsory education. Since 1994, when China launched its taxation sharing system, under which the central and local governments share national revenues, the lower-level governments have been less powerful financially.

In 2001, for example, the per capita disposable funding of the central and provincial governments was 27,228 yuan (US$3,280) while that of county-level coffers was only 435 yuan (US$52). In western regions, funds for developing social services are even more restricted.

But the 1986 Law on Compulsory Education stipulates that developing compulsory education is one of the major tasks assigned to county-level governments, many of which are financially incapable of accomplishing that task, especially in the poor western regions.

The funding shortages will affect the future prospects of many rural children, who could have improved their situation through education.

The central leadership has hammered out a national development blueprint that declares rural development, including compulsory education, to be a policy priority. It has put forward the idea of building a new socialist countryside, a drive that is expected to change the social and economic landscape of rural areas in an all-round way.

To that end, the financing system for rural compulsory education must be reformed.

Compulsory education should be free. But given current conditions this is not realistic. Perhaps the government could first provide free compulsory education in poor rural areas before spreading this service nationwide in the future, when it becomes financially possible.

Financing is an inevitable obstacle to providing free education. Before 2003, when China began to implement its tax-for-fee reform in rural areas, fiscal support and extra educational fees supported compulsory education. Since then, only fiscal support has been available  so funding shortages have worsened.

The experiences of developed countries show systems that rely on county-level coffers to shoulder the lion's share of compulsory educational costs block the development of a country's education provision. These countries have shifted part of the cost of compulsory education to provincial and central governments and established a regime that shares costs among central, provincial and county-level coffers.

An advisable solution for China is for the central government to pay for teachers' wages, which are currently drawn from county-level coffers. Economists estimate the costs will amount to 50 billion yuan (US$6.2 billion), which accounts for less than 5 per cent of annual central fiscal income. If just teachers in western regions are considered, only 23.2 billion yuan (US$2.8 billion) would be needed, according to Lin Yifu, a renowned economist from Peking University's China Centre for Economic Research.

Such an arrangement is affordable for the central government.

Local governments will shoulder the costs of infrastructure and other expenditures.

Since the wages of teachers account for most of the expenditure on compulsory education, such an arrangement will solve the problem of funding shortages in rural areas.

The central government has poured vast sums of money into compulsory education in rural areas in the form of payment transfers, and has promised to invest more. This will do much to bridge the educational gap between prosperous urban areas and poor rural regions.

As for provincial governments, they should establish grant systems to support students from poverty-stricken families.

Some provinces have started to implement such schemes, but more must follow suit.

The author Liu Zeyun is a researcher at the School of Economics and Business Administration of Beijing Normal University.