Control Of Resources For Town Development

Small-town growth is critical for successful rural modernization (Rondinelli 1984). The almost 100 million rural laborers liberated by the rural reforms need to find work outside large urban centers. The commercialization of agriculture also increased the need for marketing centers (Tang and Ye 1986, 340).^[28] Expanding rural enterprises need public services and infrastructural development, such as electricity, water, housing, and entertainment facilities. Thus the decision to expand rural towns has created a public-policy environment within which county and subcounty governments can allocate funds for expanding urban infra-

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Fig. 12.1.
Sources of Funding for Town Construction

structure and industry. Figure 12.1 shows the sources of that investment. But does the county, the county-town, or the township seat control the new funds? Does the county use its influence over funds to its own benefit? What does the allocation of funds tell us about the distribution of authority in the countryside?

County-towns now receive development assistance from the county. In two county-towns in Jiangpu county the county helped build roads, drinking-water pipes, a new school, a new market, and a new housing project. Similar investments are occurring all over Jiangsu province (Tang and Ye 1986, 341). Some of these funds, such as those for schools or hospitals, originate from government ministries, such as education and public health, whose investments in the rural areas improve town life.

Yet funds for town construction are limited. A vice-minister of construction in Beijing stressed that "people's towns should be built by the people themselves."^[29] Others have referred to "using the town to develop the town" (yi zhen yang zhen ) (Tang and Ye 1986, 343). But although local taxes and state budget assistance allow simply for "subsistence" governmental work (Byrd and Gelb 1988), the search for funding has

been decentralized, making the struggle over local taxes and funding a meaningful reflection of the distribution of authority in the countryside.

Taxes and Small-town Development

The county receives a variety of taxes, which it can use for rural urbanization. Although these taxes change constantly, in 1987 they included public-facility fees (gong yong shiye fei ), peasant income taxes, and local real estate or land use taxes. The income tax, paid by all rural enterprises, could take as much as 55 percent of their industrial income. Five percent of these funds are earmarked for urban construction. Recent findings show that a sales tax (or value-added tax applied to all goods produced in rural enterprises) supplies county governments with much of their funds (Walder 1989). However, it is not known for certain how this tax affects factories owned by county-towns or townships.

Still, because these funds are usually distributed to county authorities for investment in town construction, the county can invest the great majority of these funds in the county seat, not in county-towns. Although central and provincial governments stipulated that local industrial and commercial surtaxes, public utilities surtaxes, and real estate surtaxes should be used for small-town construction, "the funds they provide are too small to be of any help" (Fei 1986, 83–84). In Suzhou municipality, the sum from these three sources amounted to two million yuan, which was divided among eighteen county-towns. "But the greater part of the sum is spent on construction in county seats, while other towns get only a few tens of thousand yuan each. Many leaders of county-towns say their share is not enough even for repairing unsafe buildings in the town" (Fei 1986, 83–84). In other cases the county government keeps most of the funds for its own administrative costs. Factories in Qingyang town, a county seat, paid the county 13 million yuan in 1984 taxes, but between 1981 and 1984 county appropriations totaled only 380,000 yuan, less than 100,000 yuan a year. Although the county was expected to give the town the "three types of appropriations (san xiang bokuan ), for many years this has been empty talk" (Zhao and Zhang 1986, 325). Moreover, because the county wanted its taxes first, some of the town's projects could not get off the ground. In one instance, county officials refused to let two enterprises—which, as beneficiaries of a town-run bridge-building project, had to contribute to it—draw their 10,000 yuan contribution out of their pretax profits. State taxes had to be paid first, even though their after-tax profits were insufficient for completing the project. After three years of wrangling, the money had still not been appropriated nor had the bridge been completed (Zhao and Zhang 1986, 325). The county is extremely judicious in distributing this most popular of tax breaks.

Similarly, all enterprises owned by the county-seat government in Wujiang county pay the county government an urban-construction protection fee (chengshi jianshi weihu fei ) which is 7 percent of their pretax income. Before 1987 the county reinvested only 70 percent of these funds in the county seat, using the remaining 30 percent in other towns or projects. Thus the county used taxes and urban development to redistribute funds within the county. However, since 1987, when the county began a major project to expand the county seat, the county stopped investing in the building up of the other towns. Even in Jiangpu county, where the county government supplied the county seat with funds for administering the town—in 1985 the county gave 120,000 yuan and in 1986 it gave 260,000 yuan—much of this money came from taxes imposed on the county seat's own factories.

Yet the new "finance responsibility system," which is intended to make county-towns and townships collect taxes more aggressively and be fiscally more responsible and autonomous (ZGNCJJ 1987b), may increase county-town independence, particularly for wealthy towns that can meet their quotas. But in the case of Tangquan town, Jiangpu county officials appear to be holding onto 5 percent more funds than they should be. In summer 1988 a Tangquan official complained to a county cadre that the county had only returned 10 and not 15 percent of the expected funds. Even when the county official reminded him that the county had helped build the drinking-water system, the county-town manager argued that development assistance was separate from a policy that gave county-towns more funds for their own use. As we can see, the county was willing to invest in the town, but it tried to keep surplus funds in its own hands and thereby determine the locus of investment, rather than give the funds directly to the town. This way it could insure that most funds went to develop the county seat, where its bureaucrats live and work. Clearly the system of financial responsibility should put more taxes directly in the county-town governments' hands and help them invest in their own urban infrastructure. Yet one can feel confident that the county will use its authority to keep in its own hands as much as possible of the surplus taxes collected by the town.

Profits from Rural Industry and Small-town Development

Since township and village enterprises (TVEs) are the major source of new capital in the rural areas,^[30] rural governments constantly try to control their fiscal activities (Oi 1987).^[31] Poorly defined collective prop-

erty rights facilitate government interference. Although township governments, reestablished in 1984, were to separate economic and political power, they still control TVEs under their jurisdiction, making them both levels of government administration responsible for a community's development and owners of community-run enterprises (Song and Du 1990).

A major debate ensues on how much after-tax profits of TVEs should go to county-town and township governments for urban development and how much should be left in the factory. Under a 2:2:5:1 system, 20 percent of after-tax profits of TVEs goes to town development, with another 20 percent supplementing agriculture (yi gong bu nong ) (Tang and Ye 1986, 345).^[32] A potentially inflated figure posits that 20–30 percent of the profits of locally controlled rural enterprises are going to develop educational and health services in small towns (Jin 1987, 34). Jiangpu county officials in the Rural Industry Bureau argued in 1986 that while 10 percent of the profits of TVEs went directly to the government that owned them, 30 percent went to these governments' industrial company (gongye gongsi ) for investment in agriculture, for building new factories, or for saving bankrupt ones. Forty percent of the funds are turned over to the local government (Jiangpu 1986).^[33] According to Yok-shiu Lee's data, the percentage of after-tax profits of TVEs going to "collective welfare"—monies for rural highways, schools, theaters, and market-town infrastructure—tripled from 1978 to 1984, rising from 5.9 percent to 15.7 percent (see table 12.3).

Before 1985, when county-towns in Wujiang county did not control the surrounding rural areas, county-town leaders had difficulty in attaching the profits of township-owned enterprises that existed within their geographic domain, even though they had previously used these funds for repairing streets, roads, and bridges. Unlike the county government's superior status vis-à-vis the county seat, the legal status of county-towns

and township governments was formally the same, so leaders of township-owned enterprises simply refused funding requests from the county-town, accusing county-town officials of "levying contributions at random" (Fei 1986, 84). In fact, poorer towns in northern Jiangsu that took too much money from TVE profits for town development undermined industrial development (Tang and Ye 1986, 339–47). But the 1985 merger of county-towns and townships in Wujiang county has probably helped county-town officials raid factory profits for development projects. As a result, profits from TVEs are a critical source of funding for infrastructural development in county-towns and township seats, although the precise level of after-tax profits allocated for this investment remains unclear.

Banking and Small-town Development

While banking flexibility increased in some localities in the 1980s,^[34] Jiangsu banks remained strongly influenced by county officials and were unlikely to invest in projects not approved by the county government.

Banks also became more responsible for their own profits and losses and became more independent of township or county-town officials than they had been of prereform commune officials, who took funds without authorization. So, without county guarantees or government prodding, they are unlikely to invest in such nonproductive projects as expanding urban infrastructure. Not surprisingly, banks are far more interested in investing in rural industries than in urban construction.^[35]

In 1988, whether a settlement was a county seat, a county-town, or a township center affected its access to funds by determining the bank it could approach. Township governments and newly designated county-towns were to rely primarily on Agricultural Bank funds, but if the project called for capital construction, they could approach the Construction Bank for help. If the Agricultural Bank was short of funds, they could go elsewhere too, even though funds were constrained by the county's overall plan. But the county government had much more influence with the Construction Bank, which funds all large construction projects, than county-towns have, so county projects were more likely to find funding than were those of other towns.^[36] In Jiangsu province, then, in the battle for bank loans, the county was likely to come out on top. County-towns that needed large funds for development projects must have their own funding or rely on the county to promote their case with the bank.

Migration Policy and Access to Towns

Town growth creates new opportunities, making access to town a scarce and valuable resource. As a result, some officials charge fees for access to town or for work permits, while others try to limit migration. In towns, peasants increase their wealth and improve their quality of life and their status. For many, work in town is more lucrative than work in the countryside. According to data from Yueyang district, Hunan province, the incomes of thirty specialized households still in their villages averaged 415 yuan per capita and 811 yuan per laborer, while incomes of specialized households who had moved to the town averaged 592 yuan per capita and 1,224 yuan per laborer (He and Zhang 1985, 31–35).

Since rural-urban migration is a contentious issue, social and legal limitations exist on peasant access to towns. Important social groups pressure

cadres to restrict peasant migration.^[37] State laws allow cadres to redirect rural migrants away from the county seat and into lower-status market towns and county-towns (GWYGB 1984b, 919). Migrants must have (1) a permanent place to live in the town; (2) management skills or longtime jobs in a town enterprise or unit; (3) a license from the local Industrial and Commercial Bureau; (4) a sublease on their contracted farmland to another peasant (so land is not abandoned); and (5) an independent source of food.^[38] To ensure that migrants meet these criteria, local officials in larger towns lacking public security offices (paichusuo ) were to set up "registration offices" (huqi dengji bangongshi ) (GWYGB 1984, 920) to control population flows. After migrants get to town, Industrial and Commercial Bureau officials still control the permits needed for access to marketing opportunities.^[39] And in smaller towns illegal migrants probably find even fewer opportunities for illegal businesses or places to hide.

Many peasants who applied for permission to move were turned down. In Taishan county, Guangdong province, over a four-month period in late 1984, 15,000 peasants applied for permission to move to the county seat; 9,000 (60 percent) were not allowed to move (Lee 1985). In the first half of 1985, out of 4,000 prospective migrants to Longgang town, Jiangsu, only 515 (13 percent) were permitted to move (Lee 1988b). When 580 households applied to leave their villages in Changsanqiao county, Sichuan province, 369 (64 percent) failed to get permits (ZGNYNJ 1985, 101). In the town Helen Siu studied, only rural residents with immediate family members in town could register, and only as zili liang hu (households who supply their own grain).^[40] In Jiangpu, as of May 1986, only 268 peasants had moved into Zhujiang town and none had changed their residence status, receiving only "residence permits"

(chang zhu hukou ).^[41] Thus county-town officials still maintain serious controls over migration into town, although restraints on migration are breaking down year by year.^[42]

Yet peasant migration can make county-town governments less dependent on county financial assistance. Migrants are a major funding source for new housing and buildings, particularly where rural industry is less developed. In Yueyang district, Hunan province, migrants built 62.2 percent of the floor space for new housing and shops (He and Zhang 1985, 34). In Chenggu county, Shaanxi province, peasants in 1984 contributed 5.02 million yuan toward town construction (People's Daily , 30 April 1985). And in Anhui province, average investment by each migrant household in the towns ranged from 4,700 to 15,500 yuan in 1984 (Almanac of Anhui's Economy 1985, 269–70; An Jian 1986, 25). They also pay taxes and fees for licenses, market management, land use, and construction (Tang and Ye 1986, 346).

Moreover, cadres can charge peasants fees or "rents" for access to income-increasing opportunities in these towns. Township and county-town governments charge aspiring factory workers an entrance fee, ranging from 1,000 to 7,500 yuan, calling them "workers bringing capital to factories" (gongren dai zi ru chang ). Tangquan's government, hungry for funds for industry but unable to secure bank loans, pressured peasants and village leaders to give the factory a loan. Although some villagers resisted, brigade officials persuaded them to agree (Jiangpu 1986).

A main reason for small-town development is to channel rural laborers away from big cities. But small towns have limited resources and economic opportunities, so local officials often restrict access to these towns. In the parts of Jiangsu province covered by this study, they continue to control the number of peasants moving to town. The resulting floating population in cities such as Shanghai has passed one million, making it uncertain if the small-town strategy will alleviate demands for rural-urban migration.