Resolving Rural Education Debts

From Nation, page 5, issue no. 381, August 18, 2008
Translated by Ren Yujie
Original article: [Chinese]

Under a directive of China's State Council, provincial governments have gradually settled local-level debt resulting from their offering of free rural education. In the process they discovered debt scams.

The debts were a result of implementing nine-year free compulsory education in the countryside since the early 1990s. By 2005, official statistics revealed that free rural education had incurred 50 billion yuan in debt, though scholars believed the more realistic amount would be exceed 100 billion yuan.

The debts were largely shouldred by grassroots leaders and school heads, who in the early stages of implementation found scant financial support from local and provincial governments, and thus turned to borrowing money to build school facilities and buy equipment after losing their main income from school fees and other charges.

Then, in December last year, the Chinese government initiated a pilot program in 14 provinces to settle the debts, and by August, some 14.6 billion yuan in arrears were cleared. But in assessing the records, officials discovered some creditors and debitors had jointly marked-up debt figures, hoping to gain from the government intervention program.

Finding a Solution
Each of the 14 provinces under the debt-clearing pilot had on average accummulated 73,000 yuan worth of debts, and the number of creditors and debitors totaled 133,000 individuals. The major pockets of debt were recorded in less-developed provinces like Inner Mongolia, Shaanxi, Ningxua, Sichuan and Guizhou.

In Inner Mongolia alone, during the 14 years between 1993 and 2006, the province rolled up 3.53 billion yuan of debt in the process of offering free rural education. Of its 101 counties, 98 were in the red, and over 80% of the debts were concentrated in small villages. The poorer a place was, the steeper its obligations.

The province's Naiman county for instance had debts totaling 100.7 million yuan. The solution offered was for the county local government to takeover 20% of the debts, with district and municipal governments to subsidize the remainder. The relief plan was scheduled to be completed by the end of August this year.

In fact, the State Council general office had issued a circular directing provincial governments to resolve rural education debts as early as 1999. However, the task was not implemented and the debts continued to balloon.

To prevent history from repeating itself, the State Council demanded all provinces under the pilot program sign a pledge to resolve their commitments, and that they would ensure no more fresh debts would incur once the old debts were settled.

In turn, each of these provinces signed another legal document with county level authorities, stating that future debts would no longer be born by the provincial government.

In China, prior to 1986, local education needs were mainly met by funding from respective communities or state-owned enterprises running schools for their employees' children. A reform in the 1990s entrusted county level governments to manage rural education.

Later, provincial governments were responsibled for planning and coordinating funding for the nine-year free compulsory education, with costs shared by various level of local governments depending on respective financial capacities.

The central government mainly looked after key higher education institutions and special education needs, such as channeling funds to the poorer western region.

Downside of Government Intervention
In recent years, as news of school heads and local leaders, as legal person representing the schools, being sued for failing to repay credits used in school development emerged, there had been public outcry for the central government to takeover all debts.

However, an official from the Ministry of Finance, who declined to be named, told the EO that such a move would be unwise.

He said from past experiences, the government had learned that once it committed itself, it would actually encourage the debts at the provincial level to grow, and fabricated debts would also emerge.

An officer who took part in assessing debt records since late last year said the process was long and tedious."These debts have been around for over a decade, it is very time consuming to check one by one, and conflicting records often appeared."

The officer said he also needed to interview both creditors and debitors, obtain receipts from both parties to confirm the debts truly existed, and scrutinize records.

While provincial governments worked towards resolving debt, the central government's Ministry of Finance set up a special 6-billion yuan fund. The money was intended as  cash reward for provinces that had accomplished the task. The reward would be distributed based on a handful factors, including number of students and local treasury capacity.

Whether it was intervention from the local, provincial or central government, it was the same as government rescue to creditors and debtors looking for someone to foot the bill. Such mentality had encouraged forgery, and assessment officers had discovered that creditors and debitors sometimes worked hand in hand to fabricate a larger sum of debts to make a gains that would be shared later.

One officer said: "We must screen the records thoroughly, or else, we are back to square one - schools' debts resolved but government debts ballooning."

The EO learned that in Naiman county for instance, records submitted for estimated debts totaled 160 million yuan, however, upon strict assessment the debts shrunk by 60 million.

"This is a learning process. If we could resolve the rural education debts this time around, we may draw esperience from this formula to resolve other county level debts in the future," said one local audit officer.