COSTS OF EDUCATION IN CHINA: ISSUES OF RESOURCE

MOBILIZATION, EQUALITY, EQUITY AND EFFICIENCY

By: Tsang, Mun C., Education Economics, 09645292, 1994, Vol. 2, Issue 3

Database: Business Source Premier

ABSTRACT

This paper is a survey of the costs of education in one Asian country, China. It focuses
on three areas of education costs: (1) national expenditures on education; (2) unit costs
of education; and (3) educational cost functions. It relates the analysis of education costs
to four enduring policy issues in education in China: resource mobilization, inequality,
inequity and inefficiency. The analysis is based on primary and secondary data sources
and on existing studies in both the Chinese and English literatures. Whenever
appropriate, comparative discussion is made by drawing on cost studies on other
(mostly Asian) countries. The paper is aimed at providing a review of the current state of
knowledge, and identifying knowledge gaps and areas for future research on education
costs in China.

Methodology and the Chinese Context

Many decisions in education are concerned with the costs of education. Educational cost
analysis can reveal the resource implications of an education policy, assess the financial
feasibility of an education reform, provide diagnosis of past and current resource
utilization in education, project future resource requirements for education, and evaluate
the relative efficiency, inequity and inequality effects of alternative educational
interventions. Studies of education costs can contribute to improved decision-making,
planning, and monitoring in education (Tsang, 1988).

The costs of education refer to the economic value of the inputs used in education. The
cost or economic value of an education input is defined as its opportunity cost and is
measured by the value of the input in its best alternative use. This definition of cost
implies that the costs of education consist not only of public educational expenditures on

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personnel, school facilities, supplies and equipment, but also parental and/or students'
expenditures on education (direct private costs of education (DPCs) such as tuition and
other education-related fees and expenditures on textbooks, uniform, school bag, writing
supplies, transportation, boarding, etc.), students' foregone opportunities (indirect private
costs, such as foregone earnings), as well as private contributions to education
(contributions in cash or in kind, by individuals, parents or private organizations).

In China, public expenditures on education are found in three accounts: operating

expenditure on education (OEE) by the education bureaucracy (previously the Ministry
of Education (MOE), and now the State Education Commission (SedC) and its provincial
and local affiliates), capital expenditure on education (CEE) by the education
bureaucracy, and education expenditure (mostly on vocational/technical education) by
other central ministries (EEOCM). Data on OEE and CEE are available since 1950, but a
continuous series for EEOCM is available only after 1980. Since the decentralization of
education finance in the 1980s, public expenditures on education have been made by
governments at the central, provincial and local levels. Thus, data on national
expenditures on education since 1986 have to be compiled from an aggregation of data
from various administrative levels.

Tuition is free in basic education (5-6years of schooling before 1985, and 9 years of
schooling after 1985); but parents still have to pay for other school fees (e.g. for sports
and other school services) and other direct private costs of schooling. For a long period
of time, cost recovery in post-basic levels was very limited. More attention to increased
cost recovery in upper-secondary and higher-education levels has been made in recent
years. Since 1987, the State Statistics Bureau has published periodic surveys of
household expenditures in urban areas, but data on household education expenditure
are incomplete. A comprehensive coverage of DPCs has yet to be implemented in such
surveys. Parental and community contributions (known as `social contributions' in China)
have long been a significant source of the financing of school construction, especially at
the primary level. But no systematic effort was made to collect and report information on
social contributions before 1986.

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In addition to fiscal decentralization, the financing reform in education in 1980s also
promoted the diversification of resource mobilization for education (Tsang, 1993),
especially from non-government sources. Education institutions at various levels are
encouraged to generate their own resources (e.g. revenue from production and sale of
products by school), intensify their effort to gather social contributions and contributions
from overseas Chinese, and collect fees from students. At the local level, education
surcharges and levies have been imposed in the second half of the 1980s to support
school expenditures. Currently, `self-generated' school revenue is used to purchase
school equipment, provide welfare benefits for school staff and for repair or replacement
of school buildings; social contributions are primarily used for school construction; school
fees are used to support non-personnel school expenditures; and education surcharges
and levies are used on non-personnel inputs, the repair or replacement of school
building and on school equipment. Thus, in addition to government expenditures on
education (known as budgeted education expenditures, including OEE, CEE and
EEOCM) supported through the government's budget, there are extra-budgetary
education expenditures (EBEE, sum of self-generated school revenue, social
contributions, school fees, and education surcharges and levies) that are outside the
government's budget. Since 1986, the government has reported both budgeted and
extra-budgetary expenditures on education. In the Chinese context, one can obtain an
estimate of total non-government expenditure on education by adding total non-fee DPC
(i.e. total DPC minus tuition and other school fees) to EBEE.

This paper attempts to relate the analysis of education costs to four prominent and
enduring issues in education in China. The first issue is concerned with resource
mobilization for education. For a long period of time, China has devoted a relatively low
proportion of its fiscal and national resources to education. The limited education
resources are reflected in low teacher salaries, poor physical conditions of schools, lack
of equipment, etc. (Tsang, 1993). Since the promulgation of modernization policies in
1978, education has been regarded by the government as the strategic foundation for
economic-oriented national development. Mobilizing additional resources for education
is a key challenge for decisionmakers at all administrative levels. In the transition from a
centralized planned economy to a `socialist-market economy', non-government

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involvement in economic and educational production is encouraged. The government
has tried to elevate the role of non-government costs in educational development in
China. Thus resource mobilization for education is concerned not only with the fiscal
effort of the government over time, but also with the mix of government and non-
government resources for education.

The other three issues concern inequalities, inequities and inefficiency in education. In
the past four decades, national development in China had been subject to divergent
ideologies and contrasting views within the leadership of the Chinese Communist Party
(CCP); Chinese society was marked by large-scale tumultuous social changes.
Education, being part of the state dominated by the CCP, was subject to the tensions
within the CCP leadership. Thus educational developments have been highly politicized
(Tsang, 1991). One view of educational development emphasizes ideological inculcation
in communist ideal ('redness'), social equality and equity, and development through
mobilization of the masses. Another view emphasizes a technical approach to
development, efficiency and the importance of skills in economic production ('expertise',
or social efficiency). Educational developments in China have oscillated between
redness and expertise, and between the concerns for equality and efficiency. The
expertise view has been the dominant one since 1978. Fluctuations in education costs
have to be understood in the broader context of social change outside the education
sector.

Because of the limitation in length, the scope for this paper is restricted to the analysis of
education costs in three areas: national expenditures on education, unit costs of
education, and education cost functions. Some types of education costs and their
analysis (such as capital versus recurrent costs, personnel costs versus non-personnel
costs, education costs by administrative levels, allocation of education expenditures by
level of schooling, etc.) have been omitted. Also, because of data limitations, most of the
analyses concern the recent 5-year plan periods (1981-1991).

The paper is partly based on previous cost studies on China conducted by the author
and by other researchers, but it also contains new analyses using primary and
secondary data sources. To understand the Chinese findings in international

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perspectives, the paper provides a comparative analysis by drawing upon cost studies
on other especially Asian, countries. The rest of the paper is divided into four sections.
The second, third and fourth sections deal, respectively, with national expenditures on
education, unit expenditures on education, and education cost functions. The last
section provides a brief summary and discussion of areas for further research on costs
of education in China.

National Expenditures on Education

National expenditures on education consist of expenditures from both government and

non-government sources on the country as a whole. This section is focused on three
analytical tasks: it (1) examines the trends in government and non-government
expenditures over time; (2) estimates the total national expenditure on education in
recent years; and (3) identifies the dilemma facing education decision-makers in the
mobilization of non-government resources for education. Information for these analyses
is based mostly on data from government sources. Because of the relatively long
historical period covered (which increases the likelihood of inconsistency and other
problems of data quality), the expenditure estimates given here are meant to indicate
trends and order of magnitude.

Resource Mobilization

Table 1 gives public expenditures on education by the education bureaucracy for the
period 1950-1991. Total public expenditure by the education bureaucracy (i.e. OEE plus
CEE) increased from 0.41 billion yuan in 1950 to 41.83 billion in 1991 in current prices
(see column (3) of Table 1), or an increase of 101 times! In 1950 prices, the 1991 figure
was still 35 times that of 1950. The annual growth rate averaged 11.9% in nominal terms
and 9.1% in real terms. As expected, OEE constituted the bulk of the total public
expenditure by the education bureaucracy (averaging 89% during the whole period).
Government allocation to CEE has historically, been low. Between 1950 and 1983, CEE
averaged only 2.0% of total public capital expenditure (computed from State Education
Commission 1984, p. 372).

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Total public expenditure by the education bureaucracy averaged only 7.8% of total
government expenditure (a measure of `fiscal effort', see column (5)) and 2.4% of
national income (a measure of `national effort', see column (6)) during 1950-1991. There
were also significant variations in these two measures across the past seven plan
periods (see Figure 1). These fluctuations are correlated with changes in national
income in the four decades (not shown in Table 1). In particular, the obvious decline in
both measures occurred during the Third and Fourth Plan Periods (1966-1970 and
1971-1975), the turbulent years of the Culture Revolution. But there was a marked
increase in the two measures after the promulgation of modernization policies in 1978.
For example, the fiscal-effort measure averaged 6.5% during 1950-1979 and 11.1%
during 1980-1991. The national-effort measure averaged 2.2% during 1950-1979 and
2.9% during 19801991.

While Table 1 gives total public expenditure by the education bureaucracy only, Table 2
gives total public expenditure on education (TPEE, column (l)), extra-budgetary
expenditure on education (EBEE, column (5)) and the sum of TPEE and EBEE (see
column (6)) in 1981-1991. TPEE equals the sum of OEE, CEE and EEOCM. During the
1981-1991 period, EEOCM averaged only 6.7% (see column (2)) of TPEE, indicating
that the bulk of public education expenditure was spent by the education bureaucracy.
Between 1981 and 1991, TPEE grew by an average annual rate of 13.8% in nominal
terms and 6.5% in real terms. But TPEE grew at slower rates between 1986 and 1991
(11.6% in nominal terms and 2.0% in real terms).

Column (5) in Table 2 shows that EBEE has grown rapidly during the 1986-1991 period.
The implied average growth rate per annum was 27.3% in nominal terms and 16.3% in
real terms. Thus EBEE grew much faster than TPEE during the same period. What is
also striking is that EBEE's share of the sum of EBEE and TPEE grew from 23.5% in
1986 to 37.2% in 1991 (see column (7)). Non-government resources have thus become
an increasingly important source of education expenditure in China since the financial
reform in education.

It is interesting to note that TPEE as a proportion of GNP for the Seventh Plan Period
(1986-1990) averaged only 2.5%, lower than the 2.7% average for the Sixth Plan Period

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(1981-1985). However, with the support of non-government sources, total budgeted and
extra-budgetary education expenditure rose to an average of 3.4% of GNP for the 1986-
1990 period (see column (8)).EBEE figures were not available for 1981-1985; they were
expected to be much smaller than those for the 1986-1991 period. Assuming that EBEE
averaged 15% (i.e. about half the rate for 1986) of TPEE during 1981-1985, total
budgeted and extra-budgetary expenditure on education had an estimated average of
3.1% of GNP in the same period. In other words, the sharp rise in EBEE in the 1986-
1990 period more than compensated for the decline in TPEE as a proportion of total
government expenditure.

Table 3 provides more details on the breakdown of EBEE by subsector of education. It

shows that primary-secondary education claimed an average of 75% of EBEE during
1986-1991. And, in primary-secondary education, social contributions, and education
surcharges and levies were the two most important sources of support for EBEE.

EBEE contains most of the non-government expenditure on education in China, but it

does not include non-fee DPCs (such as parental spending on textbooks, writing
supplies, school bags, transportation costs, school uniform, boarding, etc.). Non-fee
DPCs are not reported in government reports, but can be estimated from surveys of
household education expenditure.

Two recent studies provide a preliminary analysis of parental expenditure on schooling.

In exploring the potential of household financing of education in China, Chen (1992)
provided two analyses of household education expenditure. In the first analysis, Chen
used data collected by the State Statistics Bureau on urban households. The data
contain education expenditures on three items only: tuition and other school fees,
stationery and writing supplies, and magazines and newspapers. They do not include
expenditures on school bags, uniforms, transportation, boarding, etc. Also, part of the
expenditure on magazines and newspapers may not be related to schooling. The results
show that: (1) household education expenditure as a proportion of household income
increased from 2.1% in 1987 to 2.4% in 1988 and 2.7% in 1989, and (2) higher-income
households spent a lower proportion of their income on education. The second analysis
was based on data that Chen and his colleagues collected from 320 households in the

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Beijing metropolitan area in 1990. The data included household expenditure on
schooling (DPCs) and household contributions to school. The analysis found that: (1)
Beijing households spent between 2 and 4% of their income on education in 1990, (2)
household expenditure on a secondary student was higher than that on a primary
student (the ratio varied from 1.3 to 4.1 for different subsamples), and (3) there were
large variations in education expenditures among `city/town' households, `near-rural'
households and `remote-rural' households.

The other study (Tsang, 1990) provides approximate estimates of DPCs at three
schooling levels in two provinces (Guizhou and Shaanxi) in 1988. The data were
collected by interviewing parents and school staff in selected urban and rural areas in
the two provinces. The results indicate that: (1) for Guizhou province, DPCs at the
primary level constituted 1.2% of household income in urban areas and 2.1% of
household income in rural areas; the corresponding ratios were 1.9 and 4.2% for lower-
secondary education, and 3.1 and 7.0% at the upper-secondary level; (2) for both
provinces, DPCs were higher for higher levels of schooling; (3) for both provinces, DPCs
for urban areas were higher than DPCs for rural areas at the same education level; and
(4) non-fee-related DPCs as a proportion of total DPC averaged 84% at the primary level,
82% at the lower-secondary level, and 60% at the upper-secondary level. In addition,
this study finds that the burden of private costs of schooling can adversely affect the
demand for education, especially in poor areas. In Taijing County (per capita income of
about US $50) in Guizhou, for example, 673 of the 1034 students who dropped out of
primary school in 1988 reported economic difficulty to be the primary factor for their
departure. A recent experiment that cut the costs of textbooks and school fees by half in
two primary schools in this county resulted in marked improvement in attendance. In
particular, female enrolment increased from 20 to 50% of the total enrolment in these
schools.

Total non-fee DPC can be estimated from these studies. At the primary-secondary level,
total non-fee DPC equals about 80% of total DPC. In other words, total non-fee DPC
equals four times of total fee-related DPC at this level. Since enrolment in higher
education is about 1% of that of primary-secondary education and that non-fee DPC per
higher-education student is roughly ten times of non-fee DPC per primary-secondary

8
student (an assumption), then non-fee DPC at the higher-education level can be
estimated to be about 10% of non-fee DPC at the primary-secondary level. Total non-fee
DPC equals the sum of non-fee DPCS at the primary-secondary and higher-education
levels. By adding total non-fee DPC to EBEE, one obtains an estimate of the total non-
government expenditure on education. And by adding total non-government expenditure
on education to TPEE, ones obtains an estimate of the total national expenditure on
education (TNEE). Table 4 provides estimates of TNEE for the 1986-1991 period. Once
again, Table 4 documents the increasing importance of non-government financing of
education in this period. Government expenditure on education as a proportion of TNEE
decreased from 67.4% in 1986 to 52.6% in 1991.

International Comparison, Inequality and Inequity

Table 5 compares the TPEE of China with other countries in 1985. It shows that the
Chinese government spent 13.1% of its total expenditure on education; this level is
below the 16% average for developing countries but above the 12.5% average for Asian
countries. In the same year, TPEE amounted to 2.8% of GNP for China; this level was
less than the 4% average for developing countries and the 3.3% level for Asian countries.
For both TPEE measures, the level of public investment in education for China in 1985
was at least comparable to those of other Asian countries of similar level of per-capita
GNP; but China still lags behind Asian countries with a high level of per-capita GNP.
From a historical perspective, the 1980s were the `golden years' in public mobilization of
resources for education in China. Nevertheless, many educational institutions in many
parts of China today remain in very poor condition because of the low level of public
investment in education in the three decades before 1980. In order to support its
transition to a socialist market economy and to raise its standard of living, China still
needs to continue to raise its TPEE ratios in the 1990s to get close to the levels for
higher-income countries.

From a resource mobilization standpoint, one encouraging development in China in the

1980s was the increase in education expenditures financed by non-government sources.
Preliminary evidence indicates Chinese households spend about 3% of their income on

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education, a level comparable to the levels for other developing countries
(Psacharopoulos & Woodhall, 1985).

The findings on household education expenditure in China are consistent with those of
recent studies of other developing countries by Tsang et al. (1990; Tsang &
Kidchanapanish, 1992) and other analysts (Schiefelbein, 1986; Wolff, 1985; Bray & Lillis,
1987; Tilak, 1985). A review (see Tsang, 1994a) of these studies indicated that: (1)
private costs constitute a substantial proportion of the total cost of education; (2) private
education expenditures are an important source of funding for quality-related inputs
(such as textbooks) in education; (3) families from higher socio-economic backgrounds
(such as higher-income and urban families) spend more than families from lower socio-
economic backgrounds (i.e. lower-income and rural); (4) not only are private educational
expenditures disequalizing, they also increase inequity as their share of household
income is negatively correlated with the level of household income; and (5) private costs
of education can have a negative impact on the demand for education (including female
education), especially for families from lower socio-economic backgrounds.

Thus, for education decision-makers, there is a dilemma between resource mobilization

and quality-improvement objectives on the one hand, and equality and equity objectives
on the other hand. Increased resource mobilization for education from private sources
can increase inequality and inequity in education. One potential policy option for
mitigating the dilemma is to target a larger proportion of additional public resources at
disadvantaged populations and areas, while continuing mobilization of private resources
for education in all areas (Verspoor & Tsang, 1993). The adoption of this policy option
depends critically on the level of political commitment for education for disadvantaged
populations in the context of given country.

In summary, in terms of both fiscal effort and national effort, total government
expenditure on education in the 1980s was substantially higher than in the previous
three decades. Non-government expenditure on education increased rapidly in the
1980s, both in absolute amount and as a proportion of TNEE; they accounted for almost
one-half of total national resources for education in 1991. However, increased resource

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mobilization from non-government sources has been accompanied by educational
inequality and inequity.

Unit Expenditure on Education

This section explores three issues related to unit expenditure on education in China: (1)
whether unit education expenditures have increased over time in real terms; (2) the
extent of disparities in unit expenditures on education; and (3) the determinants of
regional disparities in unit expenditures on primary and secondary education. In most of
the analyses and studies, `unit' expenditure refers to `per-student' expenditure.

Resource Mobilization

While Tables 1-4 document the increase in resources for education, they do not indicate
whether per-student education expenditure has increased over time in real terms. Table
6 (columns (1)-(3)) gives per-student operating expenditure on education by the
government (PSOEE) for three levels of education for the period 1981-1991 in 1981
prices. It shows that PSOEE did increase in real terms between 1981 and 1991 for all
three levels of education. However, the growth pattern for the three educational levels
were very different (columns (4)-(6)). For both primary and secondary education,
PSOEE was on an upward trend. PSOEE increased by 130% for primary education and
90% for secondary education. The arithmetic average of the annual growth rates for the
10-year period was 8.9% for primary education and 7.4% for secondary education. But
for higher education, PSOEE had large fluctuations between 1981 and 1991. It
increased by 2.3% only in the 10-year period, and the arithmetic average of annual
growth rates for the period was 0.4%. As a result of these growth patterns, the unit-cost
ratios between the three levels of education have converged over time (see columns (7)
and (8)). In other words, increased public expenditure on education in the 1980s
benefited primary and secondary education, but not higher education.

Using figures on EBEE in Table 3 for primary and secondary education, a rising trend is
also found for per-student total budgeted and extra-budgetary expenditure for primary
and secondary education. For the period 1986-1991, the value of this unit cost in yuan

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(1981 prices) per student was respectively 106, 111, 119, 139, 155, and 169 (a similar
unit cost cannot be computed for higher education because no separate EBEE is
reported for higher education). This implies an average real rate of growth of 9.8% per
year for primary-secondary education! In short, per-student expenditures on primary and
secondary education had increased substantially in real terms in the 1980s.

Disparities in Unit Expenditures on Education

While resources for education have increased significantly during the 1980s, large
disparities or inequalities also exist in education. Table 7 gives unit costs by level of
education by administrative region (provinces, metropolitan areas and autonomous
regions) in 1989. Consider first primary education. Column (1) shows that per-student
budgeted expenditure on primary education ranged between 46.4 yuan/student for
Hubei province and 297.9 yuan/student for Shanghai, and the coefficient of variation was
48.6%. The ratio of maximum per-student expenditure to minimum per-student
expenditure was 6.4. This ratio was even larger (12.2) for per-student extra-budgetary
expenditure on primary education (see column (2)). Per-student total (budgeted and
extra-budgetary) expenditure on primary education ranged between 75.4 yuan/student
Guizhou and 392.9 yuan/student for Shanghai, and the coefficient of variation was
42.0% (see column (3)). Large disparities also exist for secondary education (see the
maximum-minimum ratios and coefficients of variation in columns (4)-(6)). The regional
disparities in per-student budgeted expenditures were relatively the smallest at the
higher-education level (see column (7)). But even at this level, the highest spending
region (Shandong at 4136 yuan/student) outspent the lowest spending region Giangxi at
1906 yuan/student) by 117%. Column (8) gives the per-capita GNP for each region and
again reflects the large disparities in per-capita GNP among regions in China. In fact, the
relative dispersion of per-capita GNP is larger than that of any one of the seven per-
student expenditure measures in Table 7. The last row in Table 7 indicates that, for
primary and secondary education, unit costs were generally highly correlated with per-
capita GNP such that regions with higher per-capita GNP had higher per-student
expenditures. The correlation was much smaller for higher education.

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Disparities in unit costs at the county level were reported in a recent study of education
expenditures by Jiang (1992). The sample consists of 374 counties from nine regions
(Hebei, Liaoning, Shanghai, Jiangsu, Jiangxi, Henan, Hubei, Guizhou and Gansu) such
that counties of different levels of economic development were represented. Table 8
gives the average spending level by per-capita income for four measures of unit
expenditures: per-capita budgeted operating expenditure on education, per-capita extra-
budgetary expenditure on education, sum of per-capita budgeted and extra-budgetary
expenditures on education, and per-student budgeted operating expenditure on primary
education. It shows that for these unit-expenditure measures, the ratio of the highest
spending level to the lowest spending level was about 2:1. Also, for counties with per-
capita income above 300 yuan per person, all four unit-expenditure measures rose with
income. However, for both per-capita budgeted expenditure on education and per-
student budgeted expenditure on primary education, counties with the lowest income
level (less than 300 yuan per person) did not have the lowest spending level. This might
be due to a smaller student/teacher ratio for the lowest-income counties (because of
remoteness and lower population density).

Disparities in unit costs are also found at the school level in primary and secondary
education. It is an official policy of the government to focus more of its resources on a
small number of primary and secondary schools (this is also true for universities). Thus,
in urban areas, `key' primary and secondary schools have more resources than their
regular counterparts. In rural areas, `center' primary schools have more resources than
regular primary schools. These key or center schools generally have higher-performing
students. More generally, the government has norms (for per-student non-personnel
expenditures and unit capital expenditures) such that city schools are favored over town
schools which in turn are favored over rural schools (Tsang, 1990). These practices are
aimed at assuring an appropriate level of educational quality for some portion of the
student population so that an adequate supply of high-performing students is available
for promotion to higher levels of education. These are controversial practices which
reflect the tension between equality and social efficiency goals for education in China.

Besides inequalities in norms for non-personnel and capital expenditures for primary and
secondary schools in different areas, primary and secondary teachers also have very

13
different compensation depending on their employment status (Tsang, 1990). Gongban
teachers are employees of the government; they receive a monthly salary, have urban
residence (thus having government subsidies for food and their children can go to urban
schools) and are eligible for a government pension when they retire. Minban teachers
are not government employees; they are hired directly by the local community. Minban
teachers receive living subsidies (about 70% of the monthly salary of gongban teachers),
have rural residence (thus no food subsidies and their children cannot go to urban
schools) and are not eligible for government pension. The compensation for minban
teachers has improved over time in the 1980s, but it still lags significantly behind that for
gongban teachers.

Finally, inequalities in primary and secondary education are reflected in parental

spending on schooling per child (per-student DPC). Chen (1992,p. 8) estimated per-
student DPC for households residing in different parts of the Beijing Metropolitan Area in
1990. At the primary level, per-student DPC was 203 yuan/student for `city/town'
households, 122 yuan/student for `nearby rural' households, and 64 yuan/student for
`remote-rural' households. At the lower-secondary level, per-student DPC was,
respectively, 239, 121 and 147 yuan/student for the three categories of households, and
at the upper-secondary level, per-student DPC was, respectively, 267, 304 and 265
yuan/student for the three categories of households. Tsang's study (1990) of per-student
DPCs in Shaanxi and Guizhou documents the variation between rural and urban areas,
and between levels of schooling (see Table 9).

Unit costs of vocational-technical education (VTE) in China are related to the type of
institution and school subject or curriculum. Currently, there are three types of VTE
institutions at the upper-secondary level (Tsang, 1991): secondary vocational schools
(SVSs, run by education bureaucracies), secondary technical schools (STSs, run by
non-education ministries, departments and enterprises) and skilled workers' schools
(SWSs, run by the Ministry of Labor). A study by the World Bank (1987,p. 49) of
institutions in the provinces of Liaoning, Hubei and Shaanxi found that, in 1985, per-
student recurrent expenditure averaged 306 yuan per student for SVSs, 1217 yuan per
student for STSs, and 1065 yuan per student for SWSs. In contrast, the per-student
recurrent expenditure was 146 yuan per student for upper-secondary general schools

14
(USGSs). Using data from 74 institutions in Shanghai in the 1984/198 year, Dougherty
(1990,p. 390) estimated that per-student current expenditure was, respectively, 364, 562,
561 and 242 yuan per student for SVSs, STSs, SWSs and USGSs. Both studies found
that SWSs were slightly less expensive than STSs; but both SWSs and STSs were
much more expensive than SVSs, which in turn were more expensive than USGSs. A
study of 54 STSs in Liaoning documents the variation in unit costs by school subject (Li
et al., 1988, p. 286). Per-student total school cost (sum of per-student operating cost and
per-student annualized capital cost), in yuan per student in 1984, was 1695 for
engineering, 2130 for agriculture, 922 for health, 1615 for finance and economics, 1462
for politics and law, 2099 for sports and physical education and 7892 for arts. While
Table 7 documents disparities in per-student operating expenditure among regions at
the higher-education level, studies by Chinese researchers have shown that disparities
in unit expenditures also exist for higher-education institutions within a region and for
different types of higher-education institutions across the country. For example, per-
student total institutional cost (sum of per-student operating cost and per-student
annualized capital cost) ranged between 1272 yuan per student and 3723 yuan per
student among eight specialized higher-education institutions in Jiangsu province in
1983 (Li et al. 1988, p. 231). For higher-education institutions under the administration of
central ministries, per-student total institutional cost was 2320 yuan/student for
comprehensive universities, 2456 yuan/student for normal universities, 2700
yuan/student for agricultural universities, 2957 yuan/student for medical universities and
3213 yuan/student for engineering universities (Li et al. 1988, p. 212).

Determinants of Unit Expenditure: Regional Analysis

To further understand regional disparities in per-student budgeted expenditures (see

Table 7), ordinary least-squares regression was used to estimate `determinants'
equations for primary and secondary education. The dependent variables were average
per-student budgeted expenditure on primary education of region, and average per-
student budgeted expenditure on secondary education of region. The explanatory
variables were per-capita GNP of region, average student-staff ratio (at primary and
secondary levels) of region, average annual pay (salary plus benefits and subsidies) of
gongban teachers (at primary and secondary levels) in region, budgeted education

15
expenditure as a percentage of total government expenditure of region, and percentage
of non-agricultural population of region. The results are shown in Table 10.

For primary education, equation (2) shows that per-capita GNP, average pay, budgeted
education expenditure as percentage of total government expenditure and percentage of
non-agricultural population were all significant factors. The value of R2 is 0.90.

For secondary education, equation (4) shows that only the estimated coefficients of per-
capita GNP and average pay were significant at the 5% level. Since per-capita GNP and
percentage of non-agricultural population were highly correlated with each other (r =
0.88), equation (5) was estimated without percentage of non-agricultural population. The
explanatory power of equation (5) was very close to that of equation (4). Additional
analyses were conducted which indicated that multi-collinearity existed in equation (4).

Equations (1) and (3) indicate that per-capital GNP of region is highly predictive of
average per-student budgeted expenditure at both levels of education. For both levels of
education, regions that have higher per-capita GNP and that have higher pay for
gongban staff spent significantly more than regions with lower per-capita GNP and lower
pay. Budgeted education expenditure was a significant factor for primary education, but
not for secondary education.

It should be pointed out that China is a very diverse country and large
economic/cultural/geographical differences often exist within a region. Research at the
sub-regional levels may yield more policy-relevant context-specific findings.

Widening Disparities in Education Over Time?

The above studies clearly document the significant inequalities or disparities in

education in China. One common feature of these studies is that they show educational
inequalities or disparities at one point in time only. Because of lack of comprehensive
time-series data, it is difficult to provide direct quantitative evidence on how inequalities
or disparities in education have changed over time in China. Most education observers
and analysts (including this author) probably agree that, because of fiscal
decentralization and diversification of financing sources, education disparities in the

16
1980s had widened relative to the pre-1980 period. Indirect evidence suggests that
educational disparities had widened since the latter half of the 1980s. Table 4 indicates
that non-government expenditures had increased in importance (in both amount and as
a proportion of TNEE) over time during 1986-1991. Since such expenditures are
disequalizing, it is highly probable that disparities in per-student non-government
education expenditures had also increased during the same time period. Thus, regional
disparities in per-student total education expenditure were very likely to have increased
over time since the second half of the 1980s. With continuing fiscal decentralization and
increasing reliance on non-government resources education disparities will likely
continue to widen in the 1990s, unless there is some drastic intervention by the
government. But further research on this topic is necessary to provide more direct and
convincing evidence.

International Comparison

Table 6 shows that, using per-student operating expenditure by the government as a

measure, higher education was 52.4 times as expensive as primary education and
secondary education was 2.7 times as expensive as primary education in 1985 in China.
In other Asian countries around the mid-1980s, higher education averaged 19.4 times as
expensive as primary education and secondary education averaged 1.9 times as
expensive as primary education (computed from Tan & Mingat, 1989, p. 56). Thus, the
Chinese government spent relatively little on primary education and higher education
was relatively very expensive. As explained in the next section, the high relative cost of
higher education in China was due to small institutional size and very low student-to-
teacher ratios in higher education in

In a review of five studies on the US and eight studies covering 17 developing countries,
Tsang (forthcoming) found that: (1) vocational schools are more expensive than
academic schools, comprehensive schools or diversified schools. Technical schools are
the most expensive and academic schools are the least expensive; (2) the ratios of unit
costs of VTE schools to those of academic schools vary widely; and (3) relative costs
depend critically on the length of schooling, they vary by school subject and they can
change significantly over time. These three findings for other countries also apply to

17
China. The review also found that vocational/technical schools averaged 1.6 times as
expensive as academic schools in the US; and vocational/technical schools averaged
2.5 times as expensive as academic schools in countries in Africa, Asia and Latin
America. These averaged ratios are comparable to those for Shanghai. But, in contrast,
vocational/technical schools in Liaoning, Hubei and Shaanxi were relatively much more
expensive than academic schools in the same regions.

Educational disparities by region, (urban versus rural) areas, level of schooling,

subject/curriculum and by type of institution are found for China as well as for other
developing countries (see review in Tsang, 1988, pp. 201-204). The existence of such
disparities in China is not surprising. What should be noted are the large disparities in
education in China. For most of the time before 1978, the Chinese leadership had taken
pride in pursuing socialism with a strong egalitarian orientation. But with the adoption of
modernization policies and the transition to a socialist-market economy, educational
(and economic) disparities have widened to substantial levels in the 1980s.

Cost Functions and Economies of Scale

This section reviews studies of educational cost functions to examine the issue of
inefficiency in education in China.

Inefficiency in Resource Utilization

Educational cost functions relate the costs of education to the output of education, given
prices and technology of education (Verry, 1987). An important application in the
estimation of educational cost functions is the determination of economies (or
diseconomies) of scale in educational production. If there are economies (or
diseconomies) of scale, additional units of education output can be produced at relatively
lower (or higher) additional costs and efficiency in the utilization of education resources
will be raised (lowered). In practice, educational cost functions are estimated by relating
some measures of education costs to some measure of scale (such as enrolment, or
volume of training) and other control variables, including educational quality (for example,

18
using the student-teacher ratio as a proxy). Several recent studies have estimated cost
functions for three different subsectors of education in China.

Besides comparing the per-student current expenditure of different types of secondary

vocational/technical schools in the Shanghai metropolitan area, Dougherty also used
both log-linear and linear models to explore the existence of economies of scale for
these schools. The explanatory variables include dummy variables of school types
(TECH for STSs, WORK for SWSs, VOC for SVSs and GEN for USGSs), interaction
terms involving size (N, enrolment) and school type, and two other control variables
(BOARD, dummy variable on whether a school is residential and EDHEALItH, dummy
variable on whether a school's programs are oriented towards the service sector). The
dependent variables include total current expenditure (and its personnel and non-
personnel components) and per-student current expenditure (and its personnel and non-
personnel components). Estimated equations based on the two models indicate
economies of scale for the different types of vocational/technical schools in Shanghai.
Economies of scale were more pronounced among secondary technical schools and
secondary vocational schools; but were less so for skilled workers' schools (and
secondary general schools). Equation (a) in Table 11 gives one of the estimated
equations based on a log-linear model.

Tsang and Min (1992) studied the expansion of higher education in China in the 1980s.
They found that higher education expanded primarily through institutional multiplication
(i.e. increased enrolment by establishing additional institutions), instead of institutional
enlargement (i.e. increased enrolment in existing institutions). The results of this type of
expansion are that higher education is characterized by the existence of many small
institutions (over half of the 1075 institutions have less than 1500 students), and a low
student:teacher ratio (5.2 in 1985). Based on data from 156 institutions in five provinces
in 1988-1989, they estimated an equation relating per-student recurrent expenditure to
enrolment, student-to-teacher ratio and three sets of control variables (one set of dummy
variables on the type (curriculum-based) of institutions, a second set of dummy variables
on provinces and a third set on administrative levels). The equation (see equation (b) in
Table 11) indicates the existence of economies of scale and that per-student recurrent
expenditure decreased significantly with increasing enrolment. Simulations based on this

19
equations shows that if institutional size had increased from 1922 (average in 1988) to
3000 (a reasonable target for size), and student:teacher ratio had increased from 5.25
(average in 1988) to 8.0 (a reasonable target for the student:teacher ratio), per-student
recurrent expenditure in 1988 would have decreased by 17%. In fact, the government
could have saved about 7 billion yuan (or 2 billion US$ in 1988 prices) over the 1977-
1989 period. The existence of economies of scale in higher education in China was also
reported by an earlier study by the World Bank (1986). Taking advantage of economies
of scale is an important policy option for improving internal efficiency and
accommodating further enrolment expansion in higher education in China in the 1990s
(Tsang & Min, 1992; Min, 1991; Wang, 1989). In addition, cost recovery in higher
education is relatively low in China; shifting the costs of higher education towards the
student and their families is a potential option for mobilizing resources for higher
education (Min, 1991; Li et al., 1988).

In a case study of adult education in Shenzhen, China, Xiao and Tsang (1994) examined
the costs and financing of three types of adult education institutions: institutions whose
clients come from the local community, institutions whose clients are employees from
enterprises; and institutions with clients from both the local community and enterprises.
They found that recurrent expenditure per training hour in the 1986-1990 period was
significantly related to the volume of training, after controlling for the trainee:trainer ratio,
and type of institutions. Again, economies of scale exist so that the recurrent expenditure
per training hour decreases with the total training hours offered by an institution (see
equation (c) in Table 11).

In short, available studies of educational cost functions indicate that there is significant
under-utilization of resources in different subsectors of education in China.

International Comparison

There are very few empirical estimations of cost functions for VTE. The best known, but
dated, study was carried out by Maton and Van de Vijere (1970). Their sample consisted
of 31 vocational training institutions in Europe, Asia and Latin America. Their analyses
show that unit costs (personnel as well as institutional costs per student and per hour)

20
were significantly and negatively related to the size of an institution. The study by
Dougherty (1990) is a recent addition to an otherwise sparse literature.

Analyses of economies of scale have been part of a longer tradition for examining
efficiency (or inefficiency) in higher education in both developing and developed
countries. Earlier cross-national studies of both developed and developing countries
have documented the existence of economies of scale in higher education
(Psacharopoulos, 1982; Lee, 1984). In addition, a review of 60 years of studies in the US
by Brinkman and Leslie (1986) as well as more recent studies by Cohn et al. (1989) and
De Groot et al. (1991) also conclude the existence of economies of scale in higher
education in the United States. The study by Tsang and Min (1992) documents the
inefficiency and illustrates the magnitude of potential savings in higher education in
China. As pointed out in the previous section, higher education in China is relatively
much more expensive than the average of other Asian countries. China's
student:teacher ratio is very low compared to the Asian average of 15.2 (in 1985) and to
the typical levels (10-15) for developed countries. The average size of Chinese
institutions is also relatively small compared to most of the developed countries with
large higher-education systems (Tsang & Min, 1992, p. 62). Note that the findings on
China do not imply that Chinese higher education is expensive in absolute terms; they
simply indicate that the scarce resources for higher education have not been efficiently
utilized. The problem of low internal efficiency has become more widely known in recent
years in China.

There are hardly any published empirical studies of cost functions of adult education and
training. Part of the reason for this lack of studies is the difficulty in measuring the costs
of adult education and training (Tsang, 1994b). Finally, there are also no published
empirical studies of cost functions of primary and secondary education in China. Some
evidence of economies of scale has been documented for primary and secondary
schools in the US, but no conclusive finding has yet been drawn for primary and
secondary schools in developing countries (see review in Tsang, 1988, pp. 208-209).
Research on cost functions of primary and secondary education in China will address an
obvious gap in the current literature.

21
 Summary and Discussion

For three decades after the founding of the People's Republic of China, public
expenditures on education were consistently low in terms of both fiscal-effort and
national-effort measures. The substantial increase in government expenditure on
education in the 1980s represents a major turning point in public investment in education.
But public expenditure on education in China today is still relatively low compare to
higher-income countries. In order to develop human resources in support of further
economic development, the Chinese government has to keep on increasing public
expenditures in education in the 1990s and beyond.

Another distinguishing feature of the costs of education in the 1980s is the increasing
importance of non-government expenditures on education. By 1991, total non-
government expenditure accounted for almost one-half of total national resources for
education. The increases in both government and non-government resources for
education have resulted in high rates of growth in per-student expenditures in real terms,
especially for primary and secondary education. The development of non-government
sources has been an effective strategy for raising national investment in education in
China.

However, the significant progress in resource mobilization for education in the 1980s
was also accompanied by large inequalities and inequities in education. There is also
indirect evidence of widening disparities in recent years in China. There is certainly a
dilemma between resource-mobilization and equality/equity objectives for education.
This dilemma is rooted in the long-standing tension in divergent development objectives
and strategies among leaders of the CCP. To the extent that extreme inequalities can
provoke social unrest, there is a real need to reassess government efforts for mitigating
the extent of inequalities in education. Currently, both the central and provincial
government do provide inter-governmental education grants to local governments for
equalization purposes; but such grants are too small to significantly alter such
inequalities. Part of the difficulty for the central government is that, through a public-
finance reform since 1982, it has devolved much of its revenue-raising and spending
powers to lower levels of government. The national government is presently engaged in

22
a fundamental overhaul of its system of taxation. The challenge of educational
equalization lies in securing the necessary political commitment so that central and
provincial governments will increase their equalization grants substantially. The
promotion of educational equity requires a careful examination of how to redistribute the
costs and benefits of education so that there are net gains for the disadvantaged
populations, especially the rural and poor population groups.

There is also substantial under-utilization of current resources for education. Since

inefficiency in resource utilization can undermine the gains in resource mobilization,
improving efficiency in education should be a high priority area for the government.
Studies of educational inefficiency and proposed solutions to this inefficiency should
receive more attention (Li et al., 1988).

Finally, this paper has identified a number of research areas for furthering the
understanding of education costs in China. These areas include, for example, household
expenditures (including expenditures on education) and household demand for
education (including female education), over-time analysis of educational disparities,
cost functions of primary and secondary education, determinants of unit expenditures at
sub-regional levels (such as county and town/township levels) and cost recovery in
higher education.

Table 1. Public expenditure on education by education bureaucracy, 1950-1991

Legend for Table

[A] = OEE (billions of yuan) current prices (1)

[B] = CEE (billions of yuan) current prices (2)
[C] = OEE + CEE (billions of yuan) current prices (3) = (1) + (2)
[D] = OEE + CEE (billions of yuan) 1950 prices (4)
[E] = OEE + CEE as % of government expenditure (5)
[F] = OEE + CEE as % national income (6)

Year [A] [B] [C] [D] [E] [F]

23
1950 0.38 0.03 0.41 0.41 5.9 1.0
1951 0.74 0.09 0.84 0.74 6.8 1.7
1952 0.90 0.26 1.15 1.03 6.5 2.0
1953 1.28 0.34 1.62 1.40 7.4 2.3
1954 1.38 0.39 1.77 1.49 7.2 2.4
1955 1.41 0.25 1.66 1.39 6.2 2.1
1956 1.65 0.34 1.99 1.67 6.5 2.3
1957 1.95 0.30 2.25 1.86 7.4 2.5
1958 1.98 0.26 2.24 1.84 5.5 2.0
1959 2.41 0.48 2.89 2.35 5.2 2.4
1960 3.18 0.79 3.96 3.13 6.1 3.2
1961 2.68 0.24 2.92 1.98 7.9 2.9
1962 2.41 0.10 2.51 1.64 8.2 2.7
1963 2.49 0.21 2.70 1.88 7.9 2.7
1964 2.78 0.35 3.13 2.27 7.9 2.7
1965 2.91 0.33 3.24 2.41 7.0 2.3
1966 3.44 0.20 3.64 2.71 6.7 2.3
1967 3.27 0.10 3.37 2.53 7.6 2.3
1968 2.75 0.08 2.83 2.12 7.9 2.0
1969 2.70 0.06 2.76 2.09 5.2 1.7
1970 2.76 0.06 2.82 2.14 4.3 1.5
1971 3.30 0.11 3.41 2.61 4.7 1.6
1972 3.85 0.24 4.10 3.15 5.3 1.9
1973 4.21 0.34 4.55 3.47 5.6 2.0
1974 4.60 0.38 4.98 3.78 6.3 2.1
1975 4.83 0.37 5.19 3.94 6.3 2.1
1976 5.05 0.38 5.43 4.10 6.7 2.2
1977 5.30 0.38 5.69 4.21 6.7 2.2
1978 6.56 0.65 7.21 5.30 6.5 2.4
1979 7.70 1.11 8.81 6.35 6.9 2.6
1980 9.42 1.40 10.82 7.37 8.9 2.9

24
1981 10.25 1.51 11.76 7.82 10.5 3.0
1982 11.57 1.75 13.32 8.69 11.6 3.1
1983 12.79 2.41 15.19 9.76 11.8 3.2
1984 14.82 3.16 17.98 11.24 11.6 3.2
1985 18.42 4.38 22.79 13.09 12.4 3.2
1986 21.43 3.19 24.62 13.34 10.6 3.1
1987 22.87 2.83 25.70 12.98 10.5 2.8
1988 27.56 3.00 30.56 13.02 11.3 2.6
1989 31.79 3.35 35.13 12.71 11.7 2.7
1990 35.65 2.96 38.62 13.68 11.4 2.7
1991 38.87 2.96 41.83 14.40 11.0 2.6

Average
1950-1979 6.5 2.2
Average
1980-1991 11.1 2.9
Average
1950-1991 7.8 2.4

Source: computer from Ministry of Education (1984), State

Education Commission (1989, 1991, 1992), and State Bureau of
Statistics (1992).

Table 2. Total expenditure of education, 1981-1991

Legend for Table

[A] = TPEE (billions of yuan) current price (1)

[B] = EEOCM as % of TPEE (2)
[C] = TPEE as % of government expenditure (3)
[D] = TPEE as % of GNP (4)
[E] = EBEE (billions of yuan) current price (5)
[F] = TPEE + EBEE (billions of yuan) current price (6)

25
[G] = TPEE + EBEE as % of government expenditure (7)
[H] = TPEE + EBEE as % GNP (8)

Year [A] [B] [C] [D]

1981 12.66 7.1 11.4 2.7

1982 14.18 6.1 12.3 2.7
1983 16.07 5.5 12.4 2.8
1984 19.11 5.9 12.4 2.7
1985 24.09 5.4 13.1 2.8
1986 26.50 7.1 11.4 2.7
1987 27.70 7.2 11.3 2.5
1988 32.36 5.6 12.0 2.3
1989 39.77 8.1 13.2 2.5
1990 43.38 7.9 12.8 2.5
1991 45.97 8.3 12.1 2.3

Average
1981-1985 6.0 12.3 2.7
Average
1986-1990 7.2 12.1 2.5
Average
1981-1991 6.7 12.2 2.6

Year [E] [F] [G] [H]

1981 NA NA NA NA
1982 NA NA NA NA
1983 NA NA NA NA
1984 NA NA NA NA
1985 NA NA NA NA
1986 8.13 34.63 23.5 3.6

26
1987 9.54 37.24 25.6 3.3
1988 12.72 45.08 28.2 3.2
1989 16.45 56.22 29.3 3.5
1990 18.25 61.63 29.6 3.5
1991 27.18 73.15 37.2 3.7

Average
1981-1985 3.2[*]
Average
1986-1990 3.4
Average
1981-1991 3.4[*]

Source: compiled from State Education Commission (1989,

1991, 1992) and State Bureau of Statistics (1992).

[*] Estimated.

Table 3. Extra-budgetary education expenditure, 1986-1991 (billion yuan, current

prices)

Legend for Table

[A] = Surcharges and levies (1)

[B] = Social contributions (2)
[C] = School generated (3)
[D] = School fees (4)
[E] = Total primary/secondary (5) = (1) + (2) + (3) + (4)
[F] = Higher education and others (6)
[G] = Total for education (7) = (5) + (6)

Primary and secondary education

27
Year [A] [B] [C] [D] [E] [F] [G]

1986 1.72 1.60 0.70 1.06 5.08 3.07 8.15

1987 2.64 1.62 0.90 1.10 6.26 3.28 9.54
1988 3.45 2.46 1.31 1.63 8.85 3.87 12.72
1989 5.46 3.58 1.79 2.81 13.64 2.81 16.45
1990 5.60 5.45 2.45 3.06 16.56 1.69 18.25
1991 7.52 6.28 3.72 3.24 20.76 6.42 27.18

Source: computed from State Education

Commission (1989, 1991, 1992).

Table 4. Total national expenditure on education (TNEE), 1986-1991 (current billion

yuan)

Legend for Table

[A] = Total government (TPEE) (1)

[B] = Total non-government (2)
[C] = TNEE (3) = (1) + (2)
[D] = TPEE as % of TNEE (4)
[E] = TNEE as % of GNP (5)

Year [A] [B] [C] [D] [E]

1986 26.50 12.79 39.29 67.4 4.1

1987 27.70 14.38 42.08 65.8 3.7
1988 32.36 19.89 52.25 61.9 3.7
1989 39.77 28.81 68.58 58.0 4.3
1990 43.38 31.71 75.09 57.8 4.2
1991 45.97 41.44 87.41 52.6 4.4

Table 5. Public expenditure on education, China and other Asian countries

28
 As % of total
government Per-capita
expenditure As % of GNP, US$
Country (1985) GNP (1985) (1985)

Bangladesh 10.3 1.5 159

Bhutan 7.3 3.8 151
Burma 10.9 1.8 184
China 13.1 2.8 273
India 13.7 3.0 259
Indonesia 15.0 3.7 470
S. Korea 16.6 3.4 2040
Malaysia 16.0 6.0 1860
Nepal 9.6 1.8 142
Papua New Guinea 17.9 6.9 621
Philippines 11.5 1.8 581
Sri Lanka 8.1 2.8 374
Thailand 12.5 3.6 712

Average
Asia 12.5 3.3
Developing
countries[*] 16.0 4.0

Source: Tan and Mingat (1989) and Table 2.

[*] Average not based on 1985 only.

Table 6. Per-student operating expenditure on education by government (PSOEE),

1981-1991 (1981 prices)

Annual (yuan) per student

29
 Primary Secondary Higher
education education education
Year (1) (2) (3)

1981 25.9 69.6 1752.8

1982 30.3 84.3 1886.1
1983 33.2 93.7 2112.3
1984 36.3 101.2 2094.9
1985 40.9 111.0 2140.1
1986 39.4 110.0 2090.2
1987 45.5 107.2 1758.2
1988 49.4 114.8 1675.8
1989 49.5 115.4 1464.3
1990 56.0 127.4 1610.1
1991 59.6 132.1 1793.5

Average
1981-1991

Annual growth ratee (%)

Primary Secondary Higher

education education education
Year (4) (5) (6)

1981 9.3 13.1 -2.3

1982 17.0 21.2 7.6
1983 9.4 11.1 12.0
1984 9.2 8.0 -0.8
1985 12.7 9.8 2.2
1986 -3.6 -1.0 -2.3
1987 15.7 -2.5 -15.9

30
1988 8.4 7.0 -4.7
1989 0.3 0.5 -12.6
1990 13.0 10.4 10.0
1991 6.4 3.7 11.4

Average
1981-1991 7.4 0.4

Unit cost ratios

Secondary Higher
education education
Year (7) = (2)/(1) (8) = (3)/(1)

1981 2.7 67.6

1982 2.8 62.2
1983 2.8 63.6
1984 2.8 57.8
1985 2.7 52.4
1986 2.8 53.1
1987 2.4 38.6
1988 2.3 33.9
1989 2.3 29.6
1990 2.3 28.8
1991 2.2 30.1

Average
1981-1991 2.6 47.1

Source: computer from State Education Commission

(1989, 1991, 1992), Table 3 and State Statistics Bureau
(1992, p. 236).

31
 Table 7. Per-student education expenditures by education level by region, 1989

Primary education

Budgeted Extra-budget Sum

Region (1) (2) (3) = (1) + (2)

Beijing 246.0 61.2 307.2

Tianjin 203.0 95.8 298.9
Shanghai 297.9 95.0 392.9
Liaoning 127.5 74.1 201.5
Jiangsu 99.8 83.8 183.5
Zhejiang 119.9 70.4 190.2
Guangdong 120.3 90.3 210.6
Jilin 117.3 74.4 191.7
Heilongjiang 111.1 62.2 173.4
Fujian 129.3 76.2 205.5
Shandong 68.3 62.8 131.0
Hebei 66.4 67.7 134.0
Shanxi 94.9 37.2 132.1
In. Mongolia 141.7 26.8 168.4
Hubei 46.4 56.6 103.0
Hunan 77.5 50.1 127.7
Hainan 144.8 36.3 181.1
Qinghai 145.7 35.9 181.6
Ningxia 110.6 7.8 118.5
Anhui 59.5 34.5 94.0
Jiangxi 68.2 24.5 92.7
Henan 48.6 53.2 101.8
Guangxi 98.2 50.5 148.7
Sichuan 78.8 48.4 127.2
Guizhou 64.5 10.9 75.4

32
Yunnan 109.2 11.6 120.9
Shaanxi 86.6 38.5 125.2
Gansu 102.7 33.3 136.0
Xinjiang 188.2 NA NA

Statistics

Mean 166.3 52.5 166.2

SD 56.6 24.6 69.8
CV[*](%) 48.6 46.9 42.0
Maximum 297.9 95.8 392.9
Minimum 46.4 7.8 75.4
Max/min 6.4 12.2 5.2
Correlation
with PC-GNP 0.86 0.63 0.93

Secondary education

Per-
Sum Higher capital
Extra- (6) = education GNP
Budgeted budget (4) + budgeted (yuan)
Region (4) (5) (5) (7) (8)

Beijing 582.1 170.1 752.2 3256.2 4304

Tianjin 426.1 182.4 608.5 3066.0 3335
Shanghai 586.2 202.1 788.3 3282.0 5489
Liaoning 268.3 151.9 420.2 2621.1 2396
Jiangsu 197.4 151.1 348.5 2974.4 1894
Zhejiang 222.5 130.9 353.4 2667.5 1885
Guangdong 251.0 180.6 431.6 3557.0 2195
Jilin 226.9 111.3 338.3 3302.1 1513

33
Heilongjiang 219.9 72.2 292.1 2970.7 1670
Fujian 272.3 127.0 399.3 2575.2 1451
Shandong 176.8 166.7 343.5 4136.4 1480
Hebei 223.7 102.9 326.7 2645.5 1283
Shanxi 210.0 71.0 281.0 2832.8 1262
In. Mongolia 260.5 56.7 317.2 3280.0 1220
Hubei 186.5 127.3 314.2 2832.7 1342
Hunan 191.2 128.5 319.7 2300.7 1077
Hainan 283.8 93.4 377.2 3885.0 1371
Qinghai 278.1 22.7 300.9 2853.4 1381
Ningxia 240.2 37.0 277.2 2861.8 1239
Anhui 147.8 69.4 217.2 2122.7 1055
Jiangxi 149.1 70.5 219.6 1905.5 1003
Henan 158.5 122.4 280.9 2237.4 1012
Guangxi 204.6 98.7 303.3 2778.2 848
Sichuan 165.5 84.3 249.8 2496.8 938
Guizhou 144.5 29.2 173.7 2800.8 748
Yunnan 248.2 50.6 298.9 3064.6 871
Shaanxi 224.4 86.7 311.1 2611.7 1074
Gansu 186.8 43.3 230.1 2650.8 1007
Xinjiang 324.0 NA NA 3056.2 1510

Statistics

Mean 250.2 105.1 352.7 2883.6 1650.1

SD 107.8 49.3 141.0 478.1 1040.6
CV[*](%) 43.1 46.9 40.0 16.6 63.1
Maximum 586.2 202.1 788.3 4136.4 5489.0
Minimum 144.5 22.7 173.7 1905.5 748.0
Max/min 4.1 8.9 4.5 2.2 7.3
Correlation
with PC-GNP 0.91 0.71 0.96 0.34 1.00

34
Source: computed from data reported in State Education Commission
(1990, pp. 40, 81-84).

[*] Coefficient of variation.

Table 8. Disparities in unit education expenditures (yuan/unit) at country level,

1990

Legend for Table

[A] = Per-capita budget expenditure

[B] = Per-capita extra budget expenditure
[C] = Sum of per-capita budget and extra budget expenditure
[D] = Per-student budgeted expenditure on primary education

Per-capita [A] [B] [C] [D]

income level (1) (2) (3) = (1) + (2) (4)

< 300 yuan 18.78 10.25 29.03 85.15

300-400 yuan 16.91 13.30 30.21 65.46
400-600 yuan 18.28 12.52 30.80 72.06
600-800 yuan 19.70 19.23 38.93 84.07
> 800 yuan 33.66 22.01 55.67 154.19

Mean of sample 19.78 14.60 34.48 82.84

Source: Jiang (1992, pp. 13-14).

Table 9. Direct private costs of education in Shannxi and Guizhou, 1988 (yuan per
student)

Primary Lower Upper

35
 education secondary secondary

Urban Rural Urban Rural Urban Rural

Shaanxi province
Tuition 0 0 0 0 12 10
Other school fees 7 5 18 14 50 40
Textbooks 21 16 43 30 30 30
Writing supplies 8 5 15 10 20 15
Miscellaneous 15 15 20 20 25 25
Total[*] 51 41 96 74 137 120

Guizhou province
Tuition 2 1.5 2.5 2 3.5 2.5
Other school fees 7 7 13 12 52 44
Textbooks 24 10 40 35 40 40
Writing supplies 8 5 15 10 20 15
Miscellaneous 15 15 20 20 25 25
Total[*] 56 39 91 79 146 132

Source: Tsang (1990).

[*] Does not include boarding costs in some secondary

schools which total about 150 yuan per year.

Table 10. Determinants of per-student budgeted education expenditures, 1989

Primary education

Explanatory variables (1) (2)

Per-capita GNP of region 0.047[*] 0.018[*]

Student: staff ratio 0.65

36
Average annual pay of gongban staff 0.084[*]
Budgeted educational expenditure
as % of government expenditure 4.65[*]
% Non-agricultural population 222.23[*]
Constant 39.41[*] -217.35[*]
R2 0.74 0.90
No. observations 29 29

Secondary education

Explanatory variables (3) (4) (5)

Per-capita GNP of region 0.094[*] 0.053[*] 0.070[*]

Student: staff ratio -4.45 -7.65
Average annual pay of
gongban staff 0.12[*] 0.13[*]
Budgeted educational
expenditure
as % of government
expenditure 4.66 1.06
% Non-agricultural
population 183.00
Constant 94.83[*] -129.42[*] -21.00[*]
R2 0.83 0.91 0.90
No. observations 29 29 29

[*] Significant at 5% level.

Table 11. Cost functions of education, China

Equation (a): estimated cost function of upper-secondary schools, log-linear

model, 1984-1985

37
Dependent variable: total current expenditure (yuan)

Explanatory Estimated
variables coefficient

Constant 6.51[**]
TECH 1.27
WORK 0.50
VOC 1.86
TECH.logN 0.75[**]
WORK.logN 0.87[**]
VOC.logN 0.56[*]
GEN.logN 0.83[**]
BOARD 0.028[*]
EDHEALTH -0.46[**]
R2 0.74
No. of observations 74

Source: Dougherty (1990, p. 392).

[*] Significant at 5% level.

[**] Significant at 1% level.

Equation (b): estimated cost function of higher-education institutions, 1988

Dependent variable: per-student recurrent

expenditure (yuan/student)

Estimated
Explanatory variables coefficient[*]

1/(enrolment) 379648

38
Student:teacher ratio -105
Teacher-training institutions -468
Art institutions 1011
Other institutions -523
Locally run institutions -1492
Institutions in Yunnan 999
Institutions in Shanxi 684
Constant 2406
R2 0.55
No. of observations 156

Source: Tsang and Min (1992, p. 64).

[*] Coefficient shown here are all significant at the 5% level.

Explanatory variables with estimated coefficients not significant
at the 5% level are not shown in the equation.

Equation (c): estimated cost function of adult education institutions, 1990 prices

Dependent variable: recurrent expenditure

per training hour (yuan/hour)

Estimated
Explanatory variables coefficient[*]

1/(no. training hours) 51468[*]

Trainee:trainer ratio 44.37
Community-oriented institution -0.36
Mixed institution 2.02[*]
Constant 0.4
R2 0.70
No. of observations 22

39
Source: Xiao and Tsang (1994, available from authors).

[*] Significant at 5% level.

Figure 1. Public education expenditure ratios (Y), by plan periods (X), 1953-1990.

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~~~~~~~~

By MUN C. TSANG

Mun C. Tsang, Department of Education, Michigan State University, Erikson Hall, East
Lansing, MI 48824-1034, USA

43