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UBC Theses and Dissertations

Provincial and local financial systems of the Republic of China, 1912-1946 Tsai, Elbe 1949

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Tf  P]  CAP- I  PROVINCIAL AND LOCAL FINANCIAL SYSTMS OF THE REPUBLIC OF  CHINA  1912 t o 191*6  by Elbe T s a i  The U n i v e r s i t y o f B r i t i s h Columbia  August,  19k9;  ABSTRACT  An attempt i s made i n t h i s t h e s i s t o describe and analyze the development o f municipal and p r o v i n c i a l finances i n China from 1912 t o 1946.  The major emphasis i s placed upon the f i n a n c i a l h i s t o r y o f the  municipalities.  Of these there are f i v e d i s t i n c t types.  The Hsien i s by  f a r the most numerous type, and i s stressed i n accordance w i t h i t s importance. In a period o f turbulent and often chaotic p o l i t i c a l conditions such as China has experienced i n the l a s t f o r t y years, i t was i n e v i t a b l e t h a t p o l i t i c a l considerations would have a c r u c i a l bearing upon e f f o r t s t o construct a stable system of municipal finance.  Naturally, therefore, a  considerable p o r t i o n o f the t h e s i s i s taken up with the i n f l u e n c e o f p o l i t i c a l events upon municipal and p r o v i n c i a l finances. The b r i e f period o f extreme c e n t r a l i z a t i o n under Yuan Shih-kai was followed a f t e r h i s death i n 1916 by a decade o f c i v i l war.  In t h i s  period p r o v i n c i a l war l o r d s t r i e d t o concentrate as much power i n t h e i r grasp as p o s s i b l e .  The m u n i c i p a l i t i e s were very hard pressed f o r adequate  independent sources o f revenue, and the p r o v i n c i a l governments showed scant consideration f o r t h e i r needs. The Kuomintang party came t o power i n 1927 a f t e r a severe struggle against the p r o v i n c i a l war l o r d s . present c i v i l war.  This party remained i n power u n t i l the  P a r t l y t o a i d the municipal governments which u r g e n t l y  needed a s s i s t a n c e , and p a r t l y t o l e s s e n the power o f p r o v i n c i a l governments, Kuomintang leaders undertook t o strengthen the f i n a n c i a l p o s i t i o n o f the municipal governments.  Four n a t i o n a l f i n a n c i a l conferences were held between 1 9 2 8 and 1 9 4 6 w i t h a view t o achieving a reasonable d i v i s i o n o f revenues and expenditures. Among the three l e v e l s o f government these conferences were held i n 1 9 2 8 , 1941 and 1 9 4 6 .  1934,  The obstacles t o achieving a reasonable s o l u t i o n o f the problem  were accentuated g r e a t l y by the advent o f the Sino-Japanese war which began i n 1 9 3 4 *  The v i o l e n t i n f l a t i o n which arose during and a f t e r t h i s war was a  paramount i s s u e a t the l a s t two f i n a n c i a l Conferences. G r a t i f y i n g progress was made a t these Conferences.  Indeed at the  conclusion o f the 1 9 4 6 Conference, i t seemed that a s a t i s f a c t o r y balance o f f i n a n c i a l power would be achieved f o r the N a t i o n a l , P r o v i n c i a l and M u n i c i p a l governments. The present c i v i l war has o b l i t e r a t e d f o r the time being a t l e a s t , any prospect f o r an e a r l y and e f f e c t i v e s o l u t i o n t o the f i n a n c i a l problems o f China.  i. Preface  An attempt has been made i n t h i s Thesis t o describe the p o l i t i c a l trends that promoted the development of stable p r o v i n c i a l and l o c a l f i n a n c i a l systems i n the Republic of China, p a r t i c u l a r l y during the p e r i o d of N a t i o n a l i s t domination.  The chapters are  arranged c h r o n o l o g i c a l l y , s t a r t i n g w i t h the middle of the nineteenth century, under the Ch'ing Dynasty.  Consideration of modern Chinese  p r o v i n c i a l finance begins w i t h I86I4., at which time a great r e v o l u t i o n ary movement, known i n E n g l i s h as the Taiping R e b e l l i o n , was defeated; "while that of l o c a l finance i s traced back only to Long before the Republic came i n t o being i n 1912,  utterly 193k. the  p r o v i n c i a l governments had exercised t h e i r f i n a n c i a l power, l e g a l l y or i l l e g a l l y , i n a confused manner.  This state of a f f a i r s n a t u r a l l y  l e d t o a s e r i e s of struggles between the C e n t r a l and the p r o v i n c i a l a u t h o r i t i e s f o l l o w i n g the founding of the Republic. When the Republic was founded f o l l o w i n g the National Revol u t i o n , the m i l i t a r y leaders of the Ch'ing Government q u i c k l y seized power.  Among the new r u l e r s , the most capable and powerful was Yuan  S h i h - k a i , the l a s t Premier of the Ch'ing Government. With h i s m i l i t a r y strength, he succeeded Sun Yat-sen, the founder of the Republic, i n the Presidency i n 1912;  and was duly e l e c t e d President i n I9I3.  ii. I n 1915 Yuan S h i h - k a i proclaimed himself Emperor of China. Just before t h i s proclamation, e a r l y i n 191U, he i n s t i t u t e d an extremely c e n t r a l i z e d f i n a n c i a l system.  The p r o v i n c i a l power, which had been ex-  panding since 1861*, was brought under c e n t r a l c o n t r o l .  Following the  death of Yuan i n 1916, m i l i t a r y leaders i n the respective provinces became more and more independent and w i t h the backing of strong armed f o r c e s , disregarded the existence of the C e n t r a l Governments that came and went; and p r o v i n c i a l f i n a n c i a l a f f a i r s were managed by the provinces w i t h complete freedom.  Because of the l a c k of a democratic s p i r i t , the -  d i c t a t o r s h i p of the p r o v i n c i a l governors brought about warlordism, and continuous c i v i l war r e s u l t e d . Since I928 the country has been r u l e d by the National Government v«hich came i n t o power a f t e r two years of m i l i t a r y campaigning against the warlords.  Attempts were made by the N a t i o n a l i s t s t o  b u i l d up an e f f e c t i v e f i n a n c i a l system which was expected t o provide means f o r e l i m i n a t i n g the p r o v i n c i a l r a d i c a l i s m and f o r e s t a b l i s h i n g sound l o c a l f i n a n c i a l systems.  Towards t h i s end the p r i n c i p l e of  Balanced Power, as advocated by Sun Yat-sen, was t o be introduced. the eve of the i n t r o d u c t i o n of Balanced Power i n J u l y , 1937, Years War between China and Japan broke out.  On  the Eight  This f i n a n c i a l p r o j e c t  was consequently postponed. From 1937 t o 1?1|5 f o r e i g n t h r e a t i n her h i s t o r y .  China was faced w i t h the most p e r i l o u s Because of the unexpected outbreak of  iii. h o s t i l i t i e s , and because from the outset the n a t i o n was encumbered w i t h numerous emergency measures, the e x i s t i n g p r o v i n c i a l and l o c a l f i n a n c i a l systems could not be adjusted f o r war purposes i n time, and therefore ,they developed rather c h a o t i c a l l y .  I n the f i r s t years of the war, the  country was not only confronted w i t h a s e r i e s o f defeats but a l s o met w i t h extraordinary d i f f i c u l t i e s i n wartime f i n a n c i n g .  The F i n a n c i a l  Conference of I9kl was therefore c a l l e d to incorporate the p r o v i n c i a l finances i n t o a n a t i o n a l scheme, i n order t o concentrate the nation's e f f o r t f o r resistance. One year a f t e r V-J Day, i n 19U6, the p r o v i n c i a l f i n a n c i a l system was restored.  Both the C e n t r a l and Hsien f i n a n c i a l powers were  now greater than those o f the provinces: the p r i n c i p l e of Balanced Power was a c t u a l l y being experienced f o r the f i r s t time.  However, the •  theory of Balanced Power was never f u l l y r e a l i z e d because of the clashes between the N a t i o n a l i s t s and the - Communists and because of the c r i t i c a l inflation. During the p e r i o d of the N a t i o n a l i s t domination, 1928 to 19U9,  there were f o u r National F i n a n c i a l Conferences c a l l e d t o discuss  various f i n a n c i a l problems.  Even though the f i n a n c i a l aims o f the  N a t i o n a l i s t s were not f u l l y accomplished before the Communist domination i n 19h9» each of these Conferences d i d make remarkable progress i n the annals of Chinese f i n a n c i a l systems.  Iv. From 1912 t o I9it9 China t r i e d several d i f f e r e n t government f i n a n c i a l structures.  Under Yuan Shih-kai's d i c t a t o r s h i p , extreme  f i n a n c i a l power was l e f t i n the hands of the Central Government.  During  the p e r i o d of warlordism, the nation's finances were d i r e c t e d by p r o v i n c i a l d i c t a t o r s . A f t e r the N a t i o n a l i s t s came i n t o power i n 1928, t h e F i r s t National F i n a n c i a l Conference provided a "bi-government f i n a n c i a l system", a system i n which both the C e n t r a l and p r o v i n c i a l governments were t o administer the nation's finances.  The F i n a n c i a l Conference o f  193U went f u r t h e r , and a "tri-government f i n a n c i a l system" was put i n t o force i n accordance w i t h the p r i n c i p l e of Balanced Power:  the Hsien  governments j o i n e d the C e n t r a l and p r o v i n c i a l governments i n managing the f i n a n c i a l a f f a i r s of the s t a t e .  The F i n a n c i a l Conference of 19kl con-  verted t h i s "tri-government f i n a n c i a l system" t o another "bi-government f i n a n c i a l system" i n v/hich the nation's finances were d i r e c t e d by the C e n t r a l and l o c a l governments only.  At the F i n a n c i a l Conference of  19U6, a "tri-government f i n a n c i a l system" was restored and the p r i n c i p l e of Balanced Power was a c t u a l l y r e a l i z e d f o r the f i r s t time. At present, the w r i t e r does not claim to know what w i l l be the a t t i t u d e o f the future Communist Government i n the handling o f i t s p u b l i c finances.  But a f i n a n c i a l system such as e x i s t e d under the war-  l o r d s and o f which the s t a t e had b i t t e r experience from 1917 t o 1926, w i l l not l i k e l y reappear; nor i s i t l i k e l y t h a t Yuan's extremely c e n t r a l i z e d f i n a n c i a l p o l i c y w i l l reappear, because from the standpoint of a d m i n i s t r a t i o n , i t was impracticable.  V.  As i n s t i t u t e d i n 1927, China has had f i v e d i f f e r e n t types of l o c a l government, namely:  the governments of the S p e c i a l M u n i c i p a l i t y ,  Shih Cheng Chin, p r o v i n c i a l m u n i c i p a l i t y , Hsien, and Sheh Chin Chu.  In  1937, there were only s i x S p e c i a l M u n i c i p a l i t i e s , one Shing Cheng Chiu, seventeen p r o v i n c i a l m u n i c i p a l i t i e s , forty-two Sheh Chih Chu, while there were one thousand, nine hundred and forty-seven Hsien i n the twenty-eight 1  provinces.  These f i g u r e s i n c l u d e d those i n the Four Eastern Provinces,  known i n E n g l i s h as Manchuria, occupied by the Japanese at that time. Though these f i v e types o f government were q u a l i f i e d as l o c a l governments, t h e i r f i n a n c i a l power d i f f e r e d g r e a t l y .  Both the  S p e c i a l M u n i c i p a l i t y and Shing Cheng Chiu Governments were, l i k e the p r o v i n c i a l governments, under the j u r i s d i c t i o n of the Executive Yuan, o r the Cabinet, of the Central Government. These municipal governments had p o l i t i c a l power and o b l i g a t i o n s s i m i l a r t o those o f the p r o v i n c i a l governments, and were authorized by the F i n a n c i a l Conference o f 1928 t o impose taxes w i t h i n t h e i r boundaries, except f o r c e n t r a l l e v i e s .  The p r o v i n c i a l  governments were not t o e x e r c i s e t h e i r p o l i t i c a l and f i n a n c i a l powers i n these d i s t r i c t s .  A c t u a l l y , these Municipal Governments enjoyed greater  power t o l e v y taxes than the provinces because the former combined the c h a r a c t e r i s t i c s of both p r o v i n c i a l and l o c a l governments.  The f i n a n c i a l  power of the provinces was a l s o defined a t t h a t Conference and ttiey were given j u r i s d i c t i o n over t h e i r subordinate l o c a l governments other than the S p e c i a l Municipal and Shing Cheng Chiu Governments. 1,  Chinese Year Book, 1937 i s s u e , Pp 278-9. The S p e c i a l M u n i c i p a l i t i e s were: Nanking, Peping, Shanghai, T i e n t s i n , Tsintao, and S i k i n g . The Shing Cheng Chiu was Weihaiwei. The p r o v i n c i a l m u n i c i p a l i t i e s were not n e c e s s a r i l y q u a l i f i e d according t o t h e i r area, population, and f i n a n c i a l a b i l i t y : but , commonly according.to t h e i r s t r a t e g i c importance. Other explanations w i l l be given i n Chapter I V , i n f r a .  vi The major p a r t o f t h i s study i s devoted t o d i s c u s s i o n of the p r o v i n c i a l and Hsien government f i n a n c i a l systems since lyl2, and the f o u r National F i n a n c i a l Conferences w i l l be stressed i n p a r t i c u l a r . The r e l a t i o n s h i p s among the C e n t r a l , p r o v i n c i a l and Hsien governments w i l l be t r e a t e d as r e l a t i v e l y important t o p i c s , while the p r o v i n c i a l and Hsien taxes and expenditures w i l l be given l e s s emphasis.  None of  the m a t e r i a l i n the f o l l o w i n g chapters r e f e r s t o the T e r r i t o r i e s of Mongolia or T i b e t .  Nor w i l l the d i s c u s s i o n cover the Four Eastern  Provinces during the p e r i o d from 1930 by the Japanese.  t o 19h$,  since they were occupied  The wartime conditions mentioned from 1937  i n d i c a t e only what happened i n f r e e China, except f o r the  to  19U5  district  around the boundaries of Shensi, Kansu and Ningshia, i/tfiere the Communi s t s , under the C e n t r a l Government, undertook defensive wars against the Japanese.  The f i n a n c i a l a f f a i r s of the other areas under the  Japanese or the puppet governments' c o n t r o l during the same p e r i o d w i l l not be discussed i n t h i s Thesis.  The f i n a n c i a l a f f a i r s of the C e n t r a l  Governments w i l l be stressed only as p o l i t i c a l  and f i n a n c i a l background  i n the development of p r o v i n c i a l and Hsien f i n a n c e s ^ they w i l l not be discussed i n d e t a i l . This Thesis was f i r s t approved by Professor H. F. Angus, Head of the Department of Economics, P o l i t i c a l Science and Sociology, the U n i v e r s i t y of B r i t i s h Columbia.  Professor Angus has been generous  i n helping t o o u t l i n e and organize the main t o p i c s . Dr. R. M. Clark of the U n i v e r s i t y of B r i t i s h Columbia, as a sponsor, continuously encouraged  vii. me i n the untangling of many a knotty problem.  One-half o f t h i s  Thesis was completed under h i s d i r e c t i o n during the s p r i n g of 1 9 4 9 . My debt t o hhn I g r a t e f u l l y acknowledge.  I wish a l s o t o express my  a p p r e c i a t i o n of the courteous assistance of Mr. A. D. Scott who continuously helped me t o complete the r e s t of t h i s Thesis during the summer months of 1 9 4 9 . Before proceeding w i t h the d i s c u s s i o n I would l i k e t o r e c a l l that the term " l o c a l governments" used i n the f o l l o w i n g chapters i s applicable t o a l l types of l o c a l governments, i n c l u d i n g the Hsien governments.  But the term "Hsien governments" does not r e f e r t o the  l o c a l governments other than the Hsien. Since 1912 the Republic has experienced a miserable h i s t o r y of p o l i t i c a l s t r u g g l e . F i n a n c i a l l y , as w e l l as p o l i t i c a l l y , the h i s t o r y of the Republic up t o the present important phases.  may be d i v i d e d i n t o three  The f i r s t phase i s the p e r i o d o f Yuan's d i c t a t o r -  ship, the second i s the p e r i o d of warlordism, and the l a s t i s the p e r i o d i n which the Kuomintang was supreme.  From 1949 on, although  i t i s too e a r l y t o say that the Communists w i l l hold s u f f i c i e n t power to r u l e t h e s t a t e , the Kuomintang has shown by i t s defeats i n various f i e l d s , t h a t i t i s u n l i k e l y i t w i l l hold the p o s i t i o n i t h e l d i n the past.  The t e r m " N a t i o n a l i s t Domination" used i n t h i s Thesis i s o n l y  i n d i c a t i v e of the p e r i o d from 1928 t o 1 9 4 9 .  viii.  The l a s t attempt of the Kuomintang Government t o solve the e x i s t i n g f i n a n c i a l d i f f i c u l t i e s was made i n the spring of 1 9 4 9 .  This  attempt, i n f a c t , d i d not y i e l d any e f f e c t i v e r e s u l t and w i l l not be described i n t h i s Thesis.  E. T s a i .  The U n i v e r s i t y of B r i t i s h Columbia, August,  19U9.  C O N T E N T S  Preface  i-viii  A n a l y t i c a l Table of Contents  xii-rv Part I  FINANCIAL DEVELOPMENTS FROM 1Q$0 TO 1911 UNDER THE CH'ING DYNASTY AND FINANCIAL REFORMS UP TO 19ll± IN THE REPUBLICAN ERA Chapter I  introduction.  Summary-Economic background and t a x s t r u c t u r e i n the nineteenth c e n t u r y - C o n s t i t u t i o n a l movement-Growth of f i n a n c i a l power o f the p r o v i n c i a l governors-Conclusion. Chapter I I  F i n a n c i a l Reforms up t o 191U  19  Summary-Budget of 1911-Cheng's proposal f o r separation of prov i n c i a l finance from c e n t r a l - f i n a n c e - F i n a n c i a l reform of 1913Conclusion. Part I I Chapt  FINANCIAL DEVELOPMENTS DURING THE PERIOD OF WARLORDISM,1917 TO 1926 AND THE TEMPORARY ACT OF 1927 OF THE KUOMINTANG  Chapter I I I  The Temporary Act o f 1927  35  Summary-Finances under the warlords-The Temporary Act of 1927Conclusion. Part I I I THE FIRST NATIONAL FINANCIAL CONFERENCE IN 1928 AND THE SECOND NATIONAL FINANCIAL CONFERENCE IN 193U IN NATIONALIST CHINA Chapter IV  The F i r s t N a t i o n a l F i n a n c i a l Conference......  $L  Introduction-Kuomintang and i t s system of government-The F i r s t N a t i o n a l F i n a n c i a l Conference-Enforcement of the F i n a n c i a l D i v i s i o n Act of 1928-Conclusion. ix  CONTENTS (Continued) Chapter V  79  The Second N a t i o n a l F i n a n c i a l Conference  Summary-Political aspects leading t o the F i n a n c i a l Conference of 193U-Economic forces leading t o the F i n a n c i a l Conference of 193U -Resolutions of the F i n a n c i a l Conference of 193U-Failure i n enforcing the Demarcation Act-Conclusion. Chapter V I  110  Appendix t o Chapter IV and V  A b o l i t i o n of the Chuan levies-Adjustment of the farm land taxesP r o v i n c i a l and Hsien finances i n K i a n g s i Province,1928-1937. P a r t 17 WARTIME FINANCING, 1937 t o 19U5 Chapter VTI  F i n a n c i a l Developments Between 1937 and 19U1  Pp.  Introduction-War areas and f i n a n c i a l d i f f i c u l t i e s - I n e f f i c i e n c y of the c e n t r a l war financing-Developments i n the p r o v i n c i a l and Hsien finances, 1937 t o 19Ul-Conclusion. Chapter V I I I  The New Hsien System  Chapter IX  The T h i r d N a t i o n a l F i n a n c i a l Conference  16U 173  Summary-Resolutions of the F i n a n c i a l Conference o f 19U1-Enforcement cf the Act of 19U1. Chapt er X  Hsien Autonomy Finance  I8I4.  Introduction-Autonomy taxes-Other Hsien taxes-Central revenue grants and subsidies-Other Hsien receipts-Conclusion. Chapter X I  Hsien Autonomy Finance (Continued)...  211;  Part V THE ACT OF 19U6 AND THE CONSTITUTION OF 19U6 AND' THEIR PRACTICES Chapter X I I  The Fourth N a t i o n a l F i n a n c i a l Conference  222  Introduction-The Act of 19U6-Provincial finances-Hsien finances. Chapter X I I I  F i n a n c i a l Aspects i n the C o n s t i t u t i o n of 19U6  233  x  COrMJTSCContinued)  Chapter 21?  EnforceBcnt o f the A c t o f 1 9 U 6 . * . . • . . . , . . » . . . . . . . . . . . . 2i|Q  I n t r o d u c t i o n - R e h a b i l i t a t i o n i n provrincial and Hsien financesEnf orcQrnent o f the Act o f 19U6-Conclusion» Chapter 20f  Conclusion...»................................»........ 253  The f l u c t u a t i o n s i n the f i n a n c i a l poners o f the three l e v e l s o f C O v e m s B n t - P o l i t i c a l and f i n a n c i a l trends before 193U- Trends i n p r o v i n c i a l f i n a n c i a l poorer-Trends i n Hsioa f i n a n c i a l developEssnt-The rol© o f the " u n s u c c e s a f u l F i n a n c i a l Conference of 193h-Conclusion. 0  I3XD3-XOQ]rlAPIfi- •  • * *--» • *..»•» * •  «• • »*  • o« » • * : • » • » o • • *  »  • •  0^  2^1?  Xl  xii. ANALYTICAL TABLE OF CONTENTS Preface Part I Chapter I - I n t r o d u c t i o n In the centuries p r i o r t o 1912, China was an extremely c e n t r a l i z e d country i n the f i e l d s o f f i n a n c i a l administrat i o n . Neither the p r o v i n c i a l nor the l o c a l governments were given independent f i n a n c i a l power. The years that followed the Taiping R e b e l l i o n , 1850-1864, witnessed the r a p i d r i s e o f the p r o v i n c i a l governments, l e g a l l y or i l l e g a l l y , i n e x e r c i s i n g t h e i r f i n a n c i a l power. Chapter I I - F i n a n c i a l Reforms up t o I 9 l h Since the Republic of China -was founded, the Government h e s i t a t e d t o c a r r y out d e c e n t r a l i z a t i o n or c e n t r a l i z a t i o n so f a r as f i n a n c i a l matters were concerned. Because o f President Yuan Shih-kai's ambition, the f i n a n c i a l reforms were made towards extreme c e n t r a l i z a t i o n . The e x i s t i n g p r o v i n c i a l f i n a n c i a l power was taken over by the C e n t r a l Government. The l o c a l government finances were independent but they were, given no important t a x sources. The meagre e x i s t i n g l o c a l f i n a n c i a l power was l a t e r appropriated by the Central Government. Not u n t i l 1916 d i d t h i s f i n a n c i a l scheme c o l l a p s e , as one o f the r e s u l t s o f the downfall of Yuan. Chapter I I I - The Temporary Act of 1927 With t he downfall of Yuan, the m i l i t a r i s t s quickly seized power. The p r o v i n c i a l governments under a number of warlords exercised t h e i r f i n a n c i a l power independently. Though i t was the f i r s t time t h a t the p r o v i n c i a l governments had enjoyed great f i n a n c i a l power, the n a t i o n a l u n i t y was weakened. The warlords employed t h e i r , f i n a n c i a l means f o r the purpose o f c i v i l war rather than f o r meeting t h e i r a d m i n i s t r a t i v e obligations. The Central Governments were greatly handicapped i n carrying out t h e i r f i n a n c i a l measures. The l o c a l governments were under d i r e c t c o n t r o l of the p r o v i n c i a l a u t h o r i t i e s i n the f i e l d o f finance. Not u n t i l 1927 d i d the nation's f i n a n c i a l s t r u c t u r e become more w e l l defined as the Kuomintang entered upon the War o f U n i f i c a t i o n ,  •r  xiii Part I I I Chapter IV - The F i r s t National F i n a n c i a l Conference In 1928 the Kuomintang came i n t o power a f t e r a s e r i e s of campaigns against the p r o v i n c i a l m i l i t a r i s t s , and d i s cussion of s t a t e finances began immediately. The f i r s t step towards the Kuomintang's aim was t o d i s t r i b u t e the nation's f i n a n c i a l powers and o b l i g a t i o n s between the C e n t r a l Government and the provinces. The l o c a l governments were t o be dominated by the p r o v i n c i a l a u t h o r i t i e s . A general subsidy system was w e l l established from the Central Government t o the p r o v i n c i a l governments. Chapter V - The Second National F i n a n c i a l Conference According t o Sun l a t - s e n ' s "Fundamentals o f National Reconstruction", the provinces were t o be regarded as intermediaries between the C e n t r a l and l o c a l governments. The c h a r a c t e r i s t i c feature i n the "Fundamentals" was the theory o f Balanced Power. The F i n a n c i a l Conference of 1931; was h e l d i n order t o r e a l i z e t h i s purpose. The Resolutions of t h i s Conference were outstanding i n that they proposed that f o r the f i r s t time the nation's finances be d i s t r i b u t e d among the three l e v e l s o f government, namely, the C e n t r a l , p r o v i n c i a l , and Hsien governments. The i n t r o duction of the Resolutions, however, met with d i f f i c u l t i e s . Chapter VI - Appendix t o Chapters IV and V China d i d succeed i n reforming s e v e r a l important o l d taxes. This was the greatest achievement o f the Kuomintang. A t y p i c a l example o f the d i f f i c u l t i e s o f p r o v i n c i a l and l o c a l f i n a n c i a l a d m i n i s t r a t i o n i s given. The c i v i l war was the most s i g n i f i c a n t f a c t o r that caused f i n a n c i a l maladjustments. Part IV Chapter V I I - F i n a n c i a l Developments Between 1937 and 191*5 A f t e r the outbreak of the Sino-Japanese War, a l l the three l e v e l s of government vere faced w i t h serious f i n a n c i a l d i f f i c u l t i e s . The Central Government financed i t s r e s i s t a n c e through three major means: the wartime bonds, the wartime taxes and the F a p i - i n f l a t i o n . The provinces increased t h e i r indebtedness. And, the Hsien developed the " D i s t r i b u t i o n " method i n order t o meet a p a r t o f t h e i r extraordinary cost. I n 19l|0 and l9bX, the C e n t r a l Government would have c o l l a p s e d f i n a n c i a l l y i f i t had not r e l i e d on F a p i i s s u i n g . To remedy t h i s s i t u a t i o n , the F i n a n c i a l Conference o f l ? ! * ! was c a l l e d .  xiv. Chapter V I I I - The New Hsien System Because the N a t i o n a l i s t s were over f e a r f u l o f the p o s s i b l e r e v i v a l of warlordism, they r e f e r r e d the m i l i t i a t r a i n i n g to the Hsien i n s t e a d of t o the provinces; and because the N a t i o n a l i s t s intended t o i n i t i a t e c o n s t i t u t i o n a l i s m a f t e r the V i c t o r y which they expected t o come, they promoted the growth o f l o c a l self-government. I n order t o make these two plans e f f e c t i v e , a new Hsien f i n a n c i a l s t r u c t u r e was introduced by the New Hsien System, i n which a p a r t of the p r o v i n c i a l tax-sburces was t r a n s f e r r e d t o the Hsien. Chapter IX - The Third N a t i o n a l F i n a n c i a l Conference The Conference was h e l d t o incorporate the e x i s t i n g p r o v i n c i a l finances i n t o a c e n t r a l scheme i n order t o leave wider revenue sources i n the hands o f the C e n t r a l Government f o r the prolonged h o s t i l i t i e s . The nation's finances were now d i v i d e d between the C e n t r a l Government and the Hsien. From 1942 on, a l l the p r o v i n c i a l taxes were l e v i e d by the C e n t r a l Government, i n c l u d i n g the l a n d t a x which -was t o be l e v i e d i n k i n d . Chapters X and X I - Hsien Autonomy Finance The F i n a n c i a l Conference of 19ijl a l s o proposed the Hsien Autonomy Finance which was put i n t o e f f e c t i n 19i|2. The c h a r a c t e r i s t i c s of the Hsien Autonomy Finance were p r a c t i c a l l y the same as those o f the New Hsien System. The s t r i k i n g features o f Hsien wartime f i n a n c i n g were: ( l ) The Hsien depended h e a v i l y upon one excise t a x , the butchering tax; (2) The Hsien farm l a n d surtax, the most s i g n i f i c a n t Hsien tax source before the War, became unimportant i n wartime; because the rate -was not increased i n time before 19kl, the rate a f t e r 19l|2 was f i x e d according t o 19hl standard, and the C e n t r a l Government a f t e r i t had taken over the e n t i r e a d m i n i s t r a t i o n of l a n d taxes reduced the Hsien surtax r a t e by two-thirds; (3)The C e n t r a l subsidies t o Hsien were i n creased each year mainly through u n c o n d i t i o n a l revenue grants. But these sources y i e l d e d stable revenue only t o the r i c h e r Hsien. And, (k) The Revenue from Hsien p r o p e r t i e s , the minor income source before the War, became important a f t e r the a d m i n i s t r a t i v e readjustment.  Part V C h a p t e r X I I - The F o u r t h N a t i o n a l F i n a n c i a l C o n f e r e n c e T h i s Conference restored a few p r o v i n c i a l f i n a n c i a l powers from the wartime s t r u c t u r e , w h i l e t h e H s i e n f i n a n c i a l powers were a g a i n f u r t h e r s t r e n g t h e n e d . The c h a r a c t e r i s t i c s o f t h e Demarcation A c t p r o p o s e d by the F i n a n c i a l Conference o f 1 9 3 4 were f u l l y adopted i n t h e A c t o f 1 9 ^ 6 and t h e t h e o r y o f B a l a n c e d Power recommended b y Sun Y a t - s e n more t h a n t w e n t y y e a r s p r e v i o u s was r e a l i z e d . C h a p t e r X I I I - F i n a n c i a l A s p e c t s i n the C o n s t i t u t i o n o f 19i|.6 The C o n s t i t u t i o n o f 19^6 was drawn up i n accordance w i t h Sun Y a t - s e n s t e n e t s and the p o s i t i o n o f t h e p r o v i n c e was t r e a t e d as dependent o r agency o f the C e n t r a l Government. The C o n s t i t u t i o n d i v i d e d t h e f i n a n c i a l power among t h e t h r e e l e v e l s o f government by t h e i r r e s p o n s i b i l i t i e s i n s t e a d o f by revenue s o u r c e s . The o b l i g a t i o n o f e d u c a t i o n o f t h e t h r e e l e v e l s o f government was v a g u e l y d e f i n e d . 1  Chapter XIV - The Enforcement o f the A c t o f  19^6  The p o l i t i c a l c r i s i s and the F a p i i n f l a t i o n r e n d e r e d i t t r e m e n d o u s l y d i f f i c u l t t o e n a c t t h e A c t o f I9I4.6. The g r e a t e s t c o s t was t h e c o s t - o f - l i v i n g a l l o w a n c e s t o t h e government employees. This burden p l u s the c o s t o f p o l i c e p r o t e c t i o n t o t a l l e d more t h a n 80 p e r c e n t o f the t o t a l p r o v i n c i a l and H s i e n e x p e n d i t u r e s . C h a p t e r XV - C o n c l u s i o n The Chinese R e p u b l i c , b y a s e r i e s o f b r e a k s w i t h f i n a n c i a l t r a d i t i o n , had succeeded i n r e d i v i d i n g the powers o f t h e t h r e e l e v e l s o f government. A t t h e moment o f s u c c e s s , however, t h i s accomplishment became a mere d i g r e s s i o n , f o r c i v i l war and i n f l a t i o n have d e s t r o y e d the s t r u c t u r e .  PART  I  F i n a n c i a l Developments from 1850 t o 1911 under the Ch'ing Dynasty and  F i n a n c i a l Reforms up t o 19Hi i n the Republican E r a  PART I Chapter I - I n t r o d u c t i o n Summary China has been an a g r i c u l t u r a l country where a c l a n system exists.  By the p o l i t i c a l t r a d i t i o n of the past, p r o v i n c i a l and l o c a l  governments were given no independence.  As a r e s u l t , there were no  separate p r o v i n c i a l and l o c a l f i n a n c i a l problems except those of the c e n t r a l a u t h o r i t i e s , the emperors of the dynasties. The Opium War (1840-1*2) marks the beginning of recent Chinese 1  history,  .  f o r f o l l o w i n g t h i s occurrence China exerted i t s e l f t o become  a modern n a t i o n . Accordingly, modern p u b l i c finance i n the c e n t r a l , p r o v i n c i a l and l o c a l f i e l d s was g r a d u a l l y developed.  As China lacked  a foundation f o r modern economy before the middle of the nineteenth century, such as l a r g e business organizations and l a r g e s c a l e i n d u s t r i a l production, t a x resources were l i m i t e d . The development of modern p r o v i n c i a l finance i n China can be d i v i d e d i n t o two tendencies.  The f i r s t i s the growth of the f i n a n c i a l  power of the p r o v i n c i a l governors who p r a c t i c a l l y exercised t h e i r power independently.  The second i s the reform i n the government system  brought  about by the C o n s t i t u t i o n Movement, by which the p r o v i n c i a l governments obtained t h e ^ l e v y i ^ ^ p ^ w e r of/taxes. These two tendencies l e d to a p e c u l i a r f i n a n c i a l system, never experienced before i n China. 1. Cf., L i Jan-nung, V o l . 1, p. 12  2. A. Economic Background and Tax Structure i n the Nineteenth Century. The most outstanding feature of China's economy i s the small farming communities where the clan system has existed almost as long as her h i s t o r y .  A g r i c u l t u r a l products have dominated her economic l i f e  throughout thousands of years. Since the T'sin-Han Period (21*6 B.C.  - 219 A.D.), thereChas)  been no s i g n i f i c a n t changes i n the methods of production.  ~7  The national  economy, therefore, depended heavily upon the natural p r o d u c t i v i t y of the land.  When the population increased to a point at which the demand  f o r food exceeded the land productivity, r e b e l l i o n or revolution e s s a r i l y resulted.  nec-  This i s the p e r i o d i c a l " l i h Tze Yih Luan", or cycle  of peace and war, which generally occurred every two to three hundred  1 years. In the century p r i o r to the Opium War  (182|0-2|2), the population  had increased about 200 per cent while the arable land remained almost unchanged, as shown i n Table I.  By t h i s Table, we may  understand that  the national income per capita would be sharply reduced by the r a p i d increase of population because farming was  the major industry and because  the method of production'had not improved materially.  Under such circum-  stances, the revenue sources of the state had to depend upon the taxes on farm land and excise taxes paid by the mass. 1. Ibid., Pp  58-9.  3. TABLE I The Increases i n Population and Arable Land, 1721-1841  Arable Land (in acres)*  Population  Year  1721 171*1 17U9 1766 1792 1801 1812 1821 1823 181*1  11*3,101,559 177,495,039 307,1*67,279 297,501,508 355,51iO,258  1  113,965,233 123,574,916 131,920,850 122,918,816  1*13,1*57,311  * Approximately c a l c u l a t e d from Mou, the Chinese acreage. 2 The farm l a n d t a x and the p o l l t a x were the e a r l i e s t taxes i n China.  P r i o r t o the seventeenth century, there had been f i v e major  reforms concerning these two taxes since 2278 B.C., when the f i r s t s u c c e s s f u l means of f l o o d c o n t r o l , recorded h i s t o r i c a l l y , was s e t up a t 3  the Yellow R i v e r .  A f t e r 1723, there was another reform i n which the h  p o l l t a x was incorporated i n t o the farm land t a x , and t h e r e a f t e r no separate p o l l t a x has been l e v i e d i n China. 1. L i Jan-nung, V o l . I . Pp 57-8. The census i s not very r e l i a b l e because i t was estimated according t o the p o l l t a x r o l l . 2. The p o l l t a x , i n many cases, i n c l u d e d s e r v i c e s (instead o f m a t e r i a l or money t a x a t i o n ) o f the taxpayers. Speaking i n general, the p o l l t a x was imposed on the persons who engaged i n farming. 3. Chia Teh-huei, V o l . I I . p. 579. 4. I b i d . , p. 580.  A surtax on farm l a n d was f i r s t l e v i e d at the beginning o f the Yuan Dynasty (1277-1367).  I t v/as not important u n t i l the l a s t quarter  of the nineteenth century "when i t was t o provide p r o p e r l y the expendi1 tures f o r education and p o l i c e p r o t e c t i o n and so on". A s a l t t a x was c o l l e c t e d during t h e p e r i o d of San T a i (2205 2U7 B.C.).  I t was not an important source o f government revenue u n t i l  119 B.C. when the Government o f the Han Dynasty d i r e c t l y operated t h e s a l t i n d u s t r y f o r revenue purposes.  I n the f o l l o w i n g dynasties the s a l t  i n d u s t r y was o c c a s i o n a l l y operated under p r i v a t e c o n t r o l s while the governments obtained revenues through heavy s a l t tax.  During the S u i  Dynasty (589-617 A.D. ), the s a l t t a x was not imposed.  After  713 A.D.,  the r e - c o l l e c t i o n o f the s a l t t a x was resumed under the Tang Dynasty. Since then and u n t i l the present time, the s a l t t a x has been one o f the 2 most important revenues t o the c e n t r a l governing bodies. In the nineteenth century, the revenue from custom d u t i e s , besides the farm l a n d and s a l t taxes, had a l s o become important t o the Treasury of the Ch'ing Government.  But t h i s revenue had l i t t l e r e l a t i o n  t o the p r o v i n c i a l and l o c a l finances as compared w i t h the former two taxes which became important p o l i t i c a l i s s u e s , p a r t i c u l a r l y when the Republic o f China came i n t o e x i s t a n c e . Since 619 A.D., the t a x on brokers, known i n Chinese as the Ya Tieh, has been l e v i e d under the Tang Dynasty, and by 16UU A.D. a t a x on pawnshops was imposed under the Ch'ing Dynasty.  These two taxes.were  comparable t o the present l i c e n s e t a x and business t a x . 1. I b i d . , p. 582. 2. I b i d . , V o l . I , p. 90, "At the end (1347-67) o f the Yuan Dynasty, the s a l t t a x had.been so h e a v i l y imposed t h a t i t d i r e c t l y caused the s a l t smuggling r e b e l l i o n s which hastened a r e v o l u t i o n t h a t e v e n t u a l l y overwhelmed the Dynasty."  5. Taxes had long been imposed on r e t a i l e r s of cotton f a b r i c s and on various other kinds of business i n c l u d i n g t r a n s p o r t a t i o n .  They were  imposed not f o r revenue purposes but f o r "an i n t e n t i o n t o discourage 1 commercial a c t i v i t i e s and t o encourage farming".  These kinds of taxa-  t i o n were abolished by the Ch'ing Government a f t e r l6lxk.  I n the l a t t e r  years of the nineteenth century, these taxes were reimposed i n order t o finance modern educational f a c i l i t i e s instead of the o l d , and t o meet 2  the expenditures i n c u r r e d from the increased m i l i t a r y t r a i n i n g . S h o r t l y a f t e r 1614;, a t a x on houses was s t a r t e d and i t was 3 abolished by 1795.  This t a x was reimposed i n order t o meet the indem-  n i t i e s exacted by the Eight A l l i e d Powers as the r e s u l t of the Boxer h  Rebellion. Imposition on t r a n s f e r s of t i t l e deeds f i r s t appeared during the T'sin Dynasty, 265-W.9 A.D.  A f t e r the t u r n of the twentieth century,  the revenue from t h i s t a x was used t o meet a part of the expenditures of the p r o v i n c i a l and l o c a l governments f o r t h e i r r e s p o n s i b i l i t i e s were being expanded. There were s e v e r a l other l e v i e s i n the l a t e Ch'ing p e r i o d , among which the L i k i n l e v y , a complex excise t a x , was the most important both to the c e n t r a l and p r o v i n c i a l finances.  The development of the L i k i n  l e v y w i l l be discussed i n S e c t i o n C of t h i s chapter. 1.  Cf., Chia Teh-huei, V o l . I I , p.  2. I b i d . , Pp 605-6. 3.  Ibid.  h. Yee Hong-lin, p.  108.  60h.  6. U n t i l the l a t t e r p a r t o f the nineteenth century, a l l the revenue sources belonged t o the C e n t r a l Government, the Ch'ing Government. These revenues were s u f f i c i e n t f o r the simple governmental functions.  However,  as a r e s u l t o f the successive wars w i t h foreign, powers, the Taiping R e b e l l i o n (1850-61;), and the expanding governmental r e s p o n s i b i l i t i e s learned from the Western c o u n t r i e s , the o l d t a x a t i o n system was no longer adequate because the important forms o f t a x a t i o n remained unchanged up 2  to the l a t e nineteenth century. B.  C o n s t i t u t i o n a l Movement I n 1874, the Empress Dowager Tze S h i proclaimed her nephew  Kuang Chu as the l a w f u l successor of the Ch'ing Dynasty, on the death o f the young Emperor Tong Tze. The boy Emperor Kuang Chu was only f o u r years o l d a t that time, and the Empress Dowager dealt w i t h a l l the matters o f the state as Regent, as she had p r e v i o u s l y done f o r her son Tong Tze, u n t i l 1887 when she h e r s e l f r e t i r e d . Two years l a t e r , i n 1889, a scholar, Kong You-wei and h i s 3 f o l l o w e r s presented t o the Throne a p e t i t i o n concerning p o l i t i c a l reforms. 1. L i Jan-nung, V o l . I , p. 3: P r i o r t o 1850 the Ch'ing Government had annual revenue s u r p l u s , as i s shown i n the f o l l o w i n g t a b l e : Year 1709 1723-35 1781 1811; 1 silver  Surplus i n t a e l s 50,000,000 60,000,000 c i t . 70,000,000 12,000,000 t a e l i s equal t o 1.3 ounces  Year Surplus i n t a e l s 1722 8,000,000 1736-8 2^,000,000 c i t . 1789 60,000,000 1850 8,000,000 of silver.  2. Cheng Shao-Kwan. p. 45. 3. Japan adopted a c o n s t i t u t i o n a l monarchy i n that same year.  7.  But,  there was no response from the Government.  A f t e r the war w i t h  Japan i n Korea, l&9h- , Kong You-wei again presented proposals l e a d i n g to a c o n s t i t u t i o n a l monarchy.  I n the same year, 1897, Kong organized a  p a r t y named Chan Hsueh Huei and e s t a b l i s h e d a newspaper i n the c a p i t a l , , F i n a l l y , i n 1898, the Emperor appointed Kong as an advisor.  Peking.  In I898, the Emperor, Kong You-wei, and the reformers undertook the famous "Government Reform".  The f i r s t step was the a b o l i t i o n  of some superfluous departments and some sinecures i n the C e n t r a l Government.  I n a d d i t i o n , plans were made t o study and reform the o r g a n i z a t i o n  of p r o v i n c i a l government.  This, however, caused a tremendous r e a c t i o n  from the o l d high o f f i c i a l s and the r o y a l clansmen who had been d i s charged, o r who feared t o lose t h e i r o f f i c e s .  Moreover, the Emperor d i d  not hold the m i l i t a r y power f i r m l y enough a t t h a t time, so, the Empress Dowager, who had r e t i r e d t e n years previous was consequently able t o r e t u r n t o power.  The p a r t y Chan Hsueh Huei was then purged, Kong You-wei  made h i s escape abroad, and the Emperor l o s t h i s freedom even i n h i s private l i f e .  The One Hundred Day Reform thus ended as an h i s t o r i c a l  incident. Because of the f a i l u r e s i n t h i s p o l i t i c a l reform and i n the successive wars w i t h f o r e i g n powers, p a r t i c u l a r l y w i t h Japan, the growth of the r e v o l u t i o n a r y f e e l i n g s against e x i s t i n g conditions spread throughout the countryj and, the Ch'ing Government by 1906 was forced t o announce that i t was preparing t o adopt representative government and a new c o n s t i tution.  A program o f preparation f o r t h i s c o n s t i t u t i o n a l reform would  be completed i n nine years, commencing from 1907. provided i n t h i s program were as f o l l o w s :  "The f i s c a l reforms  i n the second year o f prepara-  t i o n , the provinces were t o work out t e n t a t i v e budgets- i n the t h i r d year,  8. a new system of p r o v i n c i a l t a x a t i o n was t o be adopted; i n the f o u r t h year, reformed methods of p u b l i c accounting were t o be introduced and a n a t i o n a l budgetary system was t o be inaugurated; and i n the f i f t h year, a new system of n a t i o n a l t a x a t i o n was t o be promulgated." One of the most s t r i k i n g features of t h i s program was that the p r o v i n c i a l finance was t o be separated l e g a l l y from the c e n t r a l finance. Meanwhile, a new p o l i t i c a l e t h i c s was t o be e s t a b l i s h e d :  "the r u l e s of  self-government were proclaimed by the Ch'ing Government f o r province and Hsien. government.  A p r o v i n c i a l c o u n c i l was t o be set up i n each p r o v i n c i a l A F i n a n c i a l Committee t o reorganize the f i s c a l system of the  state was created, subordinate t o the Department of Finance of the Ch'ing Government.  The branch o f f i c e s of the Committee were s e t up i n each 2  p r o v i n c i a l governor's o f f i c e . " . Before necessary reorganizing was completed, both the Empress Dowager and the Emperor died, i n 1908. the program o f f i n a n c i a l reform.  T h i s , however, d i d not i n t e r r u p t  I n the f o l l o w i n g year, the F i n a n c i a l  Committee was duly e s t a b l i s h e d ; and the e n t i r e program was already w e l l on the way.  These reforms, however, were not completed i n time t o  prevent the spreading r e v o l u t i o n , f o r i n October of 1911 the r e v o l u t i o n ary armies had already succeeded i n c o n t r o l l i n g China south o f the Yangtze, and on 1 January 1912, Sun Yat-sen announced at Nanking the formation of the Republic of China.  A l l the p o l i t i c a l attempts and  f i n a n c i a l reforms of the Ch'ing Government were i n t e r r u p t e d .  Although  l i t t l e f i n a n c i a l reform was completed by the Ch'ing Government, the concept and the importance of new p r o v i n c i a l and l o c a l finance were recognized u n i v e r s a l l y by t h i s time. 1. Shaw Kinn-wei, p. ISO  2. Yee Hong-lin, p. 107.  9. C.  Growth of F i n a n c i a l Power o f the P r o v i n c i a l Governors Before f u r t h e r d i s c u s s i o n , the w r i t e r f e e l s that i t i s advisable  f i r s t t o r e f e r b r i e f l y t o the system of government i n the nineteenth century.  The Emperor was supreme.  The members of the Council of the  State were the advisors t o the Emperor.  The C e n t r a l Government was  organized i n t o d i f f e r e n t departments w i t h one s p e c i a l department, the Censorate, over and above the other departments.  S i x of the departments,  so f a r as a d m i n i s t r a t i o n was concerned, were w e l l developed:  military,  c i v i l - s e r v i c e , f i n a n c i a l , j u d i c a l , and p u b l i c works departments.  Sub-  ordinated t o the Department of Finance were fourteen Boards whose c h i e f f u n c t i o n was t o a u d i t r e g u l a r revenues from d i s t r i c t s under t h e i r j u r i s diction. Governors of provinces were appointed by the Emperor to superv i s e t h e i r subordinate governing bodies. Provinces were f u r t h e r d i v i d e d up i n t o smaller administrative u n i t s , each known as a Hsien ( o r Fu), which was supervised by a magistrate. One of the major functions of the Hsien during the C h ' i ng p e r i o d was to c o l l e c t revenues f o r the Imperial Treasury. The f i n a n c i a l disbursements i n the Hsien were t o be d i r e c t l y c o n t r o l l e d or regulated by the prov i n c i a l governments, except the money r a i s e d through subscriptions from  1 the people f o r p u b l i c welfare. Most of the cost f o r p u b l i c works, r e l i e f , and m i l i t a r y roads was borne by the Imperial Treasury. Education was l a r g e l y provided by private i n s t i t u t i o n s .  The o l d f a m i l y or c l a n system a l s o rendered c e r t a i n  s o c i a l s e r v i c e s , such as the care f o r the aged and orphans and the prov i s i o n of some educational f a c i l i t i e s f o r the clansmen. 1. Cf., Chia Teh-huei, V o l . I I , p. 61*0,  C h a r i t i e s were  10. u s u a l l y provided by walthy people, Buddhist temples, and other p r i v a t e organizations.  Moreover, i t had become an unwritten law t h a t the Hsien  governments could r a i s e money from the people f o r performing c e r t a i n 1  s e r v i c e s , i f the consent of the people was_ obtained;  and a c t u a l l y , the  Hsien governments u s u a l l y r e s o r t e d t o t h i s method when t h e i r funds were inadequate.  As most of the cost of a d m i n i s t r a t i o n was assumed by the  Imperial Treasury, and, as there was no c o n s t i t u t i o n t o c l e a r l y define the functions of the p r o v i n c i a l and the l o c a l governments, the C e n t r a l Government was t o determine the a p p r o p r i a t i o n of i t s revenue t o the provinces which i n t u r n apportioned the a l l o t t e d funds among the Hsien governments. Communication over the v a s t t e r r i t o r y was not as convenient as i t i s to-day, and i n the absence of a c e n t r a l banking system, the custom developed f o r the revenues t o be d e l i v e r e d t o the Imperial Treasury from the l o c a l and p r o v i n c i a l governments.  The p r o v i n c i a l and l o c a l govern-  ments, thereby, could reserve a p a r t of the c o n t r i b u t i o n which was t o be d e l i v e r e d , i f the permission of the C e n t r a l Government was. obtained.  ^  This p r a c t i c e was maintained as l o n g as the I m p e r i a l power remained stable. L i k i n and P r o v i n c i a l Finances Since 1825,  r e b e l l i o n s , f l o o d s , droughts on top of the Opium  War g r e a t l y aggravated the f i n a n c i a l d i f f i c u l t i e s of the Ch'ing Government. ^ To worsen t h i s s i t u a t i o n , a great r e v o l u t i o n —  1. I b i d . , p.  565.  2. Lo Yu-tung, V o l . I , Pp 139-142.  known i n E n g l i s h  11. as the Taiping R e b e l l i o n — broke out i n 1850 i n Kwangsi. the r i c h e r provinces were d i r e c t l y e f f e c t e d .  Sixteen o f  This state of a f f a i r s  continued u n t i l 1864 when the Ch'ing Government f i n a l l y succeeded i n crushing the R e b e l l i o n . When the R e b e l l i o n broke out i n 18£0, the I m p e r i a l Treasury s t i l l had a surplus of 8 m i l l i o n t a e l s of s i l v e r .  Three years l a t e r ,  the expenditure f o r m i l i t a r y purposes alone amounted t o 30 m i l l i o n t a e l s , and by June 1853, the funds of the Treasury f a s t dwindled t o  1  227,000 t a e l s .  The s t a t e o f the Imperial finance, a t t h a t time, was  described by a r e p o r t from the Department o f Finance t o the Throne, which stated that the revenue from the p r i n c i p a l sources —  the custom  d u t i e s , the s a l t t a x , and the farm land t a x — was so inadequate t h a t 2 i t could be said t o be a l i t t l e b e t t e r than nothing.  To remedy t h i s  grave circumstance, the L i k i n was created. In the autumn of 18^3, the L i k i n was p r o v i s i o n a l l y c o l l e c t e d i n Kiangsu Province where the r e s u l t seemed quite promising.  This t a x  i n 1854, therefore, was o f f i c i a l l y made a regular revenue source o f the Imperial Treasury. The r a t e was f i r s t f i x e d a t 1.2 per cent o f the p r i c e s o f various n e c e s s i t i e s .  L a t e r , i t was l e v i e d e i t h e r a t 1 per cent on paper,  t e x t i l e s , c h i n a , medicine, s i l k , f u r , sugar, e t c . ad valorem o r on food,  3 o i l , meat, f a b r i c , tobacco, l i q u o r , e t c . ad valorem.  L a t e r i n the same  year, t h i s t a x was extended t o a l l provinces i n c l u d i n g those which had 1. I b i d . , Pp 9-10. 3. I b i d . , Pp 17-18.  2. I b i d . , p. 9.  12. not been e f f e c t e d by the R e b e l l i o n .  1  The L i k i n could, therefore, be  s a i d t o be a n a t i o n a l l e v y as from 1854. This tax, a t the beginning, could be d i v i d e d . i n t o two categories, namely the " t r a n s i t L i k i n " and the "sales L i k i n " .  The  former was imposed on the commodity when i t was i n t r a n s i t , and the l a t t e r was imposed a t the market where the t r a n s a c t i o n was made.  This  tax was i n the next stage extended t o the f i r m s dealing i n food, l i q u o r and o i l and a l s o t o the f i n a n c i a l i n s t i t u t i o n s on t h e i r gross r e c e i p t s w i t h several f l a t r a t e s which v a r i e d according t o the c l a s s i f i c a t i o n s . The C e n t r a l Government permitted dealers on whom the t a x was l e v i e d i n the f i r s t instance, t o r a i s e the p r i c e s t o compensate f o r the cost of 2  Likin. As there was no uniform r u l e governing the i m p o s i t i o n of L i k i n among the provinces, extreme confusion arose:  i n fact, this  c e n t r a l l e v y was administered by the i n d i v i d u a l provinces independently and standardization was never attempted by the Ch'ing Government.  One  commodity might be taxed twice or more i f i t c i r c u l a t e d from one province t o another, o r even w i t h i n one province. Soon a f t e r the Taiping R e b e l l i o n was crushed, there were a s e r i e s o f proposals f o r the a b o l i t i o n of the L i k i n .  Some m i n i s t e r s and  governors, however, "suggested" t h a t i t would be b e t t e r t o r e t a i n t h i s "temporary" i m p o s i t i o n f o r a few more years, as the m i l i t a r y expenditure could not be immediately reduced and there was need o f huge funds f o r 1.  I b i d . , Pp 18-19.  2.  Cf., I b i d . , p. 2 3 .  13  r e l i e f i n the ravaged areas.  To t h i s proposal the Ch'ing Government  agreed.  Henceforth, t h i s temporary t a x became a constant l e v y of the 1 Government. Previously, the y i e l d from t h i s t a x was s o l e l y used f o r  m i l i t a r y purposes; however, i t became one o f the important revenue sources f o r both the Ch'ing and p r o v i n c i a l governments who, a f t e r 1864, spent i t f o r other purposes, as shown i n Table I I I .  Table I I shows  the t o t a l y i e l d from the L i k i n , which amounted t o , on the average, 2 one-third of the t o t a l revenues o f the Ch'ing Government. TABLE I I C l a s s i f i c a t i o n and Percentage of the L i k i n 3  C o l l e c t e d by Provinces (Amount i n t a e l s ) Tear  Tea  1869 281,229 1870 255,1*54 1871 280,606 1872 30k,364 1873 285,%7 1888 246,370 I889 2 0 5 , 9 7 1 1890 183,215 1891 1 7 8 , 6 3 0 1892 170,246 1904 1905 1906 1907 1908  %  Imported Medicine 559,970  543,438  484,052  479,363 1^93,253  Medicine Mfd i n . China  Salt  62,981 61,330  215,575  12,301,087  52,702  162,150 147,368  90,629  13,237,264 13,089,543 13,659,483  54,271  55,836  238,151  90,ozo 88,424  495,725 954,053 758,278  625,609 632,997 688,369  671,968  483,177  .84,170  551,259  89,309 78,233  823,566  2,752 3,968 2,287  622,997  176,269  90,120 87,503  84,896 8 5 , 7 7 1  0, o r , .87-2.3  0, o r .01-6.9  Other Commodities  0, o r  .19-5.1  13,234,491  Total  13,420,842 14,332,684 14,256,822 14,088,122 14,641,797  12,143,009 11,857,650 11,923,125 11,901,384  13,600,733 13,739,095 13,643,107  12,242,104  13,641,665  15,962,709  16,606,02y 15,952,137 16,290,270 16,708,890  15,246,949 16,026,818  16,623,199  302,865  17,457,322  .45-1.8  86.3-99.5  13,581,042  17,760,187  100.  1. Lo Yu-tung, V o l . I , p. I38. 2. Pao Chao-Hsieh, p. 213• By 1885, the t o t a l revenue t o the Ch'ing Government was 48.258,070 t a e l s , of which the tax from the L i k i n amounted t o 16,548,199 t a e l s . 3. Lo Yu-tung, Vol.11, Pp 470-1.  TABLE I I I D i s t r i b u t i o n o f the L i k i n  1 C o l l e c t e d i n Kiangsu Province (Unit - 000 t a e l s o f s i l v e r ) Year  -  1  j  •  C e n t r a l Functions 6 7 3 4 5  88 1869 ho 10 8 100 1870 100 1881 239 10 1882 2 6 8 70 1899 1900  99 99 15  1907 1908  65  65  %  8.5  392 415 30 30  34  30  1.7  467 562  &  9  2433 ho 121 21+21 ho 120  1284 112 11+62 182  256 268  1000 197 902 1 6 0 462 663  80 132 80 138  66 9 575 24 294 126 261 : 2.2  .4  22.4  .9  H.4  4.9  Prov.Functions 1 2 3  652 530  128 80 139 70  21+ 8 130 13 8 2247  19 20  Aver- 221 45 age  8  102  10  Total 2,589 2,795  2,1+01 2,330 50 1,006 80 3,U32  97  422 195 130 3,6kO 3,761 371 170 3 3 7 754 151  58 2,584*  :  29.2  5.9  2.3  ICQ*  Average per year, approximately c a l c u l a t e d . Explanation o f Table I I I : The C e n t r a l Government appropriations f o r : 1) the Department o f Financej 2) the n a t i o n a l a d m i n i s t r a t i o n expenditurej 3) the expenses o f the Imperial Household ( i n c l u d i n g the expenditure f o r maintenance o f the Royal S i l k F a c t o r i e s ) ; 1+) the railway c o n s t r u c t i o n ; 5) the repayments ( i n c l u d i n g i n t e r e s t charges) o f the domestic and f o r e i g n debts; 6) the C e n t r a l Government's subsidy funds t o poorer provinces; 7 ) the indemnities t o f o r e i g n powers; 8) the naval and c o a s t a l defence; 9) the i n l a n d navy ( p a r t i c u l a r l y f o r the Yangtze R i v e r ) . The P r o v i n c i a l appropriations f o r : l ) the p r o v i n c i a l army; 2; the p r o v i n c i a l a d m i n i s t r a t i v e expenditure; 3) Remainder, reserve, miscellaneous appropriations, u n i d e n t i f i e d expenditure, e t c . 1. Ibid.,Pp 1+90-1.  15. In the post-Rebellion period, the L i k i n was f i r s t u t i l i z e d f o r both r e l i e f and army maintenance.  In time,when  the cost of both the  items was decreasing, the L i k i n was maintained, and, more and more a l a r g e r proportion of the L i k i n was devoted to the expenditures of the provincial administration.  The s i g n i f i c a n t feature of t h i s i n c r e a s i n g  p r o v i n c i a l expenditure was that i t accompanied the expanding power of the p r o v i n c i a l governments.  The expanded p r o v i n c i a l power was a r e s u l t  of two major causes, namely, the more independent p r o v i n c i a l administrat i o n of m i l i t a r y a f f a i r s , and the tendency on the p a r t of the Ch'ing Government t o s h i f t an i n c r e a s i n g p o r t i o n of i t s r e s p o n s i b i l i t i e s to the provinces, p a r t i c u l a r l y i n the f i e l d of education. In the wake of the f a i l u r e of the war w i t h Japan i n Korea (18914.-^5), the Ch'ing Government ordered the provinces to provide  new  1 educational f a c i l i t i e s .  However, the Government, bsing short of funds,  r e f e r r e d t h i s new o b l i g a t i o n t o the p r o v i n c i a l governments, without prov i d i n g an a d d i t i o n a l fund which was necessary f o r education.  In the  case of Kiangsu, the P r o v i n c i a l Government had t o appropriate a part of 2 the c o l l e c t i o n from L i k i n to meet t h i s a d d i t i o n a l cost. Though -the Ch'ing Government d i d not e x p l a i n whether t h i s o b l i g a t i o n of p r o v i n c i a l governments was a n a t i o n a l or a p r o v i n c i a l a f f a i r , the p r o v i n c i a l governments a c t u a l l y d e a l t w i t h education on a provincial basis.  There was n e i t h e r i n t e r f e r e n c e from the Ch'ing Govern-  ment w i t h p o l i c i e s of education, nor was there a standard system of educational service set up.  About the same time, i n a d d i t i o n , the pro-  v i n c i a l governments were required t o improve the p o l i c e system because the o l d one was too incompetent.  This a d d i t i o n a l o b l i g a t i o n was r e f e r r e d  1. Cheng Shao-kwan, p. 1+2, "The f i n a n c i a l h i s t o r y of the Tsing (Ch'ing) Dynasty, 161+1+ t o 1911, may be d i v i d e d i n t o two periods by the Chino-  16. t o the provinces a l s o without a d d i t i o n a l funds.  These two examples  i l l u s t r a t e the f a c t that when a government was obliged to perform more services, i t s needs f o r revenues a l s o expanded.  The increased responsi-  b i l i t i e s and expenditures were i n time accompanied by the enlarging of the sources of revenue, which l e d t o an improved state of p r o v i n c i a l finances i n l a t e r years. In the e a r l y Ch'ing p e r i o d , the taxes imposed on the t r a n s f e r s of t i t l e deeds was l e v i e d at a r a t e of 0.3 per cent. rates were r a i s e d by i n d i v i d u a l provinces. rate was  S t e a d i l y , the  For instance, i n Hupeh, the  once f i x e d a t 9 per cent of the s e l l i n g p r i c e of r e a l e s t a t e ,  and i n Hunan, 6 per cent was l e v i e d on the face value of mortgages. Since the precedents were e s t a b l i s h e d by the two provinces, the Ch'ing Government l a t e r i n 1911  ordered the provinces, through an Imperial  decree, t o adopt the uniform rates of 9 and 6 per cent on r e a l estate and mortgages r e s p e c t i v e l y .  No f u r t h e r increase i n r a t e s was  1 allowed.  This decree was h i g h l y s i g n i f i c a n t i n that the Ch'ing Government d i d not impose l i m i t s on the rates on the t i t l e deeds taxes u n t i l several years a f t e r the r a t e s were g r e a t l y advanced;  the provinces  f i r s t l e v i e d the taxes and determined the r a t e s independently.  had  In  Continued from previous page... Japanese War, 1894-95, ... Then we pass t o the l a t t e r p e r i o d , I89U-I9II, which i s abnormal i n the sense t h a t the government of the Tsing Dynasty would have become bankrupt before the Revolution of 1911 were i t not f o r f o r e i g n loans." 2. Lo Yu-tung, V o l . I I , p. 502. The appropriation from L i k i n alone f o r education was 70,000 t a e l s i n 1906, 16,015 t a e l s i n 1907, and 20,hl9 t a e l s i n 1908. 1.  Chia Teh-huei, V o l . I I , p.593.  17. short, the p r o v i n c i a l governments themselves were a c t u a l l y e x e r c i s i n g more c o n t r o l over t h e i r own finances.  This precedent was l a t e r repeated  i n connection w i t h other taxes. A f t e r the war w i t h the Eight A l l i e d Powers i n 1900, the Ch'ing Government ordered the provinces t o contribute funds t o pay f o r p a r t of 1 the r e s u l t a n t indemnity. The housing t a x was reimposed, now, i n 1901 by the provinces.  "The l o c a l l e a d e r s , the p r o v i n c i a l governors, however,  did not always send a l l t h e i r t a x c o n t r i b u t i o n to the C e n t r a l Government, but often u n l a w f u l l y used some or a l l of i t f o r l o c a l needs; because the power of the C e n t r a l Government was becoming weaker and weaker i n the f i r s t decade of the twentieth century.  The p r o v i n c i a l finances were, 2  therefore, r e a l l y expanded i l l e g a l l y and gradually strengthened." In the preceding pages, i t has been pointed out that the L i k i n was a l e v y belonging t o hoth the C e n t r a l and p r o v i n c i a l governments, but the l e v y i n g power was l e f t i n the hands of provinces which were i n t u r n to d e l i v e r the c o l l e c t i o n t o the Imperial Treasury.  However, concealment  of the L i k i n revenue by the provinces was quite open. Conclusion .Besides the major taxes mentioned above, there were a few minor impositions concerning the p r o v i n c i a l finances towards the end of the Ch'ing Empire.  Speaking generally, from l86h onward, the provinces  en-  larged t h e i r power l e g a l l y as w e l l as i l l e g a l l y through expanding f u n c t i o n s , and i n t e r c e p t i n g the c e n t r a l revenues.  1. Yee Hong-lin, p. 2. I b i d . , p.  108.  107.  18. A f t e r 1850,  the Ch'ing Government ordered the p r o v i n c i a l gover-  nors t o organize m i l i t i a as the o l d army had proved too incompetent t o cope w i t h the R e b e l l i o n .  The r i s e of p r o v i n c i a l armies enhanced the power  of the governors t o d i r e c t l y supervise and even t o i n t e r c e p t c e n t r a l revenue i n l a t e r years.  Despite the repeated decrees from the Ch'ing  Goveramsnt, the provinces d i d not submit p u n c t u a l l y the records concerning 1 the c o l l e c t i o n of revenues, p a r t i c u l a r l y the L i k i n .  Moreover, the  " d e f i c i e n t p r o v i n c i a l governments eagerly request the support of the Department of Finance (of the Ch'ing Government), which i n t u r n must depend e n t i r e l y upon the a i d furnished by the r i c h e r p r o v i n c i a l governments  there i s a concealment o f revenue which a r i s e s from the f a c t  that the governors o f the r i c h e r provinces are u n w i l l i n g t o share t h e i r revenues w i t h the Department of Finance.  Such concealment i s p o s s i b l e  because the Department i s ignorant of the l o c a l c o n d i t i o n s . Therefore, the Department's powers of a p p r o p r i a t i o n and supervision are merely 1 nominal." The tendency f o r d e c e n t r a l i z a t i o n i n m i l i t a r y a d m i n i s t r a t i o n had appeared before the promulgation of the c o n s t i t u t i o n a l program i n 1906 when the National Revolution was about t o break out.  I n a l l cases,  the f i n a n c i a l power of the governors was g r e a t l y strengthened by m i l i t a r y f o r c e s , unknown before 185>0. Under such circumstances of c o n f l i c t between the strong provinces and a weak Ch'ing Government, the Hsien governments could not be independent i n both p o l i t i c a l and f i n a n c i a l f i e l d s .  Further-  more, the Hsien finance was s t i l l d i r e c t l y c o n t r o l l e d by provinces, j u s t as the l a t t e r had been p r e v i o u s l y conducted by the Ch'ing Government.  Thus,  the years from 186k t o 1911 could be considered as a period of struggle between the Ch'ing Government and p r o v i n c i a l governors i n finance, while the Hsien finances were ignored by the s t a t e . 1. Cheng Shao-kwan, Pp 106-7.  19. Chapter I I - F i n a n c i a l Reforms up t o 19L4 Summary The p r o v i n c i a l and l o c a l governments under the t r a d i t i o n o f the Ch'ing Empire were given no independence i n finance.  But, during  the l a s t few decades of the Empire, the p r o v i n c i a l power so expanded that supervision by the Ch'ing Government had become nominal and the p o s i t i o n of l o c a l governments was p r a c t i c a l l y ignored.  W r i t i n g i n 1912,  Mr. S. K. Cheng s a i d , "the ( f i n a n c i a l ) a d m i n i s t r a t i o n i s d e c e n t r a l i z e d , because the governors w i t h i n t h e i r respective provinces are almost i n 1 dependent i n the e x e r c i s e of t h e i r powers."  Moreover, the Ch'ing Govern-  ment lacked sincere i n t e n t concerning the d e s i r a b i l i t y of a c o n s t i t u t i o n a l form.  This a t t i t u d e e v e n t u a l l y hastened the explosion o f the Revolution  of 1911 and the ultimate downfall of the Dynasty which had r u l e d the nation since l6iih. Looking c l o s e l y a t the whole f i n a n c i a l program, one t h i n g i s worthy of mention, a t l e a s t i n the sense o f l e g i s l a t i o n , and t h a t i s that the Hsien governments were t o have a r e l a t i v e l y great degree of independence i n finance.  This l a s t attempt of the Ch'ing Government was expressed i n  the Budget of 1911.  This Budget incorporated the p r o v i n c i a l finances  i n t o the c e n t r a l finances while a separate fund i n i t was t o be assigned to the Hsien f o r t h e i r needs.  I n other words, the Ch'ing Government  endeavored t o c o n t r o l the provinces on the one hand, and t o b r i n g about b e t t e r l o c a l finance on the other.  This attempt, however, was i n t e r -  rupted by the Revolution i n the same year. 1. Cheng Shao-kwan, p. 106.  20. The year 1912 witnessed the beginning of a new era, t h a t of the Republic of China.  But, the Republic i n h e r i t e d the f i n a n c i a l  d i f f i c u l t i e s of the Ch'ing Government because the Revolution of 1911 1 contributed l i t t l e t o the nation's f i n a n c e s .  I n 191U>  the C e n t r a l  Government of the new Republic enforced a f i n a n c i a l measure, a k i n t o that expressed i n the Budget of 1911, which enabled the C e n t r a l Government to c o n t r o l the provinces i n finances and granted f i n a n c i a l  independ-  ence t o the Hsien. President Yuan S h i h - k a i , i n 1915, took a f u r t h e r step t o incorporate the Hsien finances i n t o the c e n t r a l f i n a n c e s . This extremely c e n t r a l i z e d f i n a n c i a l a d m i n i s t r a t i o n f i n a l l y c o l l a p s e d i n 1916  on  Yuan Shih's death, a f t e r which a p e r i o d of c i v i l war ensued and the nation's finances were thrown i n t o d i s o r g a n i z a t i o n . A.  Budget of 1911 In I906, the Ch'ing Government decided t h a t a program of  preparation f o r adopting a c o n s t i t u t i o n should be undertaken. f u r t h e r decided t h a t such a program was t o be set up i n 190?  I t was and a  c o n s t i t u t i o n would be completely drawn up by the end of the ensuing nine years.  In the f i e l d of f i n a n c i a l reforms, the program provided  was as f o l l o w s :  i n the second preparatory year, 1908,  the working out  of a t e n t a t i v e budget by the provinces; i n the t h i r d year, 1909, the r e v i s i o n and the t r i a l of the p r o v i n c i a l budgets and the t e n t a t i v e a l l o c a t i o n of separate funds f o r l o c a l governmentsj i n the f o u r t h year, 1910, the f i n a l choice of a method of p u b l i c accounting, the formulation -  1.  Cheng Shao-kwan, p. I4.7.  •21. o f a n a t i o n a l budget, t h e f o r m u l a t i o n o f a f i n a l scheme o f l o c a l t a x a t i o n , and t h e d e t e r m i n a t i o n o f t h e l e g a l b a s i s f o r n a t i o n a l t a x a t i o n ; and i n t h e f i f t h y e a r , 1°11, t h e p r o m u l g a t i o n o f the laws o f n a t i o n a l t a x a t i o n . I n J a n u a r y 1909,  a Committee f o r r e o r g a n i z i n g t h e f i n a n c i a l  a f f a i r s o f the s t a t e was. s e t up, s u b o r d i n a t e t o t h e Department o f Finance.  Twelve b r a n c h o f f i c e s o f t h e Committee were e s t a b l i s h e d i n  each governor's o r g o v e r n o r - g e n e r a l ' s o f f i c e . o f f i c e s was l i m i t e d t o "hear o p i n i o n s " from the p r o v i n c e s .  The power o f t h e b r a n c h  regarding the f i n a n c i a l reform  Many r e p o r t s and recommendations were p r e s e n t e d  f r o m a l l p r o v i n c e s t o t h e Committee. r e p o r t s c a n r e a d i l y be guessed.  "The v i e w s s e t f o r t h i n t h e s e  They were almost w i t h o u t a s i n g l e  e x c e p t i o n prompted by an i r r e s t i b l e d e s i r e t o p l e a s e t h e Throne.  None 1  o f t h e s e r e p o r t s d a t e d t o suggest t h a t t h e l a n d t a x s h o u l d be l o c a l . " I n f a c t , t h e revenues b e l o n g i n g t o t h e I m p e r i a l T r e a s u r y were s t i l l l a r g e l y i n t h e hands o f t h e p r o v i n c e s .  The g o v e r n o r s o n l y p r e -  tended t o agree t h a t a l l t h e t a x e s be l e f t i n t h e hands o f t h e C h ' i n g Government.  Furthermore,  "the f i n a l d e c i s i o n on t h e i n c r e a s e o r r e d u c -  t i o n o f c e r t a i n items o f government e x p e n d i t u r e as s p e c i f i e d i n t h e s o c a l l e d n a t i o n a l budget r e s t e d n o t w i t h t h e c e n t r a l government a s s h o u l d be t h e c a s e , b u t w i t h t h e p r o v i n c i a l a u t h o r i t i e s . Such f i s c a l d i s o r d e r s as t h e s e c o u l d o n l y a r o u s e d i s s a t i s f a c t i o n among t h e p e o p l e and l e a d t h e 2 government t o i t s u l t i m a t e d o w n f a l l . "  1. L i Chuan-shih, p. 72. 2. Cheng Shao-kwan, Pp  U3-U.  22 In 1 9 1 0 , the f i r s t budget was drawn up according t o the recommendations of the F i n a n c i a l Reorganization Committee.  I t was prepared  f o r the calendar year of 1911. This budget was drawn up on the estimated expenditures o f the Ch'ing and p r o v i n c i a l governments, and on the average sum of annual income of 1908 and 1909.  I t was named the "National  Budget" which included the p r o v i n c i a l revenues and expenditures.  Though  the operation o f t h i s budget was i n t e r f e r e d w i t h by the Revolution of 1911,  i t furnishes us w i t h some information concerning the f i s c a l c o n d i -  t i o n s of the Ch'ing Government on the eve o f the Republic.  The balance  sheet a t t h a t time read as f o l l o w s : 1 P u b l i c Revenues f o r 1911 Land Tax Ordinary 1+6,312,355.022 t a e l s ( c i t . ) I n c i d e n t a l 1,936,656.1+21 " " S a l t taxes Maritime Customs. Regular Customs Duties Ordinary 6,990,81+5.925 " Incidental 8,52l+.Ol+l " Miscellaneous taxes L i k i n Levies Public I n d u s t r i e s I n c i d e n t a l Contributions I n t e r n a l Debt Miscellaneous Incomes Total  1. Cheng Shao-kwan, Pp 1+3-1+.  1+8,101,31+6.273 t a e l s  26,163,81+2.177 1+3,187,907.099 1+6,600,899.753 5,652,333.117 3,560,000.000 35.21+1+.750.650 296,962,722.022 t a e l s  23.  P u b l i c Expenditures  f o r 1911  Foreign intercourse Police administration P u b l i c ceremonies Financial administration Palace and Imperial household The Council of the State and other departments (the C e n t r a l Government) Provincial administration National Assembly ( l ) P u b l i c debt redemption and i n t e r e s t Public industries P u b l i c education Army and i t s supplies Navy and i t s supplies A d m i n i s t r a t i o n of j u s t i c e A d m i n i s t r a t i o n of a g r i c u l t u r e , i n d u s t r y and commerce Public works Administration of r a i l w a y s and telegraphs Government of dependencies  3,5WJ-»732,977 t a e l s 4,227,563.742 792,127.940 28,130,434.754 6,144,877.170 0  6,348,826.170 19,822,730.489 786,666.666 56,413,576.498 5,600,435.211 3,375,474.756 126,743,333.389 10,503,202.765 7,716,016.765 2,040,003.373 4,515,271.832 55,141,906.832 1,705.103.877  T o t a l n a t i o n a l expenditures L o c a l expenditures  338,652,295.073 t a e l s 37,703,362.170  Grand T o t a l  376,703,362.170 t a e l s  ( l ) This budget was submitted by the Department of Finance t o the N a t i o n a l Assembly which was created i n 1910. I t represented the a c t u a l needs of the governments r a t h e r than the f i n a l appropriat i o n s . "The f i n a l budget passed by the Assembly was: t o t a l revenue amounted t o 301,910,000 t a e l s w h i l e the t o t a l expenditures amounted t o more than 298,440,000 t a e l s . Cf., Chia Teh-huei, V o l . I , p. 10. In 1909 the f i r s t Chinese laws were made f o r l o c a l s e l f government which was charged w i t h the r e s p o n s i b i l i t y f o r t a k i n g a census and estimating p r o v i n c i a l expenditures.  Thus, the item of " l o c a l expend-  i t u r e s " which appeared i n the budget of 1911  might include the expendi-  tures of both the Hsien a d m i n i s t r a t i o n and l o c a l self-government.  I t was  the f i r s t time that the Hsien governments could receive a proper fund. This phase could be s a i d to be one of the achievements i n finances during  24.  the l a t e Ch'ing period.  The budget d e f i c i t , equivalent t o one t h i r d of  the t o t a l revenue, was i n d i c a t i v e o f the c r i t i c a l f i n a n c i a l conditions of the Ch'ing Empire on the eve of t h e Revolution.  Enforcement o f t h i s  budget was' i n t e r r u p t e d by the Revolution which broke out on 10 October, 1911; and i t was i n e v i t a b l e that the new Republic would n a t u r a l l y be confronted w i t h the same f i n a n c i a l d i f f i c u l t i e s which the Ch'ing Government had experienced. B.  Cheng's Proposal f o r Separation o f P r o v i n c i a l Finance from C e n t r a l Finance With the sudden explosion of the National Revolution, the  evolutionary c o n s t i t u t i o n a l development and f i n a n c i a l reform were i n t e r rupted.  On 1 January 1912, President Sun Yat-sen, o f the P r o v i s i o n a l  Government, proclaimed a t Nanking the formation o f the Republic.  I n the  f o l l o w i n g month, Yuan Shih-hai who was the l a s t Premier o f the Ch'ing Empire f o r c e d the boy Emperor, Hsuen Tung, t o abdicate and t o announce the termination of the Ch'ing Dynasty.  I n the same month, Yuan Shih-  k a i succeeded Sun Yat-sen t o the presidency of the P r o v i s i o n a l Government a f t e r the l a t t e r resigned. This r a d i c a l change i n p o l i t i c s from the absolute Ch'ing Government t o a newly founded Republican P r o v i s i o n a l Government necessarilybrought about d i s c u s s i o n o f the f i n a n c i a l d i f f i c u l t i e s which had been awaiting s o l u t i o n .  Looking beyond the immediate conditions and having  regard t o the f i s c a l f a i l u r e of the former Empire, one would f i n d that the worst defect i n the Imperial f i n a n c i a l system was the l a c k o f a proper d i v i s i o n o f r e s p o n s i b i l i t i e s and revenues between the C e n t r a l and  25. p r o v i n c i a l governments.  As a r e s u l t , revenues were l a r g e l y under the  c o n t r o l of the p r o v i n c i a l governors o f the r i c h e r provinces. Those provinces which had an annual d e f i c i t asked f o r a subsidy from the Imperial Treasury, whereas those w i t h annual revenue surplus were r e quired t o hand the funds i n t o the Treasury.  The l a t t e r provinces,  however, t r i e d i n every p o s s i b l e way t o avoid meeting t h i s o b l i g a t i o n . In short, co-operation and mutual confidence were l a c k i n g between the 1 Ch'ing Government and the provinces. In 1912, Governor Cheng Teh-chuan of Kiangsu presented the f i r s t proposal regarding the separation o f c e n t r a l and p r o v i n c i a l f i n a n c i a l powers and r e s p o n s i b i l i t i e s t o the C e n t r a l Government.  Governor  Cheng proposed that such expenditures as those o f the i n t e r e s t charges on the f o r e i g n loans, the m i l i t a r y a f f a i r s , the j u d i c a l a d m i n i s t r a t i o n should be c e n t r a l , and those o f the i n d u s t r i a l , educational, and c i v i l a d m i n i s t r a t i o n should be p r o v i n c i a l or l o c a l ;  that such revenues as those from the  custom d u t i e s , the s a l t t a x , and the other i n d i r e c t taxes should be c e n t r a l , and that those from the l a n d t a x and other d i r e c t taxes should be p r o v i n c i a l or l o c a l .  This proposal was s t r o n g l y supported by many  famous Chinese reformers and s c h o l a r s , most o f whom had been the staunch 2 advocators of l o c a l self-government.  1. Shaw Kinn-wei, p. 152. 2. L i Ghuan-shih, p. 73.  26. C.  F i n a n c i a l Reform of 1913 In 1912 and 1913, China was i n a s t a t e of d i s o r g a n i z a t i o n , an  i n e v i t a b l e r e s u l t of the Revolution.  "The p r o v i n c i a l revolutionary-  leaders were i n favour of a system of p o l i t i c a l as w e l l as f i s c a l dec e n t r a l i z a t i o n , the p r o v i n c i a l t r e a s u r i e s were i n most cases empty and 1 therefore unable to remit money t o the c e n t r a l government." The s t a t e of finances of the new Republic had become more c r i t i c a l than ever before. The unsolved f i n a n c i a l d i f f i c u l t i e s , the present f i s c a l handicaps, and the proposal recommended by Governor Cheng prompted Yuan S h i h k a i t o undertake a f i n a n c i a l reform.  According t o the budget of  1911  and the Proposal suggested by Governor Cheng, the c e n t r a l revenue (from custom d u t i e s , the s a l t t a x , L i k i n l e v i e s , e t c . ) would be c o n s e r v a t i v e l y estimated at 150 m i l l i o n t a e l s , and the c e n t r a l expenditure ( f o r army and navy, n a t i o n a l administrations, e t c . ) would be 230 m i l l i o n t a e l s ;  the  p r o v i n c i a l and l o c a l revenue (from l a n d and p u b l i c i n d u s t r i e s , e t c . ) would be 150 m i l l i o n t a e l s , and the expenditures ( f o r education, i n d u s t r y , c i v i l a d m i n i s t r a t i o n , e t c . ) would be 150 m i l l i o n t a e l s . At t h a t moment, however, a considerable p o r t i o n of the m i l i t a r y forces was not d i r e c t l y commanded by the ambitious Yuan S h i h - k a i , but by the p r o v i n c i a l r e v o l u t i o n a r y l e a d e r s , the supporters of l o c a l s e l f government and d e c e n t r a l i z a t i o n i n finance.  Cheng's Proposal and Yuan's  ambition were not the same t h i n g , d e c e n t r a l i z a t i o n versus c e n t r a l i z a t i o n . Learning from the c o l l a p s e of the Ch'ing Empire, Yuan S h i h - k a i , i t s l a s t Premier, attempted t o u n i f y the country by force w i t h f o r e i g n loans on the one hand, and t r i e d t o concentrate the nation's f i n a n c i a l strength i n h i s hands on the other t o f u r t h e r h i s own d e s i r e t o become a d i c t a t o r i a l emperor of the n a t i o n . 1. Shaw Kinn-wei, p. 153.  27. In the w i n t e r of 1912, "was  a s p e c i a l Committee of  Investigation  appointed" by the M i n i s t r y of Finance t o "consider and 1  Cheng's Proposal.  investigate"  The c h a r a c t e r i s t i c features i n the Report completed  by the Committee can be summarized i n the f o l l o w i n g p o i n t s : 1. Expanding the power of the C e n t r a l Government. The f i r s t step of t h i s Report was to t r a n s f e r the power from the p r o v i n c i a l government to the Central Government.  The  defini-  t i o n of the words " n a t i o n a l " and " l o c a l " was as f o l l o w s : "the term ' l o c a l a u t h o r i t i e s ' should mean the a u t h o r i t i e s of the s elf-governing  l o c a l i t i e s alone, and should not include  l o c a l agencies of the c e n t r a l or n a t i o n a l administration.  the Thus  the expenses i n c u r r e d by the l a t t e r should be, without f a i l , excluded from the l i s t of l o c a l expenditures, and the l o c a l revenues should be e x c l u s i v e l y appropriated f o r purely l o c a l 2 purposes."  The p o s i t i o n of provinces was undoubtedly considered  by the Report as the " l o c a l agencies of"the c e n t r a l or n a t i o n a l administration". 2. D i s t r i b u t i n g r e s p o n s i b i l i t i e s between the n a t i o n a l and l o c a l authorities. The terms " n a t i o n a l " and " l o c a l " having been defined, r e s p o n s i b i l i t i e s were d i s t r i b u t e d .  the  The Report then worked out a  " d i s t r i b u t i o n " which enabled the C e n t r a l Government to c o n t r o l a l l the governmental f u n c t i o n s , even those of the " l o c a l governments".  1. L i Chuan-shih, p. 2. I b i d .  73.  28. The recommendation reads as f o l l o w s :  "Those things which are  beyond the power of the l o c a l a d m i n i s t r a t i o n , such as f o r e i g n a f f a i r s , n a t i o n a l defence, a d m i n i s t r a t i o n of j u s t i c e , e t c . , should belong t o the n a t i o n a l administration; and such things as p 5 l i c e , education, communication, a g r i c u l t u r e and commerce, etc.,  should p a r t l y belong t o the n a t i o n a l a d m i n i s t r a t i o n and  p a r t l y t o the l o c a l a d m i n i s t r a t i o n . " 3 . Large supervision power of the C e n t r a l Government. Abuses i n f i n a n c i a l a d m i n i s t r a t i o n during the l a t e Ch'ing Dynasty were ]a r g e l y due t o the method of d e l i v e r y of revenues, and the f a c t that the governors exercised t h e i r f i n a n c i a l power independently.  In order t o avoid these abuses, the Report  recommended t h a t , "a National Revenue Board should be  created  w i t h as many branches i n the provinces as necessary to take charge of the n a t i o n a l revenues  a f i n a n c i a l commissioner  (appointed by the M i n i s t r y of Finance) should be created i n each province to take charge of the general and s p e c i f i e d n a t i o n a l 2 revenues and t o supervise" the p r o v i n c i a l finances. In the winter of 1913,  according to t h i s Report, the M i n i s t r y  of Finance drew up a revenue separate b i l l .  Before t h i s b i l l became  an act i n 1913, the f i r s t Parliament, soon a f t e r i t had e l e c t e d Yuan S h i h - k a i the f i r s t President of the Republic, was d i s s o l v e d by Yuan. As a r e s u l t , i n J u l y , 1913,  the Kuomintang united a few r e v o l u t i o n a r y  governors and undertook a m i l i t a r y campaign against Yuan known as the  1. I b i d . , p. 2. I b i d .  74.  29.  Second Revolution.  This Revolution, however, was soon crushed i n  September of the same year.  The Kuomintang was therefore outlawed, and  there arose no m i l i t a r y opposition t o Yuan's powerful troops i n each province.  A l s o , the laws of the l o c a l self-government were o u t r i g h t l y  abolished.  Due t o the absense of the Parliament, the "revenue separate  b i l l " was r e v i s e d by the M i n i s t r y of Finance alone and i t was put i n t o 1  e f f e c t by Yuan's decree i n 1914.  The B i l l of 1914 read as f o l l o w s :  I . Sources of Revenue (a) The N a t i o n a l Revenues: 1) The l a n d t a x ; 2.5 The s a l t t a x ; 3) The custom d u t i e s ; 4 ) The L i k i n l e v i e s ; $) The mining r o y a l t i e s ; 6) The t i t l e deeds t a x ; 7) The l i c e n s e fees and taxes; 8) The tobacco t a x ; 9) The wine t a x ; 10) The t e a t a x ; 11) The sugar t a x ; 12) The f i s h e r y t a x . (b) Hsien ( o r l o c a l ) Revenues: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15>) 16) 17) 18) 19) 20)  The l a n d surtax; The trade t a x ; The l i v e s t o c k t a x ; The r i c e and c e r e a l Chuan; The opium Chuan; The o i l and sauce Chuan; The v e s s e l Chuan; The miscellaneous commodity Chuan; The business shop Chuan; The r e n t a l Chuan; The theatre Chuan; The c a r r i a g e Chuan; The p r o s t i t u t i o n l i c e n s e Chuan; The restaurant Chuan; The t e a house Chuan; The meat Chuan; The f i s h Chuan; The butehering Chuan; The carriage-bearer l i c e n s e Chuan; Miscellaneous Chuan.  1. I b i d . , Pp 76-9.  30. II.  Separation of the p o s s i b l e f u t u r e revenues: (a) For N a t i o n a l Purposes: 1) F i s c a l stamp t a x j 2) The recording t a x ; The succession duty; The income t a x ; 5 ) The production t a x ; 6) The business tax; 7) The note-issue t a x .  2  (b) For Hsien (or l o c a l ) Purposes: 1) S p e c i a l taxes or l e v i e s •  i . The house t a x , or h a b i t a t i o n tax; i i . The business t a x on those businesses Kshich are f r e e from the n a t i o n a l business tax; i i i . The consumption t a x on those commodities which are f r e e from the n a t i o n a l consumption t a x ; i v . The admission charges t o market p l a c e s ; v. The personal property t a x ; v i . The servant t a x .  2) Surtaxes i . The business surtax; i i . The income surtax. The B i l l of 191h, moreover, set l i m i t a t i o n s t o the power of the Hsien i n order t o p r o t e c t the c e n t r a l sources of revenue.  The l i m i t a t i o n s  were: (a)  The M i n i s t r y of Finance may p r o h i b i t any l o c a l t a x when i t i n t e r f e r e s w i t h the n a t i o n a l taxes or i s regarded as u n p o l i t i c a l by the M i n i s t r y .  (b)  The maximum r a t e s of the surtaxes: On the l a n d t a x , at most 30 per cent of the c e n t r a l l e v y ; On the f u t u r e business t a x , at most 20 per cent of the c e n t r a l levy; 3 ) On the future income tax, at most 15 per cent of the c e n t r a l levy.  I]  (c)  I f occasion demands any increase of the r a t e s of the surtaxes over and above the maximum r a t e s , the l o c a l governing body concerned must f i r s t secure permission from the M i n i s t r y f o r the increase of the r a t e . 1  1. I b i d .  31.  By the B i l l o f 1914 the p r o v i n c i a l finance was incorporated i n t o the n a t i o n a l finance.  Thus, there were only two l e v e l s o f f i n a n c e s ,  the n a t i o n a l and the Hsien ( o r l o c a l ) .  A l l the important revenue sources  were a l l o t t e d t o the C e n t r a l Treasury.  The only r e l i a b l e revenue source  of the Hsien was the "Chuan". The word "Chuan" i s both a verb and a noun:  as a verb, i t  means "to contribute money t o , o r f o r " ; as a noun, i t means a forced levy.  The custom developed t h a t the Chuan l e v i e s , i n many cases, were  named according t o the taxpayers or the objects o f the l e v i e s , such as the restaurant Chuan, opium Chuan.  In other cases, the Chuan l e v i e s  were named a f t e r the purposes, such as the p o l i c e p r o t e c t i o n Chuan, p u b l i c h e a l t h Chuan.  The methods o f t a x a t i o n and the amounts c o l l e c t e d  of the Chuan d i f f e r r e d from one place t o another and v a r i e d from time t o time.  I n common, the Chuan were imposed on the f i r m s according t o t h e i r  c a p i t a l value o r gross r e c e i p t s ; on b u i l d i n g s , according t o appraised value, number of rooms, or r e n t a l r e c e i p t s ; and i n most cases, the Chuan were l e v i e d p e r head and p e r f a m i l y . levy —  I n short, the Chuan was a f o r c e d  the amounts and the purposes, the taxpayers and the tax-objects  were decided and chosen by the l e v y i n g a u t h o r i t i e s . In the l a s t budget of the Ch'ing Government i n 1911, there was a separate fund a l l o t t e d f o r l o c a l expenditure. 37 m i l l i o n t a e l s .  This fund amounted t o  Whether t h i s fund was adequate f o r a l l the Hsien o r  not i s questionable because i t was i n t e r r u p t e d i n the f i r s t year i t was put i n t o p r a c t i c e .  But, the B i l l o f 1914 provided only one proper  revenue t o the Hsien.  This was the land surtax w i t h a maximum rate of  32. 30 per cent of the c e n t r a l l e v y .  The amount of t h i s surtax was estim-  ated at 18 m i l l i o n yuan (one yuan was 72 per cent of one t a e l ) .  Besides  the surtax on l a n d , the Chuan was the major revenue source of the Hsien. This p r a c t i c e i n Hsien finance i n v i t e d many abuses.  The annual y i e l d  of the Chuan l e v i e s could h a r d l y be estimated; the overlapping burdens of the taxpayers were ignored. Moreover, i t formed a bad custom t h a t whenever the Hsien governments needed funds, they could l e g a l l y r e s o r t to t h i s sort of f i n a n c i n g .  Furthermore, the f u n c t i o n s of the Hsien  were f a r beyond t h e i r a b i l i t y to carry, such as p o l i c e p r o t e c t i o n , education, communication,  a g r i c u l t u r e and commerce.  On the other hand,  i n 191k, the C e n t r a l Government had no funds f o r these r e s p o n s i b i l i t i e s though i t was supposed t o bear p a r t of them, because the Government could b a r e l y balance i t s own budget i n which the expenditure f o r m i l i t a r y purposes and debts were the g r e a t e s t . As a r e s u l t , the present f i n a n c i a l system had t o be changed or adjusted i n order t o overcome the e x i s t i n g financial difficulties. I n 1915, the meagre e x i s t i n g sources of revenue of the Hsien were incorporated i n t o the n a t i o n a l finance by Yuan Shih-kai's decree. From then on, there was no Hsien finance at a l l , but an extremely centralized central finance.  In the same year, as h i s f i n a n c i a l p r o j e c t  had been accomplished, Yuan S h i h - k a i declared himself the Emperor of China. "During the dark days of the Yuan's monarchical p l o t , a l l revenues and expenditures, whether n a t i o n a l , p r o v i n c i a l or l o c a l , were consolidated so t h a t the d i c t a t o r ' s g r i p on the whole n a t i o n and people 2 might be tightened and strengthened." 1. Cf. Chia Teh-huei, V o l . I I , p. 582. 2. L i Chuan-shih, p. 8k.  -jhis would-be Emperor was only  i n power f o r one hundred days and abdicated i n 1916 because strong f a c t i o n s opposing him had openly taken up arms from Yunan. Conclusion In Chinese f i n a n c i a l h i s t o r y , Hsien governments had no i n dependent sources of revenue u n t i l 1 9 H when the Ch'ing Government provided a separate fund f o r them.  Though t h i s f i n a n c i a l adjustment was  i n t e r r u p t e d by the Revolution, the importance of separation of Hsien finance from the other l e v e l s of finances was r e a l i z e d f o r the f i r s t time. Following the emergence of the new Republic, a p o l i c y o f extreme f i n a n c i a l c e n t r a l i z a t i o n was worked out under Yuan Shih-kai's dictatorship.  Hsien finance, t h e r e f o r e , had t o depend upon the uncer-  t a i n and onerous Chuan l e v i e s ; nevertheless, these forced l e v i e s were s t i l l an independent source o f income o f the Hsien.  However, p a r t l y  because of the b e l i e f i n an extreme c e n t r a l i z a t i o n i n finance on the part of the Central Government, and p a r t l y because o f the f i n a n c i a l d i f f i c u l t i e s caused by the c e n t r a l m i l i t a r y expansion, the meagre independent source of revenue of the Hsien was f i n a l l y taken over by the C e n t r a l Government.  But, t h i s adjustment i n finance d i d not provide  means o f s o l u t i o n f o r the e x i s t i n g d i f f i c u l t i e s of the nation.  34. Selected  References  CHAPTERS I and I I Chinese Chia Teh-huei, F i n a n c i a l History of the Republic of China, Chungking, the Commercial P r e s s . F i r s t e d i t i o n , November, 1941j Shanghai, the Commercial Press, Shanghai, f i r s t e d i t i o n , August, 1946; Shanghaisecond e d i t i o n , July, 1947. L i Jan-nung, Chinese P o l i t i c a l History i n the Last One Hundred Years, Shanghai, Commercial Press, f i r s t e d i t i o n August, 194? j second e d i t i o n - January, 1948. Lo Yu-tung, The History of L i k i n i n China, Department o f S o c i a l Sciences, Academia C i n i c a Mon6~T~series No. 6, Shanghai, Commercial Press English Cheng Shaw-kwan, The System of Taxation i n China.in the Tsing Dynasty,Tb^h - 1911» New York, Columbia University 7 Longmans, Green & Co.,; agents, London, P.S. King & Son, 1914. L i Chuan-shih, Central and Local Finance i n China, New York, Columbia University, 1922. Pao Chao-hsieh, The Government of China, 161+4-1911, Baltimore, The Johns Hopkins Press, 1925. Shaw Kinn-wei, Democracy and Finance i n China, New York, Columbia University Press, 1926. Periodicals (Chinese) Yee Hong-lin, An Outline of Local Finance of Our Country, Chungking, F i n a n c i a l Review; A p r i l , 1945, Vol. 13, No. 1+, Pp 107-17.  PART  II  F i n a n c i a l Developments During the Period of Warlordism, 1917 t o 1926 and The Temporary Act of 1927 of the Kuomintang  35 PART I I Chapter I I I - The Temporary Act o f 1 9 2 7 Summary With the downfall o f Yuan S h i h - k a i and h i s subsequent death i n 1 9 1 6 , China entered i n t o a new phase o f her h i s t o r y , a decade o f warlordism.  A t the beginning, the m i l i t a r y leaders i n Northern China,  formerly headed by Yuan S h i h - k a i , s p l i t i n t o s e v e r a l f a c t i o n s , and chronic c i v i l wars broke out.  During t h i s s t i r r i n g decade, the s t a t e  of f i n a n c i a l a f f a i r s o f the new Republic was so c h a o t i c t h a t no r e a l statements or budgets were presented by the warlords.  Moreover, the  i n s t a b l e p o l i t i c a l c o n d i t i o n s brought about two C e n t r a l Governments, namely the Peking and the M i l i t a r y Governments.  The former was formed  by a group o f northern warlords each o f whom had h i s own ambition, and the l a t t e r was headed by Sun Yat-sen, supported by the Kuomintang, and backed by southern warlords whom, nevertheless, Sun Yat-sen could not command.  Neither of:theotwo Governments could introduce a p r a c t i c a b l e  f i n a n c i a l system f o r the country w i t h i n t h e i r respective provinces,' nor d i d they receive t h e i r revenues from the r e s t o f the provinces who, pretending n e u t r a l i t y between the two Governments, were under the c o n t r o l of the warlords other than those o f the North and South.  A l l financial  matters were considered under the m i l i t a r y strength. Such p r a c t i c e s l a s t e d u n t i l 1 9 2 7 when the N a t i o n a l i s t s were about t o be supreme and a Temporary Act was o u t l i n e d t o separate the p r o v i n c i a l finances from the c e n t r a l finances.  36.  A. Finances under the Warlords. In January 1916, Yuan S h i h - k a i had t o abdicate h i s emperorship because of the spreading of the armed o p p o s i t i o n . But, Yuan hims e l f s t i l l r e t a i n e d h i s p o s i t i o n i n the o f f i c e as President u n t i l h i s death i n February o f the same year. succeeded t o the presidency.  The Vice-President, L i Yuan-hong,  However, he could not. command Yuan's  troops and a decade o f warlordism ensued. S h o r t l y a f t e r Yuan's death, General Tuan C h i - j u i headed the Northern Warlords, Yuan's handiwork during the l a t e Ch'ing p e r i o d .  ?  Meanwhile, General Tuan formed a cabinet; and the o l d Parliament, d i s s o l v e d by Yuan i n 1913, reconvened i n Peking.  The e x i s t i n g f i n a n c i a l  p o l i c y , the B i l l o f 191U, was t o be studied by the Parliament.  This  Parliament, however, was again d i s s o l v e d i n 1917 by Premier Tuan C h i - j u i because he would not l e t h i s power be curbed by the law-makers, and no attempts t o form a new Parliament f o l l o w e d .  Due t o the absence of the  Parliament, the Peking Government s t i l l enforced the B i l l o f 191k. Nevertheless a p o l i t i c a l and m i l i t a r y d e c e n t r a l i z a t i o n had q u i c k l y emerged as soon as Yuan S h i h - k a i d i e d , and so the B i l l o f 191k was never realized.  The nation's finances were t h e r e f o r e dominated by the war-  l o r d s , w i t h no regard t o the l e g i s l a t i o n . Later i n 1917, President L i Yuan-hong discharged Tuan C h i - j u i and the l a t t e r l e d h i s troops out of Peking.  The r e s u l t was t h a t  General Chang-hsuen restored the abdicated Emperor t o the throne and  37.  announced the r e t u r n o f the Ch'ing Dynasty.  This attempt t o r e t u r n  the monarchy was soon crushed when ex-Premier Tuan came back t o Peking w i t h h i s troops. ment i n Canton.  The chaotic s i t u a t i o n i n Peking l e d t o a new developWhen the o l d Parliament had been d i s s o l v e d i n 1917,  the Kuomintang members of the Parliament assembled i n Canton.  This  assembly s e t up a M i l i t a r y Government, presided over by Sun Yat-sen, to oppose the Peking Government.  But the M i l i t a r y Government had no  army, nor was t h i s Government able t o c o n t r o l even the Southern Warl o r d s who pretended t o support Sun Yat-sen.  Thus, the M i l i t a r y Govern-  ment a c t u a l l y performed no governmental f u n c t i o n s a t t h a t time. In I918 i n Peking, a new Parliament was h e l d and a new President o f the Peking Government, Hsu Shih-chang, was e l e c t e d .  When  there was no cooperation found among the Northern Warlords, they s p l i t i n t o several f a c t i o n s .  The Peking Government was now repeating the  h i s t o r y o f the l a t e Ch'ing Government, and, i n f a c t China was r u l e d by a number o f m i l i t a r y governors.  C i v i l wars, large and s m a l l ,  followed one a f t e r another without i n t e r r u p t i o n . On the eve o f the Revolution, there a t l e a s t e x i s t e d a f i n a n c i a l system even though i t was u n s a t i s f a c t o r y .  During the dark  days under Yuan's d i c t a t o r s h i p , there was an extremely c e n t r a l i z e d f i s c a l p o l i c y even though i t d i d not solve the f i n a n c i a l d i f f i c u l t i e s . But, the Republic now faced even more c h a o t i c finances f o r there was no proper l e g i s l a t i o n to deal w i t h the finance o f the state.  38. W r i t i n g i n 1922, Dr. L i Chuan-shih, a w e l l known Chinese professor of economics, s a i d , "To be sure, (according t o the B i l l of 19U+) a d i s t i n c t i o n has been made between the n a t i o n a l and the l o c a l revenues, but when money i s needed f o r p r o v i n c i a l expenses, the m i l i t a r y governors always r e t a i n the i n s t a l l m e n t s and quotas due the c e n t r a l government f o r t h e i r own requirements. Attempts have been made t o appoint o f f i c i a l s d i r e c t from Peking t o c o l l e c t the n a t i o n a l revenues i n the provinces, but without success. The m i l i t a r y governors u s u a l l y issue no budget, and the annual r e c e i p t s and expenditures i n the provinces are open t o no i n s p e c t i o n of the c e n t r a l government. Taxes and imposts are c o l l e c t e d as usual and new charges o f t e n made, but there i s no account o f the expenditure. Worse s t i l l , l i q u i d assets of the provinces have been hypothecated by them i n order t o pay the s o l d i e r s , and worthless paper money has been issued by them i n abundant quantity. I n a word, the m i l i t a r y governors are a law t o themselves." 1 Because of t h i s u n c e r t a i n p o l i t i c a l s i t u a t i o n , some provi n c e s , p r o f e s s i n g n e u t r a l i t y among the c i v i l wars o r between the Peking and M i l i t a r y Governments, proclaimed p r o v i n c i a l c o n s t i t u t i o n s . "In 1919, Hunan and Chekiang Provinces f i r s t proclaimed p r o v i n c i a l c o n s t i t u t i o n s , i n which i t nas stated t h a t : 'The P r o v i n c i a l Government, hereafter, s h a l l impose t a x a t i o n as determined by the P r o v i n c i a l 2 (People's) C o u n c i l ' " .  But, one t h i n g should not be ignored —  that,  at t h a t time^the p r o v i n c i a l governments were put under the c o n t r o l of the -warlords and the people's c o u n c i l s were created by the warlords instead of by the people.  I n short, the p r o v i n c i a l c o n s t i t u t i o n was a  means through which a l l the revenues o f the s t a t e were taken by the 1. L i Chuan-shih, p. 83. 2. Yee Hong-lin, p. 107.  39. p r o v i n c i a l governments w i t h i n t h e i r t e r r i t o r i e s .  "This was the f i r s t  time, however, t h a t a r e l a t i v e l y proper p r o v i n c i a l f i n a n c i a l system appeared i n China ( a f t e r 1912).  Since the death o f Yuan S h i h - k a i ,  each province c o l l e c t e d the s a l t t a x f o r l o c a l purposes f o l l o w i n g the 1  precedent -which was s e t by Kwangtung i n 1917.  Szechwan r e t a i n e d the  s a l t t a x and i t s surtax, formerly p a i d to the Peking Government because of i t s n e u t r a l i t y i n the 'struggle' between the Peking and the M i l i t a r y 2 Governments". At the same time, Kiangsu was i n the process of framing 3 and adopting a p r o v i n c i a l c o n s t i t u t i o n t o o . From the provinces which had adopted p r o v i n c i a l c o n s t i t u t i o n s and those which pretended n e u t r a l i t y , there was n e i t h e r revenue c o n t r i buted t o the Peking and M i l i t a r y Governments, nor d i d these provinces receive subsidies from the two Governments.  Nevertheless, the provinces  now financed t h e i r governmental r e s p o n s i b i l i t i e s as w e l l as m i l i t a r y a f f a i r s by themselves. In 1922, President Hsu Shih-chang of the Peking Government resigned and the ex-President L i Yuan-hong succeeded him. One year l a t e r , General Tsiao-qung became the President of t h i s Government, His "own" Parliament adopted a c o n s t i t u t i o n i n the same year, i n which a new d i v i s i o n i n t a x a t i o n was l a i d down;  the nation's finances were t o be  1. I n 1917, the Kuomintang founded the M i l i t a r y Government a t Canton, the c a p i t a l of Kwangtung. The warlords pretending t o support the M i l i t a r y Government intercepted a l l the revenues, i n c l u d i n g those from customs d u t i e s , o f the Peking Government. 2. Yee Hong-lin, p. 108. 3. L i Chuan-shih, p. 88. 4. Cf., Chia Teh-huei, V o l . I , Pp 21-2.  d i v i d e d i n t o two l e v e l s , the n a t i o n a l and the p r o v i n c i a l , which read as f o l l o w s : I.  Taxes and  Levies  (a) National taxes: i. ii. iii. iv. v. vi.  The custom d u t i e s ; The s a l t tax; The f i s c a l stamp tax; The tobacco and l i q u o r tax; Other excise taxes; The tax or taxes b e t t e r f i t t e d to n a t i o n a l administrat i o n ; and the tax or taxes b e t t e r l e v i e d at a uniform r a t e on a n a t i o n a l b a s i s .  (b) P r o v i n c i a l taxes: i . The farm l a n d tax; i i . The t i t l e deeds tax; ^ i i i . Other p r o v i n c i a l taxes and imposts: The personal property tax; The animal tax; The food tax; The butchering tax. I I . Functions and Expenditures (a) National expenditures f o r : i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii.  Foreign a f f a i r s ; National defence; J u d i c a l administration; Reform of the system of measure, weight and capacity; Monetary system and n a t i o n a l banking; Post, telegraph, railway, highway, and a e r i a l navigation; Reorganization of n a t i o n a l and p r o v i n c i a l finance; Government monopoly e n t e r p r i s e s ; Inter-province water works; Development of barren land; Mining administration; Other matters defined by law.  1. Yee Hong-lin, p.  108.  ill.  (b) P r o v i n c i a l expenditures f o r : i. ii. iii. iv. v. vi. vii. viii. ix.  Education; Industry and communication; P r o v i n c i a l water works and other works; A d m i n i s t r a t i o n of p r o v i n c i a l p r o p e r t i e s ; P r o v i n c i a l f i n a n c i a l expenses; P r o v i n c i a l debts; P u b l i c welfare; Expenses of the subordinate (Hsien) governments; Other matters defined by law.  So f a r as f i n a n c i a l l e g i s l a t i o n was concerned since the end of the Ch'ing Dynasty, the C o n s t i t u t i o n of 1923 best y e t .  The F i n a n c i a l Reform of 1911  could be s a i d t o be the  ignored the d i v i s i o n of govern-  ment functions and revenues between the c e n t r a l and p r o v i n c i a l f i n a n c e s , and no f a i r r e s u l t s would have followed even i f the operation of the Budget of 1911  had not been i n t e r r u p t e d by the Revolution.  Yuan's B i l l  of I9I4 ignored Hsien a b i l i t y and a l l o c a t e d a heavy burden of expenditure to Hsien governments without adequate revenue sources, which l e d t o the impracticable B i l l of 1911| and the i n c o r p o r a t i o n of the Hsien finances i n t o the n a t i o n a l finances.  But, Tsiao-qung's c o n s t i t u t i o n r e a l i z e d the  p o s i t i o n of the provinces and granted the power t o them i n order t o win support from each province.  However, Tisao-qung could not convince  even the warlords of the North, and therefore, "no province put t h i s f i n a n c i a l measure i n t o e f f e c t .  This L e g i s l a t i o n , l i k e the Peking 1 Government, e x i s t e d i n name only."  1. Yee Hong-lin, P 107  42. B. The Temporary Act of 1927. In 1917, the Kuomintang members o f the o l d Parliament organized the M i l i t a r y Government i n Canton, but i t performed l i t t l e governmental r e s p o n s i b i l i t y because i t s t e r r i t o r y was i n f a c t l i m i t e d to the C i t y o f Canton, outside o f which the Southern Warlords were the supreme power.  The f i n a n c i a l and p o l i t i c a l handicaps o f the M i l i t a r y  Government were so heavy that i t a l s o e x i s t e d i n name only. A f t e r 1920, however, two great influences made themselves f e l t at home as w e l l as abroad.  The domestic influence was the New  L i t e r a t u r e Movement, o r P a i Hua, as i t was c a l l e d , which provided means t o the student from f i f t e e n years o f age up, t o understand the 1 Sanminchuyi, the Three People's P r i n c i p l e s , by Sun Yat-sen. The other influence was the success o f the r e v o l u t i o n i n Russia, which influenced 2 Sun Yat-sen i n deciding t o adopt d i r e c t a c t i o n against the warlords. During the years from 1919 t o 1923, the Kuomintang had secured the support and sympathy o f most students, workers, and mer3 chants.  Moreover, the Chinese Communist Party was created i n 1920, and,  i n 1923, through reforming the o l d Kuomintang, a progressive Kuomintang 1. The Three People's P r i n c i p l e s was the guiding p r i n c i p l e o f the Kuomintang, "The P r i n c i p l e of Nationalism i s d i r e c t e d toward securing the l i b e r a t i o n o f the Chinese nation and the e q u a l i t y o f a l l r a c i a l groups w i t h i n the n a t i o n . The P r i n c i p l e o f People's Rights aims a t the people's r e a l i z a t i o n o f t h e i r d i r e c t p o l i t i c a l r i g h t s i n a d d i t i o n t o t h e i r i n d i r e c t r i g h t s . The P r i n c i p l e o f People's L i v e l i h o o d aims a t the e q u a l i z a t i o n o f land ownership and the r e s t r i c t i o n of c a p i t a l i s t i c monopoly." Chiang Kai-shek's speech i n 1944 on the occasion o f the b i r t h d a y anniversary o f Sun Yat-sen. C i t . , China Handbook, p;37. 2. Cf., L i Jan-nung, V o l . II,Pp 604-5. 3. I b i d .  U3 eventually emerged.  The reformed Kuomintang permitted the i n d i v i d u a l  Communists t o a f f i l i a t e w i t h i t s e l f . In January 192k,  the f i r s t National Congress of the reformed  Kuomintang was held at Canton.  The p l a t f o r m of the Kuomintang  stated i n the Decalration o f t h i s Congress.  was  The c h a r a c t e r i s t i c  features l a i d down i n t h i s D e c l a r a t i o n can be summarized under two points.  P o l i t i c a l l y , i t aimed a t the u n i f i c a t i o n of the country  through m i l i t a r y campaigns against the warlords, and a l s o a t the enf o r c i n g of a p e r i o d of P o l i t i c a l Tutelage i n which the Kuomintang  was  to d i r e c t the governing bodies of the s t a t e , before a formal c o n s t i t u t i o n would be adopted.  Economically, i t aimed at a sound Hsien f i n a n c -  i a l system t o meet the needs of the people, wherein the L i k i n l e v i e s were t o be made n a t i o n a l , and then abolished; the tenant farmers were to be protected from paying exorbitant rents, and most of the government revenues and o b l i g a t i o n s were t o be d i s t r i b u t e d between the c e n t r a l and Hsien governing bodies. I n b r i e f , t h i s platform attempted to r e a l i z e Sun Yat-sen's Sanminchuyi. More s i g n i f i c a n t l y , i n the same year, 192ij, the famous Whampo M i l i t a r y Academy was e s t a b l i s h e d .  The President of the Academy  was Chiang Kai-shek who had r e c e n t l y returned from Russia where he had i n v e s t i g a t e d the Soviet Government system and the Red Army.  Hereafter,  the Kuomintang t r a i n e d i t s own army, which s u c c e s s f u l l y crushed the Southern Warlords by 1926 and subsequently became the mainstay of the m i l i t a r y f o r c e that c a r r i e d on wars w i t h the Northern Warlords, and, i n recent years, w i t h Japan and w i t h the Communists.  44.  From l y l 9 t o 192k, the Kuomintang had g r a d u a l l y strengthened i t s p o l i t i c a l p o s i t i o n and i t s m i l i t a r y f o r c e .  On the other hand, the  warlords i n the r e s t o f the country carried on c i v i l wars among themselves, and the Peking Government e x i s t e d i n name as u s u a l . The one-time Premier Tuan C h i - j u i ousted President Tsiao-qung i n 1923 and organized another governing body i n the f o l l o w i n g year. Because the Kuomintang had g r a d u a l l y strengthened i t s p o l i t i c a l p o s i t i o n i n the South, Tuan i n v i t e d Sun Yat-sen t o come t o Peking i n order to discuss the f u t u r e system of government and a n a t i o n a l  assembly.  Tuan and Sun, however, could never r e c o n c i l e t h e i r opinions on a f u t u r e n a t i o n a l assembly.  Tuan and h i s f o l l o w e r s suggested t h a t the f u t u r e  assembly should have the m a j o r i t y of the delegates drawn from present m i l i t a r y l e a d e r s and p r o v i n c i a l a u t h o r i t i e s because Tuan, a t t h a t time, was s t i l l able t o command a number o f m i l i t a r y p r o v i n c i a l governorsj while Sun and h i s Party proposed that the m a j o r i t y of the delegates must come d i r e c t l y from people's organizations, such as trade unions, chambers of commerce, i n d u s t r i a l a s s o c i a t i o n s , educational organizat i o n s , farm a s s o c i a t i o n s , as w e l l as p o l i t i c a l p a r t i e s , because Sun had won support d i r e c t l y from these people's o r g a n i z a t i o n s . In 1925, Tuan C h i - j u i , i g n o r i n g Sun Yat-sen's proposal, h e l d a conference t o f u r t h e r h i s own views; and, t h e r e f o r e , the Kuomintang reacted by i s s u i n g a c i r c u l a r telegram vehemently o b j e c t i n g t o t h i s conference.  I n the same year, Sun Yat-sen d i e d i n Peking.  And, a f t e r  Sun's death, t h e Kuomintang reformed i t s e x i s t i n g M i l i t a r y Government and then e s t a b l i s h e d the National Government i n Canton.  But t h i s  caused l i t t l e a t t e n t i o n from Peking, and Tuan s t i l l would not make any concession regarding h i s p o l i t i c a l views.  I n May 1926, the Kuomintang  headed by Chiang Kai-shek, therefore s t a r t e d a l a r g e s c a l e m i l i t a r y campaign against the Northern Warlords t o u n i f y the country.  I n one  province a f t e r another, i n 1926 and 1927, the s t r e n g t h o f the warlords was s u c c e s s i v e l y destroyed by Chiang Kai-shek. I n October, 1926, the Second National Congress of the Kuomintang convened.  The Resolutions o f t h i s Congress, i n s o f a r as  government finance was concerned (Hsien finance was considered under 1 the provinces) read as f o l l o w s : A. A l l a f f a i r s r e l a t i n g t o the province were t o be d e a l t w i t h by the p r o v i n c i a l governmentj B. A l l a f f a i r s r e l a t i n g t o more than two provinces o r t o the whole country were t o be d e a l t w i t h by the National Government; C.  The finances of both the N a t i o n a l and the p r o v i n c i a l governments were t o be d i s t i n c t l y defined;  D.  A f t e r being defined, finance concerning the province would be c o n t r o l l e d by the p r o v i n c i a l government, while finance concerning the country would be c o n t r o l l e d by the N a t i o n a l Government;  E.  Establishment of uniform c o n t r o l o f finance o f the country;  F.  A b o l i t i o n o f L i k i n under the c o n t r o l of the N a t i o n a l Government;  G. A uniform l a n d tax.  1. Cf., China Year Book, 1928, Pp 1343-7.  Following the m i l i t a r y campaigns, the National Government moved to Nanking i n 1927.  In the same year, the M i n i s t e r of Finance,  Ku Ying-feng, of the National Government drafted a Temporary Act separating the p r o v i n c i a l finance from the c e n t r a l finance according t o the above decisions.  This Act was  soon put i n t o e f f e c t i n the  provinces where the N a t i o n a l i s t ' s had c o n t r o l . t o the p r o v i n c i a l finance were as I.  articles relating  follows:  P r o v i n c i a l Taxation: a. b. c. d. e. f. g. h.  II.  The  The The The The The The The The  farm l a n d tax; t i t l e deeds taxj broker t a x j commerce tax; shipping tax; housing tax; butchering tax; f i s h i n g tax.  P r o v i n c i a l Expenditures f o r : a. b. c. d. e. f. g. h. i.  1  The Kuomintang; L e g i s l a t i o n and l o c a l self-government; P r o v i n c i a l and Hsien administration; Provincial police protection; P r o v i n c i a l farming and i n d u s t r i a l administration; P r o v i n c i a l p u b l i c works; Provincial health services; Provincial r e l i e f ; P r o v i n c i a l debts.  1. The p r o v i n c i a l branch o f f i c e s of the Kuomintang performed the f u n c t i o n s of a " l o c a l government".  47. This Act was not drawn up i n accordance w i t h the platform l a i d down i n the Declaration i n 1924, which recommended a sound l o c a l f i n a n c i a l system r a t h e r than a p r o v i n c i a l one. Instead, i t was planned t o make easy the War of U n i f i c a t i o n because the National Government i t s e l f was too involved i n warfare, and i t s r e s p o n s i b i l i t y was increased when i t s t e r r i t o r y was extended; and, because the p r o v i n c i a l governors were s t i l l powerful r u l e r s of the s t a t e although they had j u s t surrendered t h e i r m i l i t a r y a d m i n i s t r a t i o n t o the N a t i o n a l i s t s . This A c t also deciaed that the provinces would be granted a part o f some new taxes i n f u t u r e , such as the business, land value, personal property and trademark taxes. Conclusion The years from 1917 t o 1926 composed a r e g r e t f u l chapter i n the h i s t o r y of the Republic.  Due t o the l a c k o f a democratic s p i r i t ,  the r a d i c a l p r o v i n c i a l i s m backed by p r o v i n c i a l armies s p l i t the nation's u n i t y i n t o several f a c t i o n s , and the p r o v i n c i a l governors c a r r i e d c i v i l wars throughout the country, which contributed t o serious d i s o r d e r i n the nation's f i n a n c e s .  The stage from 1926 t o 1928 was a p e r i o d of  the struggle o f the r a d i c a l p r o v i n c i a l i s m against the extreme n a t i o n a l ism o f the Kuomintang, and a great War o f U n i f i c a t i o n followed. At any r a t e , a p r a c t i c a b l e f i n a n c i a l system could never be e f f e c t i v e under such c r i t i c a l p o l i t i c a l c r i s e s . 1927 was no exception.  The Temporary Act o f  The o v e r a l l s i t u a t i o n was s t i l l chaotic and i t  was not p o s s i b l e f o r the war t o r n areas t o adopt the Temporary Act.  1+8.  Meanwhile, beginning from 1927  the Kuomintang and the Communist Party-  s p l i t and the Communists rose i n r e v o l t i n Canton against the National Government i n Nanking.  The r e s u l t of t h i s on the implementation of the  f i n a n c i a l Act can w e l l be imagined.  Therefore, t h i s Act was l e f t to  the F i r s t National Conference which was held i n 1928,  when a u n i f i e d  China was being r e a l i z e d under the Kuomintang, The most s i g n i f i c a n t feature of the Temporary Act was that i t proposed a strong p r o v i n c i a l f i n a n c i a l system r a t h e r than a sound lo£al f i n a n c i a l system.  This was because the N a t i o n a l i s t s would meet  tremendous d i f f i c u l t i e s i f they reduced the power of the p r o v i n c i a l governments i n a d d i t i o n to the m i l i t a r y a d m i n i s t r a t i o n , f o r the provinces had become the most powerful r u l e r s of the s t a t e since  186k,  49.  Selected References  CHAPTERS I I I and IV Chinese Chia Teh-huei, F i n a n c i a l H i s t o r y o f the Republic o f China. Shanghai- second e d i t i o n , 1947. English L i Chuan-shih, C e n t r a l and Local Finance i n China,New York, Columbia U n i v e r s i t y , 1922. P e r i o d i c a l s (Chinese) Yee Hong-lin, An Outline o f L o c a l Finance o f our Country. F i n a n c i a l Review, A p r i l , 1945. P e r i o d i c a l s (English) China Handbook, 1937 - 1945; China Year Book, 1928; T i e n t s i n , the T i e n t s i n Press, L t d . China Year Book, 1931; Shanghai, the North China D a i l y News & Herald, L t d . I n t e r n a t i o n a l Year Book f o r 1928.  Selected References Chajpter  III  Chinese Chia Teh-huei, F i n a n c i a l H i s t o r y of the Republic of China, Shanghai- secondttion, 19U7. L i Jan-nung, Chinese P o l i t i c a l H i s t o r y i n the Last One Hundred Years, Shanghai- second e d i t i o n , 19U8. English L i Chuan-shih, C e n t r a l and L o c a l Finance i n China, New York, Columbia U n i v e r s i t y , 1922. P e r i o d i c a l s (Chinese) Yee Hong-lin, An Outline of L o c a l Finance of Our Country, F i n a n c i a l Review, A p r i l , 1$h$. P e r i o d i c a l s (English) China Handbook, 1937-19U5. China Year Book, 1928j T i e n t s i n , the Tiertein Press, L t d .  PART  HI  The F i r s t National F i n a n c i a l Conference i n 1928 and  The Second National F i n a n c i a l Conference i n 1934 in Nationalist  China  51. PART I I I Chapter IV - The F i r s t National F i n a n c i a l Conference Introduction Before 1921;, the Kuomintang was s t i l l endeavoring t o e s t a b l i s h a democratic p o l i t i c a l system through n e g o t i a t i o n w i t h the warlords. These attempts f a i l e d .  Due l a r g e l y t o the success of the Russian  Revolution, Sun Yat-sen and h i s f o l l o w e r s were convinced t h a t i t was both necessary and d e s i r a b l e to give up cooperation w i t h the warlords. In 1 9 2 1 ; the Kuomintang undertook two remarkable p r o j e c t s , namely, the convening o f the F i r s t National Congress of Kuomintang and the e s t a b l i s h ment o f the Whampo M i l i t a r y Academy. Two periods were foreseen i n a f u t u r e c o n s t i t u t i o n a l government system as proposed by t h i s Congress.  They were the Period of  M i l i t a r y A d m i n i s t r a t i o n which was the period of the war o f u n i f i c a t i o n , and the Period of P o l i t i c a l Tutelage, which was the p e r i o d o f teaching the people t o prepare f o r a c o n s t i t u t i o n a l government. One year a f t e r the death of Sun Yat-sen, i n May of 1926, the great War of U n i f i c a t i o n o f f i c i a l l y broke out.  By 1927, the National  Government had moved t o Nanking, and of the Northern Warlords, onlyChang Tstt-lin was able to r e s i s t Chiang Kai-shek.  I n the f o l l o w i n g  year, Chang TaiJ-lin sent a c e a s e - f i r e order, paving the path f o r peace. Chang T s t t - l i n gave up the struggle against the National Government and  52. s h o r t l y a f t e r vras murdered by the Japanese. i n c i d e n t , the Three Northeastern  1  As a r e s u l t o f t h i s  Provinces, -which together made up  the t e r r i t o r y known as Manchuria (governed by a young Marshal, Chang Hsueh-liang, the son of Chang T s d - l i n ) , j o i n e d the National Government i n the winter o f 1928.  A u n i f i e d China had f i n a l l y emerged.  Before the u n f i c a t i o n was f u l l y r e a l i z e d , i n June 1928, the National Government summoned the F i r s t National F i n a n c i a l Conference i n order t o preserve a s t a b i l i z e d c o n d i t i o n i n finance f o r the immediate needs i n the post-war period.  Plans were thus made that allowed t h e  Hsien finance t o be put under the c o n t r o l o f each p r o v i n c i a l government.  One of the Resolutions o f t h i s Conference, l a t e r known as the  F i n a n c i a l D i v i s i o n Act o f 1928, governed the f i n a n c i a l a f f a i r s o f both the C e n t r a l and p r o v i n c i a l governments from 1929 onwards. Since a l l the warlords who fought against the National Government were crushed and there was no more m i l i t a r y threat from the p r o v i n c i a l governors t o the National Government, the D i v i s i o n Act of 1928 was gradually c a r r i e d out without i n t e r r u p t i o n . As there was no p r o v i n c i a l o b l i g a t i o n w i t h regard t o the army defined under the D i v i s i o n Act, the m i l i t a r y expenditure which had been a h i g h l y c o n t r o v e r s i a l matter since l8f>0, was f o r the f i r s t time s u c c e s s f u l l y s e t t l e d by being brought under the d i r e c t c o n t r o l o f the National Government.  This en-  abled the funds of the p r o v i n c i a l governments t o be spent f o r nonm i l i t a r y purposes, and h e r e a f t e r a s t a b l e f i n a n c i a l system i n the provinces was made p o s s i b l e f o r the f i r s t time since the Republic was founded.  1. The New I n t e r n a t i o n a l Year Book f o r 1928, p. 167, "Previously he (Chang T s i o - l i n ) had been a mere t o o l o f the Japanese Foreign O f f i c e , but i n recent years, ... he had chafed under Japan's p o l i t i c a l and m i l i t a r y guidance and had sown signs o f ultimately.breaking completely  53.  A.  Kuomintang and i t s System of Government. Before proceeding to discuss changes i n the f i n a n c i a l system,  i t i s advisable t o consider f i r s t the system of government under the National Government.  Following the Period of M i l i t a r y A d m i n i s t r a t i o n  came the Period of P o l i t i c a l Tutelage and from 1928 on, China was r u l e d by the National Government.  As c o n s t i t u t e d since the u n i f i c a t i o n of  the country under the Kuomintang, the National Government was the creat i o n o f , and therefore subordinate t o , the Kuomintang. The N a t i o n a l Government derived i t s mandate from the Central Executive Committee and the Central Supervisory Committee e l e c t e d by the National Congress of the Kuomintang. For the purposes of p o l i t i c a l a d m i n i s t r a t i o n , the a u t h o r i t y of the Kuomintang was exercised by the C e n t r a l P o l i t i c a l C o u n c i l , which formulated government p o l i c i e s t o be executed by the National Government. In order t o e s t a b l i s h the Republic o f China on the b a s i s of the C o n s t i t u t i o n of Five Powers, Sun Yat-sen s proposal regarding the 1  system of c e n t r a l government, the N a t i o n a l Government was i n t o f i v e Yuans:  organized  the Executive Yuan, the L e g i s l a t i v e Yuan, the  J u d i c i a l Yuan, the Examination Yuan, and the Control Yuan. According t o the Organic Law of the National Government promulgated i n October, 1928, "there s h a l l be a President (the chairman of the Government), and from twelve t o s i x t e e n State C o u n c i l l o r s of the National Government.  The Presidents and Vice-Presidents o f the f i v e  Continued from previous page .... w i t h Tokyo .... Chang's death was kept a secret f o r almost three weeks. I t was thought that had not Japan known the opinion of the world i t would have seized Manchuria then and there."  5U. Yuan s h a l l be appointed from among the State C o u n c i l l o r s o f the National Government."  So f a r as general a d m i n i s t r a t i o n was concerned, the  Executive Yuan was the highest executive organ and had d i r e c t superv i s i o n and general d i r e c t i o n over various executive M i n i s t r i e s and Commissions.  The component M i n i s t r i e s and Commissions o f the Executive  Yuan were: The The The The The the The the  Ministry of Interior; M i n i s t r y o f Foreign A f f a i r s ; Ministry of Military Affairs; M i n i s t r y of Communications; M i n i s t r y o f Education; M i n i s t r y o f Industry; M i n i s t r y o f Railways; M i n i s t r y o f Finance;  And other Commissions.  1  The a d m i n i s t r a t i o n o f each province, known as the p r o v i n c i a l government was composed o f from seven t o nine members appointed by the National Government. the governor.  Note: 1.  One o f them was designated as the Chairman, o r  The executive o r g a n i z a t i o n included a S e c r e t a r i a t and  Some minor changes i n the system of government i n l a t e r years w i l l not be discussed i n t h i s Thesis.  The Commissions were set up f o r s p e c i a l purposes not a f f e c t i n g the administration o f the whole country, such as the Commission on Mongolian arid Tibetan A f f a i r s , the Commission on Overseas Chinese A f f a i r s : Commissions were also set up f o r occasional purposes, such as the National Opium Suppression Commission, Famine R e l i e f Commission.  55  the f o l l o w i n g main Departments: The The The The The The The And  Department of C i v i l A f f a i r s ; Department of Finance; Department of Education; Department of Reconstruction or p u b l i c works; Department of A g r i c u l t u r e , Industry, and Commerce; Department of P u b l i c Health; Department of S o c i a l A f f a i r s ; other Committees.  The p r o v i n c i a l governments were under the d i r e c t j u r i s d i c t i o n of the Executive Yuan. Equivalent t o the p r o v i n c i a l government and under the d i r e c t j u r i s d i c t i o n of the Executive Yuan were the S p e c i a l Municipal Governments.  1  The Provinces were d i v i d e d i n t o about 2000 Hsien. Hsien was appointed a Magistrate.  2  To each  The a d m i n i s t r a t i v e organizations of  each Hsien Government were mainly c l a s s i f i e d i n t o s e v e r a l Bureaus: The The The The The And  Bureau of Finance; Bureau of P o l i c e ; Bureau of Reconstruction and p u b l i c works; Bureau o f Education; Bureau of C i v i l A f f a i r s ; other Committees.  A l l Hsien were d i v i d e d i n t o three c l a s s e s according t o t h e i r s i z e , population, and f i n a n c i a l a b i l i t y .  I f a Hsien had a population o f  300,000 or more, i t would be c l a s s i f i e d as a P r o v i n c i a l M u n i c i p a l i t y  1.  There were only s i x S p e c i a l Municipal Governments before 1^37, namely, the Municipal Governments of Nanking, Peping (.the former name was Peking), Shanghai, T i e n t s i n , Tsingtao, and S i k i n g .  2.  During the Period of P o l i t i c a l Tutelage, a l l the Magistrates were f i r s t examined and then q u a l i f i e d f o r appointment by the C e n t r a l Government.  under the d i r e c t j u r i s d i c t i o n of the p r o v i n c i a l government.  The  o r g a n i z a t i o n of the P r o v i n c i a l Municipal Government was, i n general, a k i n t o that of the other Hsien governments.  The f i n a n c i a l power o f  the former was r e l a t i v e l y greater, i n a few cases, than the l a t t e r . Each Hsien was composed of a number of d i s t r i c t s under which were towns or v i l l a g e s o r c i t i e s .  The delegates of each d i s t r i c t ,  e l e c t e d by the people, formed a Hsien Assembly.  The power of t h i s  Assembly was t o discuss and t o approve the budget o f the Hsien government, and t o consider suggestions regarding•the improvement of the Hsien, and other matters r e f e r r e d t o i t by the Magistrate. To sum up, the system of government under the National Government was designed as f o l l o w s : The System of Government under the National Government The Congress of the Kuomintang The Central Executive Committee of the Kuomintang The National Government The L e g i s l a t i v e Yuan  The J u d i c i a l Yuan  The Executive-Yuan  The P r o v i n c i a l Government  The Cont r o l Yuan  The"Examinat i o n Yuan  The S p e c i a l Munic i p a l Government The Hsien People's Council or The P r o v i n c i a l Municipal People's Council  The P r o v i n c i a l Munic i p a l Government  The Hsien Government  1. There were s i x t e e n P r o v i n c i a l M u n i c i p a l Governments before 1937  57  The c h i e f subject of t h i s Thesis i s the development of the f i n a n c i a l system of the p r o v i n c i a l and Hsien governmentsj therefore, tfuiiu'iP'l  the N a t i o n a l , the S p e c i a l M u n i c i p a l and the  Provincial Governments A  w i l l not be t r e a t e d as an important t o p i c . B.  The F i r s t National F i n a n c i a l Conference A chaotic f i n a n c i a l system had been b i t t e r l y -ten  by t h i s n a t i o n f o r e i g h t years.  experienced  When u n i f i c a t i o n was, through a  s e r i e s of p a i n f u l m i l i t a r y campaigns, at the p o i n t of being r e a l i z e d , the F i r s t National F i n a n c i a l Conference convened at Nanking i n July., 1^28. For the purpose of t h i s Conference the M i n i s t e r of Finance, T. V.Soong, explained, "The f i r s t and most important matter of t h i s Conference i s t o d e a l w i t h ' u n i f i c a t i o n ' i n finance.  The premise of  our d i s c u s s i o n s h a l l not be based on the 'regionalism', which should be e n t i r e l y discarded, but on the concept of the ' u n i f i e d China'". This statement was extremely s i g n i f i c a n t i n that the standpoint of t h i s conference was  n e i t h e r based on the concept of warlordism,  nor  f e d e r a l i s m , but on the b a s i s of nationalism. At t h i s Conference, there were three important worked out.  They were put i n t o e f f e c t i n 1929.  Resolutions  The f i r s t Resolution  which defined a budgetary procedure concerning the C e n t r a l and p r o v i n c i a l governments, can be summarized as f o l l o w s : (a) A f t e r t h i s Conference has d i v i d e d the government revenues and o b l i g a t i o n s between the National and p r o v i n c i a l governments, both the l a t t e r governments should s t r i c t l y observe t h i s f i n a n c i a l d i v i s i o n . Each of the said governments should formulate i t s budget accordingly.  58. (b) The M i n i s t r y of Finance of the Executive Yuan should submit the c e n t r a l and p r o v i n c i a l budgets to the National Government f o r promulgation and enforcement. (c) Once every three months both the M i n i s t r y of Finance and the p r o v i n c i a l a u t h o r i t i e s should report i n d e t a i l on the a c t u a l workings of t h e i r respective revenues and expenditures t o the C e n t r a l Government. The second Resolution defined the power of the M i n i s t r y of Finance of the Executive Yuan.  I t can be summarized as f o l l o w s :  (a) A l l a f f a i r s r e l a t i n g t o the procedure, s t a f f members and admini s t r a t i o n of the c e n t r a l revenue should be d i r e c t l y administered by the M i n i s t r y of Finance. (b) The M i n i s t r y of Finance should ensure t h a t a l l the c e n t r a l revenue be remitted d i r e c t to the C e n t r a l Treasury without being detained. (c) Receipts, disbursements, deposits, and a u d i t i n g of the governments' finance should be s t r i c t l y under the c o n t r o l of the M i n i s t r y of Finance. The t h i r d Resolution was the demarcation between the c e n t r a l and the p r o v i n c i a l finances, known i n l a t e r years as the F i n a n c i a l D i v i s i o n Act of 1?28.  This F i n a n c i a l D i v i s i o n Act d e a l t w i t h important  issues among which were: A r t i c l e 2.  The d i v i s i o n of the power of the C e n t r a l and p r o v i n -  c i a l governments t o l e v y taxes i s determined by t h i s Conference as follows: (a)  The C e n t r a l revenues and r e c e i p t s from: The s a l t tax; The custom d u t i e s ; The tobacco and l i q u o r taxes; The c i g a r e t t e tax; The kerosene and gasoline tax; The L i k i n and i t s s i m i l a r impositions; The f i s c a l stamp tax; The corporation and trade mark r e g i s t r a t i o n fees; The maritime f i s h i n g tax; The r e c e i p t s from Government operating e n t e r p r i s e s ; Other revenues and r e c e i p t s defined by law.  59.  (b) The P r o v i n c i a l revenues and r e c e i p t s from: The The The The The The The The  farm land tax; t i t l e deeds tax; broker tax; pawnshop, tax; butchery tax; i n l a n d f i s h i n g tax; ship, boat, and v e h i c l e d u t i e s ; house duty;  Other revenues and r e c e i p t s defined by law. Several a d d i t i o n a l taxes were recommended by t h i s Conference w i t h the expectation that they would be a c t u a l l y l e v i e d w i t h i n a few years.  A r t i c l e 3 defined t h a t : The power t o l e v y the a d d i t i o n a l taxes s h a l l be d i s t r i b u t e d  between the Central and p r o v i n c i a l governments as f o l l o w s : (a) The The The The The  C e n t r a l taxes: income tax; succession duty; s p e c i a l e x c i s e tax; commodity tax;  (b) The P r o v i n c i a l taxes: The business tax; The land tax; 1 The income surtax. A r t i c l e 5 enpowers the p r o v i n c i a l government to dominate i t s subordinate governments.  I t stated that:  The r e c e i p t s and disbursements of the P r o v i n c i a l : M u n i c i p a l and Hsien Governments s h a l l be regulated by each respective Provinc i a l Government; the P r o v i n c i a l Government i s to report a l l the  1.  The Conference proposed that the e x i s t i n g taxes on l a n d be improved. A f t e r the land t a x a t i o n was reformed, the p r o v i n c i a l governments were t o share the new land taxes i n s t e a d of the o l d l e v i e s .  60 f i n a n c i a l statements of i t s subordinate governments t o the M i n i s t r y of Finance (of the Executive Yuan) f o r approval  or  revision. A r t i c l e s h, 6, 7 and 10 d e a l t with the p o s s i b l e problems a r i s i n g out of the execution of the F i n a n c i a l D i v i s i o n . These A r t i c l e s can be summarized i n the f o l l o w i n g p o i n t s : The province, having introduced the F i n a n c i a l D i v i s i o n , s h a l l not l e v y or impose any new t a x without permission from the C e n t r a l Government. The province s h a l l not c o l l e c t the o l d taxes which are i n conf l i c t w i t h those under the F i n a n c i a l D i v i s i o n . The province s h a l l be p r o h i b i t e d from c o l l e c t i n g the o l d t a x or taxes which are not stated i n the F i n a n c i a l D i v i s i o n . Any d e f i c i t a r i s i n g from the adoption of the F i n a n c i a l D i v i s i o n s h a l l be subsidized by the C e n t r a l Government. Before t h i s Conference was h e l d , the l e v y i n g power of the L i k i n was i n the hands of the p r o v i n c i a l governments.  As proposed by  the F i r s t and Second Congress o f the Kuomintang, the I d k i n was t o be abolished.  A r t i c l e 8 thus stated t h a t :  The Central Government s h a l l be i n charge of the a b o l i t i o n of L i k i n and a l l domestic t r a n s i t impositions w i t h i n s i x months a f t e r the F i n a n c i a l D i v i s i o n i s i n e f f e c t . This A r t i c l e a l s o decided that the C e n t r a l Government was f i r s t t o t ake over the a d m i n i s t r a t i o n of L i k i n l e v i e s from the p r o v i n c i a l governments f o r the ultimate a b o l i t i o n .  1  1. The L i k i n l e v i e s were abolished l a t e i n December 1930,  61. The l a t t e r part of the F i n a n c i a l D i v i s i o n d e a l t with the government o b l i g a t i o n s . The p r o v i n c i a l o b l i g a t i o n s and expenditures were def i n e d as f o l l o w s : The p r o v i n c i a l expenditures were to be f o r : Party (Kuomintang); Local l e g i s l a t i o n ; Jurisdiction; The cost o f the F i n a n c i a l Department of the P r o v i n c i a l Government; R e l i e f and pensions; P r o v i n c i a l and l o c a l a d m i n i s t r a t i o n ; Police protection; Education; L o c a l a g r i c u l t u r e , mining, industry and commerce; Local public enterprises; P u b l i c works; P u b l i c health; P r o v i n c i a l debts; Other matters defined by law. The p r o v i n c i a l revenues and functions i n the F i n a n c i a l D i v i s i o n were a k i n t o those i n the temporary Act of 1927.  The d i f f e r e n c e s between  these two f i n a n c i a l measures can be summarized as f o l l o w s : (a) The f i s h i n g t a x —  the Temporary Act of 1927  defined that a  f i s h i n g t a x belonged t o the p r o v i n c i a l governments, w h i l e the F i n a n c i a l D i v i s i o n defined t h a t the maritime f i s h i n g t a x belonged to the C e n t r a l Government and the i n l a n d f i s h i n g t a x belonged t o the p r o v i n c i a l governments. (b) The income t a x —  the Act of 1927  d i d not s p e c i f y t h a t the pro-  v i n c i a l governments could share the income tax i n the f u t u r e , while the F i n a n c i a l D i v i s i o n defined that the p r o v i n c i a l governments would enjoy an income surtax.  62.  (c)  The p r o v i n c i a l defence —  the Act of 1927 defined the p r o v i n c i a l  defence as one o f the f u n c t i o n s o f the p r o v i n c i a l governments, while the F i n a n c i a l D i v i s i o n d i d not e n t i t l e the p r o v i n c i a l governments t o c a r r y t h i s f u n c t i o n . The D i v i s i o n Act o f 1 9 2 8 was t o be i n e f f e c t i n 1 9 2 9 . I n the preceding chapters, i t has been pointed out that the m i l i t a r y leaders were one of the f a c t o r s causing a c h a o t i c a d m i n i s t r a t i o n i n f i n a n c e , A M i l i t a r y Reorganization Conference was then held i n January 1 9 2 9 i n order t o make the enforcement of the D i v i s i o n Act e f f e c t i v e . Conference some measures were proposed. follows (a)  1  At t h i s  They can be summarized as  A l l c e n t r a l taxes s h a l l be c o l l e c t e d only by the agents o f the M i n i s t r y of Finance of the Executive Yuan.  The m i l i t a r y and  l o c a l a u t h o r i t i e s s h a l l be s t r i c t l y forbidden t o r e t a i n any p o r t i o n , o r impose surtaxes, on any p r e t e x t whatsoever. (b)  The M i n i s t r y o f Finance s h a l l have undivided c o n t r o l over the appointment o f f i n a n c i a l o f f i c e r s and the a d m i n i s t r a t i v e p o l i c y i n the f i e l d of c e n t r a l finances.  (c)  Only the C e n t r a l Treasury s h a l l be responsible f o r payment of a l l m i l i t a r y expenses.  (d)  The expenses o f the o l d p r o v i n c i a l reserve army being organized f o r p o l i c e s e r v i c e s s h a l l be p a i d out of the p r o v i n c i a l revenues.  1. Cf., The China Year Book. 1931. The North China D a i l y News and Herald L t d . , Shanghai, p. 3 3 b .  63  C. Enforcement of the F i n a n c i a l D i v i s i o n Act of  1928  P r o v i n c i a l Finance The f i r s t f i s c a l year f o r the D i v i s i o n Act was supposed t o commence from J u l y 1929 t o June 1930.  I n a c t u a l i t y , however, the war  t o r n provinces were unable t o -work out t h e i r budgets; some provinces d i d not issue t h e i r f i n a n c i a l statements; and i n some cases the p r o v i n c i a l governments s t i l l c a r r i e d on t h e i r finances according t o the 1 Temporary Act of 1927. I t was not u n t i l the l a t t e r months of 1929 2 that the D i v i s i o n Act was g r a d u a l l y and f u l l y c a r r i e d out. The general conditions i n f i n a n c i a l and p o l i t i c a l s i t u a t i o n during the t r a n s i t i o n from the War of U n i f i c a t i o n t o peace were described i n the T.V.Soong's 3 Report.  Part of t h e Report stated t h a t , "To understand the ( c e n t r a l  f i n a n c i a l ) s i t u a t i o n we must remember t h a t :  ( l ) a t the beginning of  the f i s c a l year ( J u l y , 1929 - June, 1930), and during a considerable p a r t of the twelve months, although the (National) Government had t o undertake the r e s p o n s i b i l i t i e s of the e n t i r e country, i t had a t i t s a c t u a l d i s p o s a l the revenues of only f i v e Provinces, except f o r the maritime customs revenue;  (2) during the f i s c a l year i t had t o bear  three major m i l i t a r y campaigns t o prevent i n t e r n a l d i s r u p t i o n ( the Communist R e v o l t s ) . "  1. Cf., Chia Teh-huei, V o l . I . , p. 25. 2. Cf., T.V.Soong's Eeport submitted t o t h e Fourth C e n t r a l Executive Committee of the Kuomintang, The China Year Book, 1931, p. 336. 3. I b i d . , Pp 337-39.  In 1930, only the Kiangsu P r o v i n c i a l Government published a statement o f i t s expenditures f o r the f i s c a l year of 1929 ( J u l y , 1929 June, 1930), and an estimated budget f o r the next f i s c a l year. statement and the budget read as f o l l o w s :  the  Estimated Statement of the Expenditures o f Kiangsu P r o v i n c i a l Government f o r 1929's F i s c a l Year  Party expenses A d m i n i s t r a t i o n expenses J u d i c i a l expenses Financial administration Education & C u l t u r e A g r i c u l t u r e and Mining Construction Land r e o r g a n i z a t i o n P r o v i n c i a l debts Contingency fund Total  200,000 6,500,000 1,500,000 1,500,000 500,000 2,200,000 4,000,000 1,500,000 2,000,000 100.000  yuan yuan yuan yuan yuan yuan yuan yuan yuan yuan  1.0$ 32.5$ 7.5$ 7.5$ 2.$% 11.0$ 20.0$ 7.5$ 10.0$ 0.5$  20,000,000 yuan  100.0$  Kiangsu P r o v i n c i a l Budget f o r the 1930's F i s c a l Year Revenues and Receipts from: Land t a x Inland f i s h i n g dues Shipping dues Business t a x S p e c i a l appropriations f o r education from the C e n t r a l Government Receipts from E n t e r p r i s e s Construction l o a n p r o ceeds Subsidies from the Central Government Other r e c e i p t s Total  '  7,222,719 yuan 20,482 30,079 4,000,000  30.1$ 0.1 0.2 16.5  4,596,552 82,746  18.8 0.3  4,000,000  16.5  3,600,000  I4.I4.  76£,51J4 '  24,319,122  1. Source: The China Year Book, 1931, p. 344.  3.1  100.9$  The  65.  Kiangsu P r o v i n c i a l Budget Continued. Expenditures  for  Party expenses Administration J u d i c i a l administration Police protection Education A g r i c u l t u r e and mining Public health Construction Subsidies t o the subordinate governments Contingency fund  276,000 yuan  54,'i20 k,942,544  1.1* 14.2 10.3 1827 22.7 3.5 0.2 20.3  82k,371 1,011,794  4.1  3,469,653  3.U  24,319,122 ( c i t . )  Total  98.8*  T  For securing f u r t h e r improvement of nation-wide s u p e r v i s i o n the National Government i n November 1930 Department.  set up a F i n a n c i a l C o n t r o l  This Department tra.s d i r e c t l y subordinated t o the Chairman,  or the President, of the N a t i o n a l Government, and, was t o audit both t h e .• c e n t r a l and p r o v i n c i a l finances before the l a t t e r were passed at the L e g i s l a t i v e Yuan.  With t h i s s p e c i a l power i t was hoped t h a t the  Department would carry out i t s f u n c t i o n more e f f e c t i v e l y . e f f e c t , by the establishment  new  And, i n  of t h i s Department, the m i l i t a r y leaders  and the p r o v i n c i a l governors were no longer the comptrollers i n f i n a n c e , because the new Department was i n charge of preparing a l l c e n t r a l and p r o v i n c i a l p r e l i m i n a r y budgets. In the f o l l o w i n g year, t h i s Department c o l l e c t e d and  published  f i g u r e s t o show the revenues and disbursements of some provinces f o r the f i s c a l years of I93O and I93I, as shown i n the f o l l o w i n g Tables.  1. C a l c u l a t e d from the sum 2k,3l9,122 yuan.  66. TABLE IV  The Revenues and Disbursements of the Twenty P r o v i n c i a l Governments i n the F i s c a l Years 1930 and 1931 (1) (Unit: 000 yuan) Provincial Governments  Anhwei Chahar Chekiang Ch'inghai Fukien Honan Hopei Hunan Hupei Jenol Kiangsu # Kwangsi Kwangtung Kweichow Ninghsia Shangtuung Shansi Shensi Sinkiang Yunan  T o t a l Revenue in T93O1931  T o t a l Expenditure i n "I93I l930~  15,856 16,170 2,270 2,348 25,195 21,675 1,976 27,510 i , 480 I?!849 H 15,565  15,856 16,170 2,348 2,066 25,195 21,009 1,045 30,839 17,849 14,680 33,223 15,764 I7,12U 17,015 28,007 23,764 2,359 2,197 26,176 24,319 11,016  23,600 1,714 26,176 13,744  10,713  13,024 1,603 24,319  k  I, 105  24,575 I I , 350 13,995 3,205 3,125  21,883 37548  Increase {+) or Decrease (-) i n Revenue i n -a*2. Amount Percentage 584 78 3,521  0.03 0.01 16.24  3,164 17,659 6,410 10 576 111 1,757  21.85 81.20 0.07 0.07  2,692  12.30  342  0.09  m  3,125 2U,575 19,442 10,832 20,781 8,402 8,947 5,431  •  # The revenue and expenditure o f the Kiangsu P r o v i n c i a l Government f o r 1930's f i s c a l year are c i t e d from Pp 66-7, supra. D e t a i l s o f some p r o v i n c i a l budgets are shown i n Table V.  1. Source:  The China Year Book, 1934, Pp 502-16.  67.  TABLE V The Budgets o f Seven Selected P r o v i n c i a l Governments July,193l - June,1932 (1)  ITEM!  (Unit: OOP yuan)  Revenues and Receipts  PROHonan VINCES Hopei Shan- Kiang- Checkiang tung su  Land 14958 11926 T i t l e Deeds 1010 House Ship Pawnshop 6' Wholesale 650 349 General Business I898 36OO Butchery 270 650 Administration 1908 380 Judicial U69 Properties 70 210 Enterprises 3682 88 C r e d i t s and Loans 3000 Subsidies 2064 Others 123u 3139 Deficit Total Expenditures  Farty  1. Source:  8156 1677  1+867 1197  300  5 4051  235  4755 700 ty  1996  4000 1800 1782  600 200  522  2000 921 1132 186 846  6000 17013 1005 394  2374 36O 184 70  5io 73  160  6  1400 314 146  49 13  50 3000 3567 5499  120 943 64?  Total  Percentage  52182 4997 184 305 11 .,5516  35.7 3-4 0.1 0.2  14075 2404 3469 655 1210 6288  9.6 1.6 2.4 0.5 0.9 4.4  10000 30564 13996  7.0 20.9 9.6  3-7  21+575 26176  25195  17849  33223  17124  1711+  192 3255  297 2102  717 2911  U33 2535  725 3674  73 889  3385 19356  2.4 13.2  4192 54 5123 1119  5258 104 2959 1358  2700  795  721  1955 741  3534 858  1748 167 3232 1899  148 103  19231 . 325 20042 8129  13.2 0.2 13.7 5.6  767 5080  567 889 577 5592 1641 2063 1354 84  534 100 1561  7 110 4  350  538 1066 264 4927 7587 130 1+29 2862 1094 12220 1402 400 1  1240 332 500 1412  216 4 84  3602 10475 21+16 200$2 4103 12328 15677 5576 1794  2.3 7.2 1.6 13.7 2.8 8.4 10.7 3.8 1.2  25195  1781+9 33223  2359 146501  100.0  948  Administration 3990 P o l i c e Protection 3817 Health Education 309I Financial 2150 Administration Industries 827 Reconstruction 2619 Communication Debts 622 Enterprises 1093 Judicial 2242 Contribution 465 Reserve 2000 Others Total  9391 680  Hunan Jehol  24575  1344 2611 1302 1106 31 26176  362 611  18124  The China Year Book, I934, Pp 502-510.  145865 100.0  68. The l a r g e s t revenue o f the p r o v i n c i a l governments was the land t a x which made up 35.7 p e r cent of the t o t a l i n the f i s c a l year of 1931.  This t a x was imposed on the farm land.  Some provinces  mentioned i n Table V put the revenue from the house t a x i n t o the l a n d t a x ; and the others granted the house t a x t o the Hsien governments. 2 The business t a x defined by the Business Tax Act,  included the taxes  on the wholesalers, r e t a i l e r s , pawnshops, butchers, and the l i c e n s e taxes.  This t a x y i e l d e d l k . 9 p e r cent o f the t o t a l revenue i n the  f i s c a l year o f 1931.  The assessment r a t e s on t i t l e deeds t a x were not  uniformly l e v i e d , v a r y i n g from 2 t o 9 per cent ( i n c l u d i n g the surtaxes of the Hsien governments) among the provinces.  This tax provided 31.U'  per cent o f the t o t a l revenue i n 193l» Among a l l the expenditures, those f o r education and debts were the l a r g e s t , both adding up t o I3.7 p e r cent o f the t o t a l .  The  expenditures f o r a d m i n i s t r a t i o n ( i n some provinces, i t i n c l u d e d the expenditures f o r p u b l i c h e a l t h , etc.) and p o l i c e p r o t e c t i o n came next, each accounting f o r 13.2 p e r cent o f the t o t a l .  The expenditures f o r  1. Chia Teh-huei, V o l . I I , p. 592,"lh January, 1927, the C e n t r a l Execut i v e Committee of the Kuomintang decided t o adopt a general land tax. This proposal was l a t e r passed by the L e g i s l a t i v e Yuan as the Land Act and the C e n t r a l Government promulgated t h i s Act i n June I93O." Thus, in many provinces, the taxes on improvements, unimproved l a n d were i n c l u d e d i n the l a n d tax. 2. I n March, 1931, the p r o v i n c i a l governments were t o enforce the b u s i ness t a x according t o t h e i r own p r o v i s i o n a l by-law. The r e s u l t s of t h i s enforcement were t o be reported t o the C e n t r a l Government i n order t o draw up an o f f i c i a l Business Tax Act. I n June, 1931, the Business Tax Act was promulgated by the C e n t r a l Government. Cf., Chia Teh-huei, V o l . I I , p. 602.  69. i n d u s t r i a l a d m i n i s t r a t i o n , r e c o n s t r u c t i o n , communication, and p u b l i c enterprises were, i n some cases, incorporated under d i f f e r e n t headings. These expenditures amounted t o 12.3 p e r cent o f the t o t a l .  When the  u n i f i c a t i o n of China had been accomplished, the Kuomintang i n i t i a t e d the Period of P o l i t i c a l Tutelage i n preparation f o r the i n t r o d u c t i o n of a c o n s t i t u t i o n a l system throughout the nation.  During t h i s Period, the  C e n t r a l , p r o v i n c i a l , and l o c a l governments were t o support the expenses of the Kuomintang.  I n 1931, the fund contributed by the provinces f o r  the Kuomintang was 2.U p e r cent o f t h e i r t o t a l  expenditures.  Since the enforcement o f the F i n a n c i a l D i v i s i o n Act the C e n t r a l Government l a t e r a l s o adopted two measures i n an e f f o r t t o prevent many of the provinces from s u f f e r i n g d e f i c i t s .  I t supervised the p r o v i n c i a l  expenditures, r e q u i r i n g i n some instances that expenditures be reduced, and subsidized the p r o v i n c i a l government t o meet t h e i r d e f i c i t s . P r i o r t o the D i v i s i o n Act, China d i d not have a proper subsidy system.  During the e a r l y Ch'ing p e r i o d , the p r o v i n c i a l governments had  no power t o l e v y taxes, but t h e i r cost of government was e n t i r e l y assumed b y t he C e n t r a l Government; and i n the l a t e Ch'ing p e r i o d , as the p r o v i n c i a l expenditures were being expanded from time t o time, the d e f i c i t s i n c u r r e d i n the p r o v i n c i a l governments was assumed by the Central Government.  Since the Republic came i n t o existence, chaotic  1. See Table IV, p. 67, i n f r a .  70.  f i n a n c i a l a d m i n i s t r a t i o n followed, and as a r e s u l t there was no subsidysystem at a l l . The D i v i s i o n Act was the f i r s t measure the  Republic  adopted t o e f f e c t a proper t a x a t i o n and disbursement system f o r both the C e n t r a l and p r o v i n c i a l governments.  Because i t was f o r the f i r s t  time, the r e s u l t of t h i s p r a c t i c e was d i f f i c u l t t o a n t i c i p a t e at the time of the F i r s t F i n a n c i a l Conference.  But the D i v i s i o n Act l a i d  down a clause s p e c i f y i n g that the C e n t r a l Government was  responsible  f o r the d e f i c i t i n c u r r e d i n adopting the s a i d Act. On the other hand, since the Department of F i n a n c i a l Control was set up by, and d i r e c t l y subordinated t o the Chairman of the National Government, the f i n a l d e c i s i o n of increase or decrease i n p r o v i n c i a l budgetary f i g u r e s was l e f t i n the hands of the Department.  Under such  p r a c t i c e , the subsidy system of the National Government could be termed a general subsidy system.  AH  the subsidies granted from the C e n t r a l  Government t o , and a l l the budgetary proceeds of the p r o v i n c i a l finances were decided upon by the Department of F i n a n c i a l C o n t r o l . Table VI on page 71 i s i n d i c a t i v e of conditions of the p r o v i n c i a l finance i n the f i s c a l year o f I936.  In t h i s year there  was  no s i g n i f i c a n t change i n the expenditures compared with those i n I 9 3 I . But by I936 i t was apparent that i n most of the provinces the revenues from the business t a x and from p u b l i c p r o p e r t i e s and enterprises were i n c r e a s i n g more r a p i d l y than those from the land t a x and revenues.  other  71.  TABLE V I The Budgets o f Nineteen P r o v i n c i a l Governments f o r the F i s c a l Years o f 193° ( D Kevenues a n a  Receipts  Land t a x T i t l e deeds t a x House t a x Ship t a x Business taxes Administration fees Provincial Properties Provincial Enterprises C r e d i t s & Loans Subsidies from the C e n t r a l Government Others  Amount: UUU yuan Range Total  302-14,600 101,211 11-2.305 15,209 15-48O 1,950 1,486 7-527 52,634 330-9,124  Percentage  Range  Average  5.14-54.61 0.24- 9.69 o . i t f - 2.49 0.12- 1.95 3.45-36.40  29.27 4.40 0.56 0.43 15.22  15,743  0.05-11.66  4.55  4,119  o . l l - 4.79  1.19  0, or ' 28-3,905 0, o r 800-3,800  14,973 30,316  0.45-13.50 3.01-45.73  4.33 9.64  122-6,725 68-8,481  54,325  6.29-3I.67 0.27-46.84  15.71 14.70  0,or 0,or  1-5,096 0,or  3-950  345,755  Total  100.00  Expenditures 48-812 Party # 0,or Administration 330-6,009 Police Protection 81-6,409 Public Health # 0,or 13-600 Education 152-5,743 Financial 147-4,067 Administration 3-4,067 Industries 0,or 39-6,019 Reconstruction 0,or 8-2,606 Communication 0, or IO-23.280 Debts 0,or 80-2,840 Enterprises 0,or Judicial 51-2,932 Administration 5-204 Pensions # 0,or 87-3,756 Reserve 16-2,000 Others 0,or Subsidies t o tiie 12-4,113 Local Governments Total  3,703 47,081 51,149 2,568 46!731  0.44- 4.24 7.14- 30.57 3.42-27.04 0.20- 3.52 7.87-20.59  1.07 13.62 14.79 0.74 13.52  18,799 9,694 29,853 5,768 58,822 6,024  3.35-13.04 0.12-11.65 1.81-19.87 0.25- 6.19 0.19-53.23 0.29-10.67  5.44 2.80 8.63 1.67 17.01 1.74  23,457 812 14,614 4,789  2.15- 11.43 0.04- 1.02 0.20-15.32 0.15- 6.82  6.78 0.24 4.23 I.38  21,911  0.23-54.06  6.34  345,755  100.00  # I n some cases t h i s item was incorporated i n t o the expenditures f o r administration. 1. Source:  Chia Teh-huei, V o l . I I , Pp 575-79, 6IO-I3.  72.  Table V I I shows i n d e t a i l the increase i n the p r o v i n c i a l revenues i n the f i s c a l year o f 1936 as compared w i t h those o f 1931. This Table also i n d i c a t e s that the p r o v i n c i a l finances were becoming more s t a b l e . TABLE V I I Increases and Decreases o f the P r o v i n c i a l Revenues 1 i n Four Selected Provinces f o r I936 compared w i t h 193I Revenue Sources  Total in 1931  Land 46805 T i t l e Deeds 3727 181; House Ship 305 Business 1496k Administrat ion fees # 2793 364 Properties Enterprises 62888 Loans 10000 Subsidies 13431 12048 Others Total  110929  (Amount: 000 yuan) Increase; + Decrease1 mjvife Total % • and - 1930 Shang- Kaang-- Ohe- Honan Hunan tung su kaing i n 1936 100 1080+ 400+ 0 3+ 911+  13U0+ 358470+ 0 1438+  1379+ 0 0 305-  1221267* 31070 2767+ 24*  1+ 296+ 1233+ 0 657+ 2877-  I7 * 3544+ 28062769* 1704-  1620*  1200+  5106+  816+  333+ 6  2761* 1468* 506+ 573+ 0 93+ 0 221817+ 1314+  5767+ 4198+ 563+ 195175+  112.3 212.7 402.7 93.7 134.6  78-  78+ 290+ 907+ 30002022575+  1951522+ 2243+ 34063078+ 1676-  92.6 518.2 135.7 65.9 122.8 86.1  4430+  4894+  17250+  115.6  614+ 93+ 3342400+ 2913-  # Including the r e c e i p t s from the j u d i c a l a d m i n i s t r a t i o n  Since the Republic, the p r o v i n c i a l governments o f t e n resorted 2  to borrowing when t h e i r ordinary revenue was f e l t t o be inadequate. U n t i l 1925, the p r o v i n c i a l net debts of t h i r t e e n provinces from bonds and loans amounted t o about 51,120,000 yuan, 7,367,762 Japanese Yen, and 972,164 pounds s t e r l i n g .  3  Most of the proceeds of the l o a n i s s u e s were,  1. Source: Chia Teh-huei, V o l . 1 1 , Pp 575-77, and p. 6£ supra. 2. The f i r s t p r o v i n c i a l bond was issued by the Hopei P r o v i n c i a l Government i n 1904 f o r m i l i t a r y expansion. Cf., Chia, Vol.11, p. 6l8. 3. I b i d . , p. 621.  73. d i r e c t l y o r i n d i r e c t l y , used f o r m i l i t a r y expansion o f the p r o v i n c i a l 1 governments.  From 1927 on, the p r o v i n c i a l debts were c a r r i e d out f o r  reconstruction, r e l i e f , as w e l l as f o r c i r c u l a t i o n and banking purposes. The d e t a i l s are shown i n Table V I I I .  These f i g u r e s include the bonds  outstanding, the bonds t h a t had not been f u l l y issued, and i n some cases, the bonds that had been p a i d o f f . TABLE V I I I The P r o v i n c i a l Bonds i n F i f t e e n Provinces 1927 - 1937 i n c l u s i v e . 3  Year 1927 1928 1929 1930 1931 1932 1933 1934  1935  1936 1937 Total  %  Banking^  8000 20000 49000  4000 2000  83OOO  25.7  (Amount; OOP P U R P 0S ReconstrucRelief tion #  Yuan) E S Old EnterDebts p r i s e s  •  Others  *  3000 7000 10000 500 1000 20000 24800 30000  3000 26000 4500  93300 29.1  39500 12.3  3000  900  10000  3000 8000 27400 59000 44738 14200 2000 30000 88800 33000 10900  3900 1.3  41338 12.9  321038 100.0  7400 3000 60000  60000 18.7  Total  8738 6200 1000 6000 2000  # Includes r e h a b i l i t a t i o n , e t c . * The bonds i s s u e d f o r more than one purpose under the f i r s t f i v e headings. 1. Cf., I b i d . , p. 618. 2. Since the beginning o f t h i s century most o f the p r o v i n c i a l goveijnments issued coins and banknotes through t h e i r r e s p e c t i v e p r o v i n c i a l banks. I n f l a t i o n appeared c r i t i c a l during the p e r i o d of warlordism p r i o r t o 1926. As a r e s u l t o f t h i s l f some p r o v i n c i a l governments issued bonds. In order t o maintain the value o f the p r o v i n c i a l currency, from 1934 . onwards, the p r o v i n c i a l governments surrendered t h e i r c o n t r o l o f . currency. 3. Source: Chia Teh-huei, V o l . I I , Pp 622-24. 4. Op. c i t .  74.  Hsien Finance As i n s t i t u t e d by the F i n a n c i a l D i v i s i o n Act of 1928, the Hsien finance was to be d i r e c t e d by the p r o v i n c i a l government.  Not u n t i l  1929 was the "Organic Law of the Hsien Government" put i n t o e f f e c t . According t o t h i s Law, the Hsien finance was t o be d i r e c t e d by the magistrate of t h e Hsien government. Before the Law was enacted, the custom had developed t h a t the Hsien governments were granted by t h e i r r e s p e c t i v e p r o v i n c i a l governments, a few sources of p r o v i n c i a l revenue f o r t h e i r f u n c t i o n s .  Because  these sources of revenue were granted by each i n d i v i d u a l p r o v i n c i a l government, there was no uniform standard i n Hsien f i n a n c e .  A f t e r the  Law was enacted, the major source of the Hsien revenues was the surtaxes on the p r o v i n c i a l l e v i e s , i n which the farm land s u r t a x was the most important.  Speaking g e n e r a l l y , the importance of each i n d i v i d u a l surtax  i n the t o t a l Hsien governments* r e c e i p t s d i f f e r e d from one province t o another. By the Organic Law, the magistrate and t h e bureau of f i n a n c e , which was under h i s d i r e c t i o n , were enpowered t o d e a l w i t h : 1.  Enforcement of the budget passed by the Hsien Assembly;  2. C o l l e c t i o n of the Hsien revenues and r e c e i p t s ; 3 . Disbursement of Hsien revenues and r e c e i p t s ; 4. Hsien debts; and, 5. Management of p u b l i c p r o p e r t i e s and e n t e r p r i s e s . This Law, however, n e i t h e r provided new taxes f o r , nor defined the o l d taxes which should belong t o the Hsien governments.  But i t  authorized the Hsien Governments t o c o l l e c t revenues i n a vague sense.  75. The r e s u l t was t h a t the Hsien government developed a surtax system i n which the major sources of t h e i r income were d e r i v e d from the surtaxes on p r o v i n c i a l l e v i e s , such as the surtaxes on farm l a n d , t i t l e deeds, and business f i r m s .  Because t h e p r o v i n c i a l governments were s t i l l the super-  v i s o r s t o t h e Hsien governments, the l a t t e r could not e x e r c i s e f r e e l y t h e i r power over the surtaxes on the p r o v i n c i a l l e v i e s .  The Hsien  governments, t h e r e f o r e , r e s o r t e d t o the undesirable Chuan l e v i e s i n order t o meet t h e i r o b l i g a t i o n s which were r e f e r r e d t o them from the Hsien people's assemblies.  Table IX shows the Hsien budgets i n s i x t e e n  provinces f o r t h e f i s c a l year o f 1936. I n many cases the p r o v i n c i a l governments granted the entire l e v y i n g power over the t axes on houses and butchers t o the Hsien governments.  I n some cases they could even enjoy some surtaxes. I n others,  the p r o v i n c i a l a u t h o r i t i e s a l l o t t e d annually c e r t a i n amounts of funds t o t h e i r subordinate governing bodies instead o f other devices.  I n 1936  the l a r g e s t source o f Hsien income was the surtax on farm l a n d , on the average, 54.6 p e r cent o f the t o t a l .  The various Chuan l e v i e s came next,  c l a s s i f i e d under the headings of "miscellaneous l e v i e s " and "other r e c e i p t s " i n Table IX. total.  On the average they made up 23.4 per cent o f the  The s u b s i d i e s from the p r o v i n c i a l governments v a r i e d from 1 t o  63 per cent among the provinces and on the average amounted t o 5 per cent of the t o t a l Hsien income. Among a l l the expenditures, t h a t f o r education was the largest, averaging 28.54 per cent of t h e t o t a l .  P o l i c e p r o t e c t i o n accounted f o r  20.41 p e r cent and a d m i n i s t r a t i o n 19.43 per cent. funds was 6.28 per cent.  Expenditure f o r reserve  I n t h a t year, the Hsien finance i n only two  provinces showed d e f i c i t s . These two provinces were Shensi and Kwangtung, and t h e d e f i c i t s were 338,017 yuan and 2,079,698 yuan r e s p e c t i v e l y .  76. TABLE I X Budgets o f the Hsien Governments i n Sixteen Provinces f o r the F i s c a l Year o f 193° • L  Amount: 000 Xuan Revenues and Total Range Receipts Surtaxes on: 30-22378 76558 Land 28-903 T i t l e Deeds 2593 4861 Butchery * a 112-3077 196 Business #b 4-63 Other p r o v i n c i a l levies 2126 House t a x 279^28% 3544 P u b l i c p r o p e r t i e s #c 15-1436 7411 T u i t i o n s and f e e s from the p u b l i c schools 2 » A d m i n i s t r a t i o n fees Subsidies from the prov27-236U • 6926 i n c i a l governments 18017 Miscellaneous l e v i e s 3-2775 Other r e c e i p t s *d 14799 8-3231 Total  140214  Percentage Aver Range T6T r 54.60 ll.3O-87.93 1.85 0.33-10.13 3.47 1.30-23.29 0.12 0.06- 0.77 0.80-22.01 3.35-38.70 1.01-37.10  1.52  A  2  5.2  8:&K:f? 1.16-62.90 1.01-46.62 1.01-35.31  AS  10.55  100.00  Expenditures 0.92 Party *e 458-845 2.76-2.79 1303 9.17-49.68 Administration 19-4755 27647 19.43 5.71 L o c a l self-government 479-27°0 12.48-24.15 8132 Police protection 85-6334 5.31-52.19 20.41 29048 Public h e a l t h 1-543 0Q03- 3.29 0.99 1411 Financial administration 1-1587 0.45-9.34 4^*5 Education 72-9ol4 *m 15.51-64.04 673 I n d u s t r i a l a d m i n i s t r a t i o n 20-319 0.59- 2.72 0.47 599 Communication *g 23-481 0.64- 3.64 0.42 6683 Construction 4-2422 0.79- 8.02 4.70 R e l i e f and Pension 2-1121 3017 0.28- 4.12 2.12 Subsidies t o the subordinate bodies *h 2-1518 3168 0.24-13.04 2.23 Reserve fund 77-3742 0.87-12.39 8933 6.28 Others 4-1062 6326 1.82-16.28 4.45 Total 142293 - 100.00 jyauvuMUJa?: Anhwei, Chahar. Chekiang. Ch'inghai. i>Ukien. Honan. Hupei. Kansu. Kiangsu, K i a n g s i , Kwangsi, Kwangtung, Ninghsia, Shansi, Shangtung, Shensi, &a. I n some cases t h i s item included the business surtaxes. *b. I n some cases t h i s item included the butchery surtax. * c . Largely formed by the p u b l i c farm land. -^d. I n some cases t h i s item included temporary loans, e t c . #e. Chekiang and Kiangsu only. * f . Chekiang, Honan, K i a n g s i , Kansu and Kwangtung i n c l u s i v e . *g. Jehol, Kwangsi and Kwangtung only. *h. I n some cases t h i s item i n c l u d e d the expenditures f o r l o c a l self-governments, e t c . 1. Source: Chia Teh-huei, V o l . I I , Pp 642-8.  77. The f i n a n c i a l a b i l i t y among the Hsien d i f f e r e d greatly from Hsien to Hsien and from province t o province, as can be seen from the following Table: TABLE  X  Hsien Budgetary Expenditures i n Sixteen Provinces i n 1936. (Unit: y u y O T T  ~'• " " Ranges  Kiangsu  1,600,000 and above 1,500,000 - 1,600,000 1,400,000 - 1,500,000  1 1  .Number"of.Hsien Che Kwang Hwang kiang tung si  Fu kien  Shan si  Kiang si  Hupeh  1 1  2 8  2 8  5 11 23  5 20 29  10 22 21  1  1,300,000 - 1,1+00,000 1,200,000 - 1,300,000 1,100,000 - 1,200,000 1,000,000 - 1,100,000 900,000 - 1,000,000 800,000 y00,000 700,000 600,000 500,000 -  800,000 700,000 600,000  400,000 300,000 200,^000 -  500,000 1+00,000 300,000  150,000 100,000 50,000 -  200,000 150,000 100,000  10,000 5,000 1,000 -  50,000 10,000 5,000  1  3 1 1 1+  6 5  J  9  i+  1  2 2  1  1  1  1+  1  2 8 9  5 9  8 13 23  11 20 27  9 19 32  6 17  4  17 1  23  8  28 2  ' 19  7  75  95  99  62  71  83  70  2 1+  8  2 1 1+  24  1,000 and l e s s  Total Hsien  1. Ben Tu-sing, p. 31.  60  ivan su  An whei  "Ho nan  Number of Hsien "Ch 'ing C h a Shan bar tung hai -  1  Shansi  Ningsia  TOTAL 1 1 1 0 0 1 (cit.)  U 2  3  5 9 10 2 9 1 1 15  10 2U 17  2  3 -  17 70  18  6  2 5  51 36  2  22  Ul  15 40 70  l  87 218  25 80  347 10  U  1  65  $2  111  108  12  265 1  10  105  10  1098  78.  Conclusion From 1929 the p r o v i n c i a l finances were moving i n the r i g h t direction.  The by-product of the F i n a n c i a l D i v i s i o n Act was a general  subsidy system which was t o p l a y an important r o l e between the C e n t r a l and p r o v i n c i a l governments. The nation had suffered so much during the decade o f the t  c i v i l wars p r i o r t o 192y that i t seemed d e s i r a b l e t o have a general subsidy system w i t h t h e C e n t r a l Government having c o n t r o l over the p r o v i n c i a l budgetary proceeds, i n order that the country as a whole could be r e h a b i l i t a t e d .  However, i t was probable that the Central  Government feared a p o s s i b l e expansion o f p r o v i n c i a l power, since the C e n t r a l Government i t s e l f had a t t a i n e d power through p a i n f u l c i v i l wars w i t h the p r o v i n c i a l warlords.  The "Organic Law o f Hsien Govern-  ment" was consequently planned t o reduce somewhat the f i n a n c i a l strength of the p r o v i n c i a l governments.  79. Chapter V - The Second National F i n a n c i a l Conference Summary The opening of the Second National F i n a n c i a l Conference i n 1934 was the r e s u l t o f three major causes. the other, economic. were passed.  Two of them were p o l i t i c a l ,  At t h i s Conference, three important  Resolutions  The f i r s t Resolution proposed an a b o l i t i o n o f various  Chuan l e v i e s ; the second, recommended an adjustment i n the e x i s t i n g l a n d tax system; and the t h i r d t r a n s f e r r e d some p r o v i n c i a l taxes to,the Hsien governments f o r a d m i n i s t r a t i v e purposes.  I n the years that  followed 193a, the f i r s t two Resolutions were gradually r e a l i z e d ; the t h i r d one, however, was never put i n t o e f f e c t .  I n s p i t e o f t h i s , the  Second F i n a n c i a l Conference was extremely s i g n i f i c a n t i n the h i s t o r y of Chinese p u b l i c finance, because i t was the f i r s t time t h a t the Hsien governments, the major l o c a l governments of the s t a t e , had been empowered by s t a t u t e t o l e v y taxes o f considerable magnitude, A.  •? P o l i t i c a l Aspects Leading t o t h e F i n a n c i a l Conference o f 193k The f i r s t p o l i t i c a l force leading t o the Conference of 193k  was the c i v i l war between the N a t i o n a l Government and the Chinese Communists.  Therefore i t i s advisable t o review b r i e f l y the r e l a t i o n -  ships between the Kuomintang and the Communists  because many a f i n a n c i a l  p l a n o f the National Government was brought about through the c o n f l i c t between the two P a r t i e s , Following the success of the Russian Revolution, the Soviet Government announced, i n 1920, that i t would renounce a l l i t s i n t e r e s t s  80.  and p r i v i l e g e s o u t l i n e d i n the unequal t r e a t i e s p r e v i o u s l y contracted between China and Russia. ing  The r e s u l t was the establishment of a f e e l -  o f f r i e n d s h i p between the Chinese and the Russians, p a r t i c u l a r l y 1  on behalf of the Chinese r e v o l u t i o n a r y leaders. 1922, the Chinese Communist Party was created.  Between 1920 and From then on, China  had two great p a r t i e s -which played an extremely important r o l e i n recent Chinese h i s t o r y . In 1922, a s p e c i a l envoy o f the Soviet Government, A. J o f f e , came t o China and met Dr. Sun Yat-sen who, at that time, was only the leader o f the Kuomintang Government i n Canton. not yet been i n t e r n a t i o n a l l y recognized.  This Government had  I n January 1923, Sun Yat-sen  and Envoy J o f f e issued a j o i n t statement, which reads i n p a r t as follows: "Dr. Sun Yat-sen holds that the Communistic order o r even the S o v i e t system cannot a c t u a l l y be introduced i n t o China, because there do not e x i s t here the conditions f o r the successf u l establishment of e i t h e r Communism o r Sovietism. This view  1. Cf., L i Jan-nung, V o l . 1 1 , Pp 609-10; "The Peking Government dared not accept t h i s announcement because of the threats from the diplomatic o f f i c e s o f the Imperial powers i n Peking .... When a Russian Envoy, A . J o f f e , came t o Peking, there were no representatives o f the Chinese Government present; but fourteen people's organizations warmly welcomed Envoy J o f f e , and a s e r i e s o f parties.and meetings followed. This was the f i r s t occurrence i n Chinese h i s t o r y o f ' c i v i l i a n diplomacy'. This a c t i o n was not i n d i c a t i v e of a d e s i r e on the p a r t of the Chinese Ccmmiunists to u n i t e w i t h Russia, because the number o f the Communists was extremely small among the fourteen groups. Nor was i t an endeavour by the Kuomintang t o u n i t e w i t h Russia, because at t h a t time J o f f e had not. as yet met Sun Yat-sen. I t was, however, an i n d i c a t i o n that the i n t e l l e c t u a l classes were showing a p a r t i a l i t y t o the Russians. The Warlords i n Peking could not prevent t h i s s o r t of occurrence because they could not declare i t i l l e g a l ; and, the f o r e i g n diplomatic o f f i c e s d i d not increase t h e i r pressure on the Peking Government, but they were quite envious."  81. i s e n t i r e l y shared by Mr. J o f f e , who i s f u r t h e r of the opinion t h a t China's paramount and most p r e s s i n g problem i s t o achieve n a t i o n a l u n i f i c a t i o n and a t t a i n f u l l n a t i o n a l independence, and regarding t h i s task, he has assured Dr. Sun Yat-sen that China has the warmest sympathy o f the Russian people and can count on the support of Russia." 1 A f t e r the reform of the Kuomintang, i n 1924, an understanding was reached w i t h t h e Chinese Communists whereby i n d i v i d u a l Chinese Communists were allowed t o j o i n the reformed Kuomintang i n order t o b o l s t e r the r e v o l u t i o n a r y elements i n the country.  Meanwhile, an  important member of the Chinese Communist Party, L i Ta-chao, declared: "In j o i n i n g the Kuomintang, coimnunists of the T h i r d I n t e r n a t i o n a l are t o obey Kuomintang d i s c i p l i n e and t o p a r t i c i p a t e i n the n a t i o n a l r e v o l u t i o n . They have not the s l i g h t e s t i n t e n t i o n of turning the Kuomintang i n t o a Communist p a r t y . Those Communists who j o i n the Kuomintang do so as i n d i v i d u a l s and not on a p a r t y basis." 2 This statement was c h a r a c t e r i s t i c o f the s p l i t between the Kuomintang and the Chinese Communist P a r t y i n l a t e r years, i n t h a t there was never an a c t u a l agreement which could c l a r i f y the f u t u r e r e l a t i o n s h i p between the two P a r t i e s who were now together undertaking the task of u n i f y i n g the country.  This was p a r t i c u l a r l y t r u e where m i l i t a r y a f f a i r s  were concerned. In 1927, f o l l o w i n g the m i l i t a r y campaigns o f the preceding year, the National Government moved t o Hankow. This Government was made up of members of both P a r t i e s .  At the same time, the Communist Party  was developing on a p a r t y b a s i s i t s own m i l i t a r y strength. As an i n e v i t able r e s u l t , the s p l i t between the two P a r t i e s was becoming apparent as time went on.  I n A p r i l of the same year when the National Government,  1. China's Handbook, 1937-45, p. 66. 2. I b i d .  82. under Generalissimo Chiang Kai-shek moved t o Nanking, i t contained no Communist members.  The eight-year h o s t i l i t i e s between the Kuomintang  and the Communists then broke out. I n J u l y 1927, the Chinese Coinmunist Party created the Chinese Soviet Republic and set up the Chinese Soviet Government i n southern K i a n g s i w i t h i t s t e r r i t o r y i n s e v e r a l c e n t r a l provinces. I n 1933,  two years a f t e r the Japanese had invaded the North-  eastern Provinces, Chiang Kai-shek declared a general m o b i l i z a t i o n order i n eight provinces, i n order t o r a i s e an army t o remove the Communists completely before the outbreak o f an o f f i c i a l war w i t h Japan.  By 1935,  the National Government had launched numerous suppressive moves i n the c e n t r a l provinces and the Communists f l e d westward, then northward, u n t i l f i n a l l y they reached northern Shensi. For the purpose of more e f f e c t i v e l y destroying the Communist strength, the National Government attempted t o reduce both the p o l i t i c a l and f i n a n c i a l power of the p r o v i n c i a l governments.  The provinces had  contributed s u b s t a n t i a l l y t o the d i s i n t e g r a t i o n of the state since 1917 and had been an adverse i n f l u e n c e on the progress of the C e n t r a l authorities.  Therefore i n 1933  the National Government.  a remarkable monetary reform was undertaken by The Standard S i l v e r D o l l a r was minted and  authorized as f u l l l e g a l tender r e p l a c i n g the unstable and chaotic p r o v i n c i a l s i l v e r and paper currencies.  Thus f o r the f i r s t time s i n c e 1917  did  the nation have a uniform currency, and the p r o v i n c i a l f i n a n c i a l power, the reduction of which was begun by the F i n a n c i a l Conference o f 1928, was f u r t h e r reduced.  The N a t i o n a l Government planned t o b u i l d up a sound  1. Fukien, Honan, Hunan, Hupeh, Kiangsi^ Kwangtung, Shensi, and Saechwan.  83  Hsien f i n a n c i a l system instead o f strengthening the provinces, c o n s i s t ent w i t h the underlying philosophy o f the Kuomintang, l a i d down by Sun Yat-sen i n h i s "Fundamentals of N a t i o n a l Reconstruction". I n the Fundamentals i t was recommended t h a t the Hsien governments be the ultimate governmental u n i t t o perform government s e r v i c e s , while the p r o v i n c i a l governments were t o serve as an intermediary between the Central and the Hsien governments.  The Second N a t i o n a l F i n a n c i a l  Conference was h e l d t o r e a l i z e t h i s purpose. The other p o l i t i c a l pressure l e a d i n g t o t h i s Conference was the tenseness between China and Japan. In 1928 Chiang Kai-shek l e d h i s troops across the Yangtze River towards h i s o b j e c t i v e -— Tzinan, the c a p i t a l o f Shangtung. Meanw h i l e , the Japanese Government had been sending^reinforcements i n t o t h i s Province, pretending t o p r o t e c t the Japanese r e s i d e n t s and t h e i r p r o p e r t i e s , but a c t u a l l y t o prevent the War o f U n i f i c a t i o n and t o b o l s t e r the p o l i t i c a l p o s i t i o n of General Chang Tsci-lin.  General Chang  at that time was the only one among the Northern Warlords who could r e s i s t Chiang Kai-shek.  I n e v i t a b l y , i n May o f the same year, s t r e e t  f i g h t i n g broke out i n Tzinan between the N a t i o n a l i s t s and the Japanese. An unprecedented anti-Japanese f e e l i n g spread throughout the country even before the U n i f i c a t i o n was f u l l y accomplished, Chang Tscj-lin was a t t h a t time the head of a c e n t r a l governing body which he had r e c e n t l y formed a t Peking.  He sent a c e a s e - f i r e  order t o h i s troops f i g h t i n g Chiang and began .peace n e g o t i a t i o n s w i t h the N a t i o n a l i s t s .  Chang's a c t i o n s showed signs of a complete s p l i t  between Peking and Tokyo.  As a r e s u l t he was murdered by the Japanese  when he himself was withdrawing from Peking t o Mukden, the c a p i t a l of 1 the  Eastern Provinces where h i s p o l i t i c a l strength o r i g i n a t e d .  Follow-  ing t h i s , the Mukden Government, the "envy of the Japanese", governed by young Marshal Chang Huseh-liang, the son of Chang T s d - l i n , "despite the e f f o r t s of the best Japanese diplomates" f i r m l y joined the National 2 Government. the  I n December of 1928,  the Kuomintang's f l a g f l e w over a l l  Northeast, and as a r e s u l t of t h i s the p o l i t i c a l c r i s i s between  China and Japan became i n c r e a s i n g l y s e r i o u s . On the night of 18th September 1931 what the Japanese termed the "Mukden Incident", broke out.  I n the f o l l o w i n g year a  puppet "Manchu Government" was set up a t Mukden, and the Four Eastern 3 Provinces were f u l l y occupied by 1933*  Henceforth there was no s i g n i f -  i c a n t w a r l i k e a c t i v i t y from the puppet s t a t e , "Manchukuo", because she regarded her boundaries as the "natural f r o n t i e r " of her j u r i s d i c t i o n . A f t e r 1933 the Japanese a g i t a t i o n l e d t o Mongolian independence from China, and thereupon successive b a t t l e s followed between the N a t i o n a l Government and the Mongol-Japanese f o r c e s i n the North. Another step i n Japanese p o l i c y i n China was what was l a t e r termed by the Japanese the  "Shanghai Incident" which broke out i n January, 1932.  "Determined  Chinese r e s i s t a n c e and i n t e r n a t i o n a l o p p o s i t i o n , however, rendered the ft/  r e a l i z a t i o n of t h i s play'(the Japanese invasion) impossible."  2|  The  "Shanghai Incident", thus, ended through negotiations between the two countries. 1. The I n t e r n a t i o n a l Year Book, 1928, New York, p. 166, "Previously he (Chang T s o - l i n ) had been a mere t o o l of the Japanese Foreign O f f i c e , but i n recent years ... he had chaffed under Japan's p o l i t i c a l and m i l i t a r y guidance and had shown signs of u l t i m a t e l y breaking completely w i t h Tokyo." 2. Ibid., . 3. KeilungldLang, K i r i n , Liaoning and J e h o l . 4. L#i Hai-tsung, H i s t o r y , Chinese. Year Book, 1937, p. 125.  85. From 1932 on, the N a t i o n a l Government had been preparing 1 for  an o f f i c i a l war w i t h Japan.  Bearing i n mind the abuses o f warlord-  ism as they e x i s t e d p r i o r t o the U n i f i c a t i o n , i t seemed v i t a l that the National Government attempt t o e l i m i n a t e any probable p o l i t i c a l t h r e a t from the p r o v i n c i a l governments i n order t o concentrate t h e i r e f f o r t s against the Japanese.  I n the opinion o f the w r i t e r , the Second National  F i n a n c i a l Conference should be considered only i n connection w i t h t h i s p o l i t i c a l p r e p a r a t i o n f o r war. B.  Economic f o r c e s l e a d i n g t o the F i n a n c i a l Conference o f 1934. When the storm o f world depression appeared i n I929, China 2  had the only s i l v e r standard i n the world.  China, a t t h a t time, was not  only a s i l v e r standard country, but there was a f r e e s i l v e r market i n existence.  The f a l l and r i s e of s i l v e r p r i c e s abroad e s s e n t i a l l y domin-  ated her economic trends.  From 1929 t o 1932 the heavy f a l l o f s i l v e r  p r i c e s r e l a t i v e t o gold p r i c e s prevented China from s u f f e r i n g most of the adverse e f f e c t s of the world depression, because the lower s i l v e r p r i c e s brought i n f l a t i o n a r y conditions i n the country.  As a r e s u l t , the  general p r i c e l e v e l went up s t e a d i l y from I929 t o 1932. 1. Cf., Chang Peh-yi, p. 7. 2. Hawtrey, R.G., Pp 73-U, "The greater p a r t o f L a t i n America had formerly had s i l v e r c u r r a n c i e s , but had lapsed i n t o i n c o n v e r t i b l e paper. Those countries which emerged from t h i s s t a t e of confusion, such as Peru, A r g i n t i n a , Uruguay and Mexico, adopted gold. Others, towards a gold stand ... From I898 onwards, the (East Indian) rupee was f i x e d ... by an ingenious a p p l i c a t i o n of gold exchange standard. S i m i l a r measures s e t t l e d other Far Eastern currencies on a gold b a s i s , t i l l i n 1911; China almost alone i n the whole world r e t a i n e d a s i l v e r standard. !l  86.  During these years there were two s i g n i f i c a n t tendencies i n the Chinese economy.  The f i r s t tendency, as we have seen, was  the  r i s e of the general p r i c e l e v e l because of the f a l l of s i l v e r p r i c e s abroad.  The other was the f a l l of c e r e a l p r i c e s i n s p i t e of the  i n f l a t i o n a r y i n f l u e n c e s , because of poor crops.  The l a t t e r s i t u a t i o n  reduced the purchasing power and r e a l income of the agrarian s e c t i o n , which was a major part of the t o t a l population.  These unbalanced  developments i n e v i t a b l y r e s u l t e d i n economic c r i s i s i n a l a t e r period. Beginning w i t h 1932  s i l v e r p r i c e s went up r a p i d l y abroad,  r e s u l t i n g i n d e f l a t i o n and business panic i n China.  From 1933  onwards,  the general p r i c e l e v e l dropped and the f a l l of c e r e a l p r i c e s c r i t i c a l l y continued because of a good season.  The influences of the world depres-  s i o n p r i o r to the Conference of 193k  are r e f l e c t e d i n Table XI.  I t should be noted that i n 1930 there was a great famine i n Shensi areas caused by l o c u s t s and cereals i n more than 70 Hsien were lost.  The increase i n p r i c e of cereals i n that year cannot be con-  sidered as one of the influences of the great depression. From 1929 t o I93I the general wholesale index climbed r a p i d l y , while the c e r e a l wholesale index declined.  In I932 and  1933  the p r i c e of s i l v e r abroad was i n c r e a s i n g and the general index i n Shanghai f e l l o f f , but the p r i c e s f o r cereals dropped even f u r t h e r . Because the agrarian population i s the greatest proportion of the t o t a l , the decline of c e r e a l p r i c e s g r e a t l y checked domestic commercial activities.  TABLE X I E f f e c t s o f the World Depression i n China 1929 t o 1934 Wholesale index, base year: 1926 - 100.0 Unit of s i l v e r trade: Chinese Standard D o l l a r - 26.7 grams s i l v e r , 880 fineness Trade, u n i t : 000,000 Haikwan t a e l s - $34,000 i n U.S.A. funds. Unit of gold trade: Custom Gold Unit - 60.19 centigrams o f pure gold.  Wholesale index i n Shanghai ( i n c l u d i n g cereals) 1 Wholesale index i n 2 Shanghai f o r cereals New York quotations on * s i l v e r i n cents per ox. Excess of i m p o r t s ( i n Haikwan t a e l s ) other than s i l v e r . 4  1929  1930  101*. 5  114.8  97.2  110.3  48.48  1104  Excess o f s i l v e r imports'' 164.9 Excess o f s i l v e r exported S i l v e r exports i n c l u d i n g smuggling. 7 a Excess o f gold exports.  1. 3. 4. 5. 7. 8.  —  32.64  End of 1931  1932  1933  1934  1*6.7  112.4  103.8  97.1  94.4  81.7  69.6  69.1  30.12  25.01  43.35  54.39  ?  ?  1106  1285  978  104.4  70.8  -  —  —  11.4  .14.1  -  200.0  3.15  19.02  27.29  59.27  35.54  Chinese Year Book, 1937, p. 639. 2. I b i d . Money and Banking, League o f Nations, 1936-7, V o l . I I , p. 4 0 . China Year Book, 1934, p. 174. Chinese Year Book, 1937, p. 555. 6. I b i d . Chia Teh-huei, V o l . I I , p. 463. Chinese Year Book, 1937 i s s u e , p. 554.  26.22  88. While the p r i c e s f o r s i l v e r were decreased abroad, the imports of s i l v e r played an important r o l e i n monetary i n f l a t i o n . from 1932  But  onwards, s i l v e r p r i c e s were higher abroad so that a great  deal of s i l v e r metal was exported and monetary d e f l a t i o n followed. Although the general wholesale index d i d not f a l l g r e a t l y i n 1934, that of cereals had sunk t o 69.1. and approached bankruptcy.  The farming communities were most depressed Thus t o r e l i e v e farming became the most  important p o l i t i c a l issue of the time.  The a b o l i t i o n of various Chuan  and readjustment of the l a n d tax system were urged everywhere throughout the country.  The Second National F i n a n c i a l Conference was, t h e r e f o r e ,  hastily called.  C.  Resolutions of the F i n a n c i a l Conference of  1934  The Resolutions of the Conference were i n f o u r p a r t s .  The  f i r s t p a r t was "Taxation"; the second was "Demarcation of P r o v i n c i a l Hsien Taxation System"; the t h i r d was "Banking and C i r c u l a t i o n " ; and the l a s t was " I n t e r n a t i o n a l Trade". In the f i r s t p a r t the e x i s t i n g p r o v i n c i a l and Hsien t axes were reviewed.  I t emphasized the inadequate revenue sources of the Hsien  governments as cause and the impositions of the onerous surtaxes and the various Chuan l e v i e s as e f f e c t .  The f i r s t s e c t i o n of t h i s p a r t , the  " A b o l i t i o n of Miscellaneous Chuan", stated t h a t , "Since the F i n a n c i a l D i v i s i o n Act of 1928  has been i n e f f e c t , the expenditures of the p r o v i n -  c i a l and Hsien governments have been g r e a t l y increased.  Since the recent  expansion i n expenditure of the said governments seems t o be l i m i t e d , the  89. surtaxes and the Chuan l e v i e s have been increased from time t o time. The disadvantages of the Chuan and s i m i l a r l e v i e s could be  enumerated  as f o l l o w s : "1. 2. . . 5.  They a r e contrary to t h e p u b l i c i n t e r e s t ; They are detrimental t o communication; They encroach upon the source of the c e n t r a l revenues; They constitute overlapping taxation; They are u n j u s t i f i a b l y imposed upon the goods imported from other l o c a l i t i e s f o r the sole purpose of r a i s i n g revenue f o r the l o c a l i t y concerned; and, 6. They are of the nature of a t r a n s i t duty on commodities i n c i r c u l a t i o n among various l o c a l i t i e s . " Before the F i n a n c i a l Conference of 1928 the Chuan and L i k i n  l e v i e s had been imposed i n the same manner i n many cases.  Both were  imposed on commodities whether i n t r a n s i t or i n the course o f production or of marketing. Except f o r t h e Chuan l e v i e s imposed on the persons and f i r m s there were no p r a c t i c a l means f o r d i s t i n g u i s h i n g the Chuan from the L i k i n .  While i t was decided t o a b o l i s h the L i k i n l e v i e s by the  F i n a n c i a l Conference of 1928, the Chuan l e v i e s were not mentioned. The F i n a n c i a l Conference of 193U thus attempted t o associate these two l e v i e s w i t h the p e r i o d before 1928, f o r by omitting any reference t o Chuan, i t seems t o have i d e n t i f i e d Chuan imposed before 1928 w i t h L i k i n . The f i r s t A r t i c l e of 193k  regarding the a b o l i t i o n of Chuan  l e v i e s s t a t e d that: A l l the Chuan and s i m i l a r l e v i e s imposed by the p r o v i n c i a l and Hsien governments before the i n t r o d u c t i o n o f the F i n a n c i a l D i v i s i o n Act of 1928 should be reported i n d e t a i l as t o t t h e i r amounts and purposes t o the M i n i s t r y of Finance of the C e n t r a l Government f o r a b o l i t i o n .  In f a c t , many Chuan l e v i e s had been imposed a f t e r 1928,  particularly  by the Hsien governments since t h e i r finances were not c o n t r o l l e d by the p r o v i n c i a l a u t h o r i t i e s , but by the Hsien people's assembly, and they imposed the Chuan l e v i e s by the consent o f these assemblies.  The  second A r t i c l e o f 1934 thus recommended a c o n d i t i o n a l a b o l i t i o n o f these Chuan l e v i e s imposed s i n c e 1928,  I t stated  that:  A H the Chuan and s i m i l a r l e v i e s imposed not i n accordance with the laws or acts a f t e r the i n t r o d u c t i o n of the F i n a n c i a l D i v i s i o n Act (1928) should be reported i n d e t a i l as t o t h e i r name, amounts, r a t e s , and purposes, t o the L e g i s l a t i v e Yuan (Parliament; f o r approval o r f o r a b o l i t i o n . According t o the previous statement, the Chuan l e v i e s were a t t r i b u t e d t o the expansion i n government expenditures.  Therefore i t  would have been l o g i c a l f o r the Hsien people's assemblies, instead o f the L e g i s l a t i v e Yuan, t o a b o l i s h these l e v i e s . r e f e r r e d the case to t h e L e g i s l a t i v e Yuan.  Instead, the Conference  I t i s apparent t h a t t h e i r  i n t e n t i o n was t o a b o l i s h a l l the Chuan l e v i e s throughout the country, regardless of whether they were " l e g i t i m a t e " or not.  Furthermore, t h e  c a l l i n g of t h e Conference was l a r g e l y a p o l i t i c a l matter:  t o set up  sound Hsien f i n a n c i a l systems instead o f p r o v i n c i a l ones, and t o trans-, f e r a p a r t of t h e e x i s t i n g p r o v i n c i a l taxes t o the Hsien governments. Thus the l o s s of the Chuan l e v i e s would not n e c e s s a r i l y embarrass t h e Hsien governments i n performing t h e i r  obligations.  Bearing i n mind the experience i n abolishing L i k i n , the M i n i s t r y o f Finance of the Central Government was authorized by t h i s Conference t o supervise the e x i s t i n g and f u t u r e Chuan l e v i e s .  The  91. f o u r t h A r t i c l e dealt w i t h the timing of t h e a b o l i t i o n of the Chuan l e v i e s imposed a f t e r 1928.  I t reads as f o l l o w s :  The M i n i s t r y of Finance (of the Central Government) s h a l l r e s t r i c t any i l l e g a l increase or decrease i n p r o v i n c i a l and l o c a l taxation whenever i t i s not i n accordance w i t h the laws, and a c t s . A l l the Chuan and the s i m i l a r l e v i e s considered i l l e g a l by t h i s Conference should be abolished w i t h i n the s i x months from J u l y 1 to December 31, 1934. The funds provided f o r l e g i t i m a t e losses from the a b o l i t i o n of Chuan and the s i m i l a r l e v i e s should be defined separately by laws. One proviso i n the same A r t i c l e allowed means f o r those p r o v i n c i a l and Hsien governments who measures immediately.  could not adopt these f i n a n c i a l  I t stated:  The p r o v i n c i a l and Hsien governments should report to t h e M i n i s t r y of Finance of the C e n t r a l Government the s p e c i a l cases i n which the Chuan and the s i m i l a r l e v i e s could not be f u l l y or p a r t l y abolished by December 31, 1934. According t o the recommendation of a Congress of the Kuomintang, the F i n a n c i a l Conference should a l s o improve the e x i s t i n g l a n d taxation system.  The second s e c t i o n of the f i r s t part of the Resolutions  was e n t i t l e d "Land Taxes".  Under t h i s heading the e x i s t i n g abuses o f the  land taxes were reviewed: Since the land t t a x was a l l o t t e d t o the p r o v i n c i a l governments (by the F i n a n c i a l Conference of 1928), the forms, the r a t e s and the amounts of surtaxes on l a n d have been increased i n a chaotic manner. The most important p a r t of t h i s Section d e a l t w i t h the rates a t which the recommended l a n d taxes were t o be l e v i e d ,  ^ t stated that:  The taxes on l a n d , hereafter, s h a l l be l e v i e d under two categories only, namely, the l a n d value t a x and the l a n d increment tax.  92  The l a n d value t a x was proposed to replace the e x i s t i n g p r o v i n c i a l land taxes and Hsien l a n d surtaxes i n order t o e l i m i n a t e the d i s c r i m i n a t i o n against the taxpayers i n d i f f e r e n t assessment areas.  A more  s i g n i f i c a n t feature of the l a n d value tax was t h a t i t was expected t o reform the e x i s t i n g l a n d tax l e v y i n g methods.  The o l d l e v y i n g method,  which had been f o l l o w e d f o r hundreds of years, was t o assess the farm land t a x according t o the acreage.  Under the o l d method, i n many  provinces, there were no separate  taxes l e v i e d on urban land, but  they were incorporated i n t o the improvement l e v i e s .  The A r t i c l e s of  the Resolutions of the Conference thus s t a t e d t h a t : The amount of the l a n d value t a x s h a l l not exceed 1 per cent of the value of the land concerned (both r u r a l and urban). The surtax, or surtaxes, on farm l a n d s h a l l not exceed the o r i g i n a l l e v y on the same farm land. The t o t a l amount of both the surtaxes and the o r i g i n a l l e v y on farm l a n d s h a l l not exceed 1 per cent of the value of the farm l a n d concerned. Any a d d i t i o n a l form or r a t e o f l a n d t a x a t i o n s h a l l be v o i d . In short, 1 per cent of the l a n d value was proposed as the maximum rate on a l l improved land. The l a n d increment t a x was proposed t o replace the e x i s t i n g t i t l e deeds taxes the r a t e s of which v a r i e d from 2 t o 9 per cent.  The  new rates recommended by t h i s Conference were not important because g e n e r a l l y they were set up t o conform w i t h the e x i s t i n g rates.  I t was  stated t h a t : The evasion of the t i t l e deeds taxes was l a r g e l y due t o the h i g h surtax rates and the l a c k of a uniform rate .... Hereafter, the rate of thetax on the property s o l d s h a l l not exceed 6 per cent of the s e l l i n g p r i c e ; and the r a t e of t h e t a x on the mortgages s h a l l not exceed 3 per cent of t h e i r face v a l u e . The surtaxes on t i t l e  1. Cf., Ben l u - s i n g , Hsien Finance, p. 9$  93  deeds s h a l l not exceed 50 p e r cent o f the o r i g i n a l r a t e s . I f the present r a t e s , assessed on t i t l e deeds by the p r o v i n c i a l and Hsien governments are lower than the s a i d maximum rates, the a c t u a l rates s h a l l be maintained. The p o r t i o n o f the present r a t e s exceeding the maximum r a t e s s h a l l be f u l l y reduced by the p r o v i n c i a l and Hsien governments themselves. In summarizing t h i s f i r s t p a r t o f the Resolutions passed by the F i n a n c i a l Conference of 1934, two p o i n t s are o f importance.  I n the  beginning o f the f i r s t p a r t of the Resolutions, the heavy Chuan l e v i e s and farm l a n d surtaxes were a t t r i b u t e d t o the expansion o f the p r o v i n c i a l and Hsien expenditures. The A r t i c l e s went on t o enumerate the abuses of these two l e v i e s .  F o l l o w i n g these statements, i t was proposed t o  a b o l i s h the Chuan l e v i e s and t o s e t a maximum r a t e f o r l a n d t a x a t i o n . As a matter of f a c t , since 1928, the p r o v i n c i a l finances had been regulated by the C e n t r a l Government through i t s budgetary controls.  The p r o v i n c i a l governments had accepted t h i s f i n a n c i a l measure  together w i t h a general subsidy system w h i c h provided means f o r reducing the p r o v i n c i a l d e f i c i t s .  But i n l a t e r years the Hsien governments were  gradually expanding t h e i r o b l i g a t i o n s which forced them t o impose the Chuan l e v i e s and surtaxes on the l a n d since the Hsien governments had not yet  been g i v e n independent t a x sources.  I n a word, the e x i s t i n g sources  of revenue were inadequate f o r the expenditures of the p r o v i n c i a l and Hsien governments.  I n order t o r e a l i z e the a b o l i t i o n of various Chuan  l e v i e s , e i t h e r adjustment o f the government t a x a t i o n system, i n c l u d i n g the Central Government, o r adjustment of government expenditures was necessary. 1.  For t h i s purpose there were f o u r l o g i c a l a l t e r n a t i v e s :  To r e d i s t r i b u t e the e x i s t i n g sources of revenue and o b l i g a t i o n s between the C e n t r a l Government and the p r o v i n c i a l and Hsien governmentsj a n d t j i e n , t o adjust the expenditures according t o  9k. the a v a i l a b l e sources of revenue f o r each l e v e l of government respectively. 2. To a l l o t a p a r t of the f u n c t i o n s of the Hsien governments t o the p r o v i n c i a l governments; and i n turn, t o contract Hsien expenditures. 3. To a l l o t a p a r t of t h e revenue sources of the p r o v i n c i a l governments t o the Hsien governments, thereby reducing the p r o v i n c i a l expenditures. k. To provide, i f p o s s i b l e , new revenue sources f o r the already expanded expenditures of the Hsien governments. Bearing the p r e v i o u s l y discussed p o l i t i c a l trends i n mind, i t i s not s u r p r i s i n g t h a t the F i n a n c i a l Conference of l°3k decided upon the l a t t e r two a l t e r n a t i v e s , as shown i n the second p a r t of the Resolutions. The decisions s t a t e d i n t h i s p a r t were l a t e r known as the Act o f the P r o v i n c i a l - H s i e n Taxation System of 1935".  "Demarcation  I n t h i s Act the  functions of the p r o v i n c i a l and Hsien governments were defined as follows: The p r o v i n c i a l and Hsien revenues should be spent f o r the f o l l o w i n g purposes: a. Kuomintang's p r o v i n c i a l and Hsien headquarters; or the expenses f o r c i v i l i a n assembly and i t s r e p r e s e n t a t i v e s ; b. A d m i n i s t r a t i o n ; c. L e g i s l a t i v e expenses; d. Education f a c i l i t i e s ; e. Construction; f. P u b l i c health; g. R e l i e f ; h. C a p i t a l investment; i . Police protection; j . Reclamation and settlement ( p r o v i n c i a l o n l y ) ; k. Cost of t a x a t i o n c o l l e c t i o n ; 1. Debt charges; m. Pensions and retirement allowance t o o f f i c i a l s ; n. Subsidies to subordinate bodies; o. Other expenses defined by law. 1 1. Chinese Year Book, 1937  i s s u e , p.  368.  95. The sources of revenue f o r the p r o v i n c i a l and Hsien governments were-defined as f o l l o w s : The f o l l o w i n g sources o f revenue should be administered separately by both the p r o v i n c i a l and Hsien governments: a. "Tax r e c e i p t s j b. S p e c i a l assessments; c. Fines; d. A d m i n i s t r a t i o n f e e s ; e. Receipts from r e n t a l s , r o y a l t i e s and franchises from the public properties; f . Receipts from a d m i n i s t r a t i o n or t r u s t s ; g. P r o f i t s from the government operating e n t e r p r i s e s ; h. Receipts from s e l l i n g p u b l i c p r o p e r t i e s ; i . Receipts from c a n c e l l i n g or reducing invested c a p i t a l ; j . Receipts from bond i s s u e s and c r e d i t proceeds; k. Receipts from g i f t s , grants, subsidies from higher l e v e l s of governments, and donations from the people o r other p u b l i c organizations; 1. Other r e c e i p t s defined by law. 1 The sub-items which constituted "tax r e c e i p t s " of the p r o v i n c i a l and Hsien governments were as f o l l o w s : Tax r e c e i p t s of the p r o v i n c i a l governments: a. Taxes l e v i e d and enjoyed by the p r o v i n c i a l governments: The t i t l e deeds taxes. b. Taxes l e v i e d by the p r o v i n c i a l governments and shared between the p r o v i n c i a l and Hsien governments: The business taxes — 70% of which should go t o the p r o v i n c i a l governments, and the other 30* was a l l o t t e d t o the Hsien governments concerned. c. Taxes l e v i e d by the Hsien governments and shared between the p r o v i n c i a l and Hsien governments: The l a n d tax — l$-h$% of which should go t o the p r o v i n c i a l governments. The improvement taxes — 15-30* o f which should go t o the p r o v i n c i a l governments.  1. I b i d .  96. d.  Proposed new taxes l e v i e d by the C e n t r a l Government :and shared among the C e n t r a l , p r o v i n c i a l and Hsien governments. The income taxes — 10-20$ o f which s hould go t o the p r o v i n c i a l governments. The succession duties — 15$ of which should be assigned to t h e p r o v i n c i a l governments.  Tax receipts o f the Hsien governments: a.  Taxes l e v i e d and enjoyed by the Hsien governments: The business l i c e n s e taxes; The operation l i c e n s e t a x e s ; ! and The s p e c i a l p r o h i b i t i v e t a x e s . 2  b.  Taxes l e v i e d by the Hsien governments and shared between the p r o v i n c i a l and Hsien governments: The land taxes — 55-85$ o f yfoich should be enjoyed by the Hsien governments; and the other 15-45$ a l l o t t e d t o the p r o v i n c i a l governments concerned. The improvement taxes — 70-85$ o f which should be enjoyed by the Hsien governments; and the other 15-30$ a l l o t t e d t o t he p r o v i n c i a l governments concerned.  c.  Taxes l e v i e d by the p r o v i n c i a l governments and shared between the p r o v i n c i a l and Hsien governments: The business taxes — 30$ of which should be enjoyed by the Hsien governments.  d.  Surtaxes on the p r o v i n c i a l imposts l e v i e d and shared by .the Hsien governments: The t i t l e deeds surtaxes — the Hsien r a t e s should not exceed 50 per cent of the p r o v i n c i a l r a t e s .  e.  Proposed new taxes l e v i e d by the C e n t r a l Government and shared by the C e n t r a l , p r o v i n c i a l , and Hsien governments: The income taxes — 20-30$ o f which should be assigned to the Hsien governments; 10-20$ t o the p r o v i n c i a l governments. The succession d u t i e s — 25$ o f which should be assigned t o t h e Hsien governments; 15$ t o t he p r o v i n c i a l governments. 3  1. Such as the v e h i c l e , water equipment l i c e n s e s , e t c . 2., Such as the p r o s t i t u t i o n l i c e n s e s , e t c . 3. Chia Teh-huei, V o l . I , Pp 27-8.  97. The net r e s u l t o f these changes i n the l e v y i n g power o f the p r o v i n c i a l and Hsien governments i s d i f f i c u l t t o show because the Demarcat i o n Act was never put i n t o e f f e c t .  F o r the sake o f convenience,  Table X I I sums up these changes between the F i n a n c i a l D i v i s i o n Act o f 1928 and the Demarcation Act of the F i n a n c i a l Conference of 1934 w i t h regard t o some important taxes of the p r o v i n c i a l and Hsien governments. I f t h i s Demarcation Act were i n e f f e c t , the p r o v i n c i a l governments would l i k e l y s u f f e r a l o s s o f 10 t o 15 per cent o f t h e i r previous annual income; while the Hsien governments would l i k e l y g a i n by 10 t o 20* of t h e i r previous annual r e c e i p t s .  Suppose again t h a t the various  Chuan l e v i e s were e n t i r e l y abolished, then t h e p r o v i n c i a l governments would f u r t h e r lose 5 t o 10 per cent o f t h e i r previous annual income; whereas the Hsien governments might not l o s e because t h e i r l o s s e s might be o f f s e t by t h e i r gains. I n other words, the plans of the F i n a n c i a l Conference of 193h would have t r a n s f e r r e d about 20 per cent of the provi n c i a l annual income t o the Hsien governments. Apart from the p o l i t i c a l i n t e n t i o n s o f the Demarcation Act, t h i s Conference did work out the best f i n a n c i a l structure since 1912, or we might even say since the beginning of the nation's h i s t o r y .  During  the centuries p r i o r t o 1934, the l o c a l governments had never been granted independence i n the e x e r c i s e o f t h e i r f i n a n c i a l power.  From 1850 t o I928  was a p e r i o d of p r o v i n c i a l s t r u g g l e t o secure b e t t e r terms i n both p o l i t i c a l and f i n a n c i a l f i e l d s .  Then the years from 1928 t o I93U make up  the p e r i o d when the Kuomintang, w i t h i t s p o l i t i c a l supremacy, ended the period o f p r o v i n c i a l struggle.  During these years the p r o v i n c i a l  98.  TABLE H I Comparison o f the T o t a l Receipts by Provinces and Hsien from C e r t a i n Important Taxes Under the Demarcation Act o f 1935.  Land tax  Taxation  Title Deeds taxes  100$  100$  P H  53 47  66.6  Demarcation Act  P H  15-45 55-85  66.6  The importance of each tax i n the t o t a l annual r e c e i p t s under the Division Act.^  P  30  H  The importance o f each tax i n the t o t a l annual r e c e i p t s under the Demarcation Act. 5  Both p r o v i n c i a l and Hsien l e v i e s 2 F i n a n c i a l D i v i s i o n Act 3  33.3  Improve- B u s i ment ness Total taxes * taxes 100$  46 . 54  100$  —  51 49  —  15-30 70-85  70 30  4  1  50  50  54  2  3  4  63  P  17  5  0.5  20  42.5  H  80  1  4.3  2  87.3  33.3  * The business taxes include the butchering t a x .  1. This Table shows only approximate and conservative estimates. For the sake o f convenience i t does not include any p o s s i b l e increase o r decrease i n these sources o f revenue. 2. Calculated from Table V I and IX, supra. 3. See pages 95, 96, 97, supra. h. Calculated from Table VI and IX, supra. 5. Calculated from three rows above.  99 finances were p r o p e r l y d e f i n e d while the Hsien governments were s t i l l l e f t without independent t a x resources.  Owing t o the l a c k o f adequate  revenues and t h e i r expanding o b l i g a t i o n s , the Hsien governments developed the Chuan l e v i e s and surtaxes on the p r o v i n c i a l imposts.  Though the  Hsien finances d i d move towards independence i n c o l l e c t i n g Chuan l e v i e s and i n dealing w i t h t h e i r o b l i g a t i o n s , a chaotic and unsound Hsien taxa t i o n system r e s u l t e d . As f a r as the three l e v e l s of government, the C e n t r a l , the p r o v i n c i a l and t h e Hsien,were concerned, the o b l i g a t i o n s and a d m i n i s t r a t i o n s of the Hsien governing bodies were more d i r e c t l y r e l a t e d t o the d a i l y needs o f the people.  The year 1934 f i r s t witnessed remarkable p r o -  gress i n China's p o l i t i c a l t r a d i t i o n :  the main t a x revenues of the state  were f o r the f i r s t time d i s t r i b u t e d among the three l e v e l s of government. The powers o f the Hsien governments were f o r the f i r s t time defined by statutes and they were authorized t o l e v y some important taxes.  D.  F a i l u r e i n Enforcing the Demarcation Act By I93I a l l the Hsien had an average p o p u l a t i o n of 230,000 1  and the average j u r i s d i c t i o n area was 4,300 square kilometers. 2  Each  Hsien, on the average, had 50 Hsiang, or counties, surrounding the c i t y or town where the Hsien government was l o c a t e d .  During the c i v i l war  years since 1 9 1 7 , the p o p u l a t i o n of the r i c h e r c i t i e s had been i n c r e a s i n g 1. Cheng Nien-chung, p. 39, "In I 9 4 I , there were 195k Hsien. Population i n each Hsien v a r i e d from 200 ( c i t . ) to 1,500,000; on the average, 230,000. The area of each Hsien v a r i e d from 100 t o 350,000 square kilometers, on the average, 4,300 square k i l o m e t e r s " . 2. I b i d .  100. r a p i d l y r e l a t i v e t o that of the counties, because the c i v i l wars u s u a l l y were c a r r i e d on throughout the countryside. The r e s u l t i n g p o p u l a t i o n movement had concentrated the wealth of the s t a t e i n t o some of the richer c i t i e s .  I f the l e v y i n g power of the t i t l e deeds t a x and the  business t a x had been l e f t completely i n the hands of the Hsien governments there would probably have been d i s c r i m i n a t i o n against the t a x payers i n d i f f e r e n t l o c a l i t i e s .  Moreover, there would be overlapping  l e v i e s on i n t e r - H s i e n f i r m s and some other types of business organization.  The Demarcation Act thus had set f o r t h t h a t the p r o v i n c i a l  governments were t o administer the t i t l e deeds and business taxes.  The  Hsien governments were not e n t i t l e d t o l e v y these two taxes, but they could enjoy the surtaxes on t i t l e deeds and 30 per cent of the revenue grant from the business taxes c o l l e c t e d by the p r o v i n c i a l governments. Farming i n China, p a r t i c u l a r l y i n the c e n t r a l and southern provinces where r i c e i s grown, i s l a r g e l y a matter of i r r i g a t i o n .  The  custom had developed f o r t he p r o v i n c i a l governments t o assume the cost of the i n t e r - H s i e n water works.  For t h i s reason the Demarcation Act  declared that the p r o v i n c i a l governments were to r e c e i v e 15 t o U$ per cent of the l a n d taxes whichwere t o be l e v i e d by the Hsien governments. The p r o v i n c i a l a u t h o r i t i e s were s t i l l t o provide i n t e r - H s i e n communication which was very important i n f o s t e r i n g the p r o s p e r i t y of the Hsien economy as a whole.  The Demarcation Act thus set f o r t h that  the p r o v i n c i a l a u t h o r i t i e s were t o receive 15 t o 30 per cent of t he  101.  revenues from the improvement taxes which were t o be l e v i e d by the Hsien governments.  On the other hand, the p r o v i n c i a l governments were  to grant 30 per cent of the revenue from the business taxes t o t h e Hsien where they were r a i s e d . In order to further improve the Hsien finances, the Demarcat i o n Act recommended that the revenues from l i c e n s e s were t o belong t o the Hsien governments because they could deal e f f e c t i v e l y i n administrat i v e matters w i t h the tax-payers who received the f r a n c h i s e t o do t h e i r businesses i n the d i s t r i c t s concerned. Moreover, the p r o v i n c i a l and Hsien governments might share the revenues from income taxes and succession d u t i e s , i f they were imposed by the C e n t r a l Government. In s h o r t , the Second National F i n a n c i a l Conference attempted to provide a f a i r means of f i n a n c i a l cooperation between t h e p r o v i n c i a l and Hsien governments, and t o e l i m i n a t e the abuses of the various Chuan l e v i e s and surtaxes.  Though the recommendations of t h i s Conference  were e x c e l l e n t , t h e i r adoption and enforcement were handicapped by the p o l i t i c a l opposition and the f i n a n c i a l d i f f i c u l t i e s of the p r o v i n c i a l governments. 1  The a b o l i t i o n of Chuan l e v i e s , the adjustment o f l a n d taxes, a n d t h e Demarcationcof P r o v i n c i a l - H s i e n Taxation System were passed at the Second F i n a n c i a l Conference i n June, I934.  These three f i n a n c i a l  innovations were submitted t o the Executive Yuan and were t o be put i n t o 1. These two f i n a n c i a l devices w i l l be discussed i n the Appendix of t h i s Chapter.  102.  f o r c e simultaneously i n J u l y , 1935.  However, except f o r the f i r s t two  p r o v i s i o n s , the Demarcation Act was not c a r r i e d out by any province, because among the three l e v e l s of government only the p r o v i n c i a l governing bodies faced a l o s s o f revenue from t h i s a c t i o n .  One must bear i n  mind t h a t since 1865 the p r o v i n c i a l governments had been the most powerf u l governing bodies i n the state.  Therefore, "the key step towards  the enforcement of the Demarcation Act o f 1935 was neither on the p a r t of the C e n t r a l Government, nor of the Hsien governments, but should have been taken by the p r o v i n c i a l governments which, however, were not i n the 1 mood t o do so." Apart from t h e p o l i t i c a l r e s i s t a n c e o f the p r o v i n c i a l governments, there d i d e x i s t a c t u a l p r o v i n c i a l economic d i f f i c u l t i e s i n enacting t h i s Act.  I n f a c t , since t h e Republic had been founded the unstable  Central Governments and the ambitious p r o v i n c i a l governors had been f u l l y occupied i n waging c i v i l war without concerning themselves about 2 ordinary governmental f u n c t i o n s .  I t was not u n t i l the U n i f i c a t i o n o f  the country was r e a l i z e d i n 1928 that the p r o v i n c i a l governments began slowly t o perform t h e i r r e s p o n s i b i l i t i e s w i t h the funds formerly devoted to m i l i t a r y purposes.  I t was q u i t e doubtful whether the revenues, former-  l y used f o r m i l i t a r y expenditures, would be s u f f i c i e n t f o r ordinary governmental functions or not, since none o f the governing bodies had p r e v i o u s l y had an opportunity t o perform these functions adequately. 1. Ben Yu-sing, p. 7. 2. The warlords even spent the a p p r o p r i a t i o n funds f o r education f o r m i l i t a r y purposes. L i Jan-nung, V o l . I I , p.6°5.  103. Following the F i n a n c i a l Conference of 1928,  the p r o v i n c i a l  governments were no longer able t o monopolize a l l the sources of revenue of the s t a t e .  From t h i s r a d i c a l change i n f i n a n c i a l administra-  t i o n , the p r o v i n c i a l governments l o s t a great deal of revenue which had long been i l l e g a l l y administered o r intercepted. L i k i n l e v i e s and the s a l t taxes were the greatest.  The l o s s e s from the Following 1928 the  C e n t r a l Government had been t a k i n g over the L i k i n and the s a l t taxes. When the Central Government took over the surtaxes on s a l t from t he p r o v i n c i a l governments i n 1930, the l a t t e r again r e l i n q u i s h e d a considerable p a r t of t h e i r annual income.  On the other hand, the new  uniform business t a x was imposed from 1930 onwards, r e p l a c i n g the o l d l e v i e s on business f i r m s , brokers, and pawnshops.  This new business  t a x d i d not y i e l d the o r i g i n a l l y a n t i c i p a t e d amount t o meet the revenue l o s s e s from L i k i n l e v i e s .  Among a l l the revenue sources remaining t o  the p r o v i n c i a l governments, the t axes on farm land were r e l a t i v e l y the most r e l i a b l e and s t a b l e .  However, the p r o v i n c i a l governments were  now t o perform some governmental f u n c t i o n s , such as education, i n t e r Hsien communications, p u b l i c works, r e l i e f , reconstruction, -a£c;,on a l a r g e r scale than ever before . Moreover, the p r o v i n c i a l governments were t o subsidize the subordinate governing bodies, the Hsien governments. Furthermore, since the enforcement of the F i n a n c i a l D i v i s i o n Act of 1928,  the p r o v i n c i a l governments had depended h e a v i l y on the  subsidies from the C e n t r a l Government, which were, ont^he average, more than 15 per cent of t h e i r t o t a l income.  1. Tables V and VI, supra.  I n a d d i t i o n , the p r o v i n c i a l  io4. governments had c a r r i e d on a p o l i c y of borrowing t o meet t h e i r expendit u r e s , to an extent of about 15 per cent of t h e i r t o t a l annual income. E v i d e n t a l l y the annual revenue of the p r o v i n c i a l governments was i n adequate t o meet t h e i r annual expenditures. On the other hand, a f t e r 1928,  the p r o v i n c i a l governments  s t i l l could not reduce the expenditures f o r p o l i c e p r o t e c t i o n because of the s p l i t between the Kuomintang and the Communists.  I n some prov-  inces the cost of p o l i c e p r o t e c t i o n anounted t o more than $0 per cent of t o t a l spendable funds.  The other expenditures of the p r o v i n c i a l  governments, except those f o r education and a d m i n i s t r a t i o n , were i n small amounts which were necessary t o maintain minimum governmental activities.  Further, the repayment of t h e i r debts, together w i t h  i n t e r e s t on them, ranged up t o 50 per cent of the t o t a l expenditures 2 of some p r o v i n c i a l governments. I f the p r o v i n c i a l governments put the Demarcation Act of i n t o e f f e c t , a problem would a r i s e :  1935  How could the p r o v i n c i a l govern-  ments deal w i t h t h e i r heavy indebtedness w h i l e t h e i r annual income was reduced by about 20 per cent?  How could the p r o v i n c i a l governments  contract t h e i r already expanded f u n c t i o n s immediately, or, what s o r t of expenditures should f i r s t be contracted?  Undoubtedly, the e x i s t i n g  p r o v i n c i a l revenues were already i n s u f f i c i e n t and some of the p r o v i n c i a l expenditures were s t i l l i l l - f i n a n c e d because the l a r g e s t p o r t i o n of the spendable funds went f o r p o l i c e p r o t e c t i o n and indebtedness. 1. I b i d .  2. I b i d .  Neither  105. p r o v i n c i a l incomes nor the costs could be f u r t h e r reduced.  In spite  of the promulgation of -the Demarcation Act, t h e r e f o r e , the p r o v i n c i a l governments w i t h h e l d the revenue sources which had been a l l o c a t e d by the Demarcation Act tothe Hsien governments.  As a r e s u l t of the  unwillingness of the p r o v i n c i a l governments t o surrender t h e i r l e v y i n g power, the Hsien governments could not enjoy the r i g h t s t o l e v y the taxes which were a c t u a l l y l e f t i n the hands of the former. these f a c t s , a f t e r 1935,  Owing t o  the enforcement of the Demarcation Act was  made impracticable, and the Hsien f i n a n c e s , supposed t o be g r e a t l y improved, remained v i r t u a l l y unchanged.  Conclusion The year of 1928 witnessed both~the complete downfall warlordism and the c o n t i n u a l r i s e of the Communist r e v o l t s . wearied n a t i o n was again i n v o l v e d i n chronic c i v i l war.  of  This  Accompanying  -s  t h i s she had sustained a weries of p a i n f u l events before the outbreak of the Eight Years War i n 1937.  The s i t u a t i o n during these years  forms a background against which the nation's finances as a whole developed, p a r t i c u l a r l y those e f f e c t s of the F i n a n c i a l Conferences of 1928  and 1934. In 1930 seventy Hsien i n Shensi area were under a great  famine caused by l o c u s t s .  I n the autumn of I93I the greatest f l o o d i n  China's h i s t o r y took p l a c e i n Honan, Hunan, Hupei, Anhwei  and  106. 1 Kwangtung.  The National Government, because of i t s l i m i t e d f i n a n c i a l  a b i l i t y , was unable t o pay the one m i l l i o n workers c a l l e d f o r emergency dyke b u i l d i n g s (over 7,000 kilometers i n length) a t Yangtze.  I t had t o  negotiate a l o a n , the f i r s t f o r e i g n l o a n o f N a t i o n a l i s t China, from the United States o f America.  The l o a n was obtained i n wheat (1|50,000 tons)  which was p a i d d i r e c t l y t o t h e workers. the  I n September o f the same year,  Japanese invasion occurred i n the Northeast. In 1932, the Japanese  attacked on Shanghai.  The N a t i o n a l Government, at that time, was un-  decided whether t o f i g h t the Communists f i r s t o r t o oppose the Japanese. But i t was determined t o cope w i t h the Communist r e v o l t s f i r s t and i n 1 9 3 3 Chiang Kai-shek ordered a general m o b i l i z a t i o n i n e i g h t provinces. for  C i v i l war thus broke out on an unprecedented s c a l e and continued  eight years. By 1936, the Communists, i n a tightened ring of  N a t i o n a l i s t troops i n northern Shensi, accepted these c o n d i t i o n s : t o give up the Chinese Soviet Government and t o recognize the National Government, and t o adopt Sun Yat-sen's tenets i n s t e a d o f Marxism. Several months a f t e r the a r m i s t i c e between the N a t i o n a l i s t s and the Communists i n 1937, the Eight Years.War between China and Japan began.  1. A report from the N a t i o n a l Flood R e l i e f Commission stated t h a t : "During the summer months o f 1931, 25,000,000 people i n h a b i t i n g an area o f 70,000 square miles, were a f f e c t e d i n various ways by the greatest f l o o d i n the h i s t o r y o f China. Approximately 140,000 persons were drowned ... A crop worth $900,000,000 was l o s t , and a t o t a l l o s s o f $2,000,000,000 was borne by a community whose average f a m i l y earnings do not exceed #300 a year." C i t . China Year Book, 1934, p. 776.  107. The above d e s c r i p t i o n of the general s i t u a t i o n o f these e v e n t f u l years i s h i g h l y i n d i c a t i v e of the obstacles t o improvement of t h e nation's finances.  The governments, nevertheless, d i d make  headway i n d e a l i n g w i t h t h e i r finances during these s t i r r i n g years. Remarks have already been made w i t h regard t o p r o v i n c i a l f i n a n c e s . For instance, i n the f i s c a l year of 1931, each p r o v i n c i a l annual income averaged 15,000,000 yuan, w h i l e i n 193° the same income had 1 increased t o 18,000,000 yuan o f I30 p e r cent of t h a t i n 1930.  The  most c h a r a c t e r i s t i c achievement i n the p r o v i n c i a l finances since I928, was t h a t no more funds were spent f o r m i l i t a r y purposes but were devoted t o p u b l i c welfare.  Had there been no wars between the Nation-  a l i s t s and the Communists, the p r o v i n c i a l finances would have been f u r t h e r improved; o r , at l e a s t , a great part o f the spendable funds of the p r o v i n c i a l governments used f o r p o l i c e p r o t e c t i o n would have been spent f o r r e c o n s t r u c t i o n , education, o r f o r other p u b l i c i n t e r e s t s . Likewise, the Hsien finances would have been i n a more healthy c o n d i t i o n . Since the F i n a n c i a l D i v i s i o n Act was i n e f f e c t , an e f f e c t i v e general subsidy system was b u i l t up. The subsidies from the C e n t r a l Government t o the p r o v i n c i a l and l o c a l governments increased each year, p a r t i c u l a r l y from I932 on, when the C e n t r a l Government could balance  1. Cf., Tables IV and VI, supra.  108. 1  i t s budgets, as shewn i n Table X I I I  TABLE  XIII  Subsidies from the C e n t r a l Government to the P r o v i n c i a l and Local Governments, 1929 - I936 i n c l u s i v e 2 (Unit:  yuan)  Year  Amount 16,563,470 986,696 c i t . 78,875,615 72,943,041 29,878,449 82,559,935 101,980,089 105,816,000  Due t o the establishment o f a general subsidy system, the increase i n the amount of the subsidies from the C e n t r a l t o the p r o v i n c i a l and l o c a l governments was one of the s i g n i f i c a n t means o f improving the f i n a n c i a l a b i l i t y of the l a t t e r .  1. T.V.Soong's combined report f o r 1930-1 and 1931-2 reproduced i n the China Tear Book, 1934, p. 491, reads: " I t should be a matter of s a t i s f a c t i o n t o t h e C e n t r a l Executive Committee (of the Kuomintang) ° that since February,1932 (when the Japanese attack on Shanghai ended), f o r the f i r s t time i n the 21 years of the Republic, the (Central) Government has been able t o balance i t s budget a t a time of world economic depression when p r a c t i c a l l y every Government has large d e f i c i t s and when, i n a d d i t i o n t o the depression, the Government has had t o confront the c o l o s s a l burden o f the I93I f l o o d s , the slump i n s i l v e r , the Japanese seizure of revenue i n Manchuria and the attack on Shanghai". 2. Chia Teh-huei, V o l . I , Pp 261-62.  109. The Demarcation Act of 1935 was expected t o be a remedy f o r t h e e x i s t i n g p r o v i n c i a l and Hsien f i n a n c i a l r e l a t i o n s h i p s .  It  was the f i r s t attempt t o a l t e r the Chinese t r a d i t i o n a l f i n a n c i a l system o f the past, namely, a system i n which only the C e n t r a l and p r o v i n c i a l governing bodies p a r t i c i p a t e d i n the f i n a n c i a l a f f a i r s 1  of the s t a t e .  At the F i n a n c i a l Conference of 1934, i t was decided  that a l l three l e v e l s of government were t o administer the finances of the country, and a t the same time, to cooperate i n s o l v i n g admini s t r a t i v e problems.  Although the Demarcation Act, due t o the prov-  i n c i a l f i n a n c i a l d i f f i c u l t i e s , was never i n e f f e c t , i t was, neverthel e s s , a s i g n i f i c a n t event i n Chinese economic h i s t o r y .  This Act  became, i n 1946, a model p l a n f o r the "Central, P r o v i n c i a l and Hsien Tim* * 0  Taxation and Disbursement System Act" which was passed by the Fourth National F i n a n c i a l Conference. The p e r i o d between the Second and t h e Fourth National F i n a n c i a l Conference was the Eight Years War which commenced i n 1937.  To provide a wartime f i n a n c i a l scheme, the T h i r d National  F i n a n c i a l Conference was c a l l e d at Chungking, the wartime c a p i t a l of China.  At t h i s Conference a wartime t a x s t r u c t u r e was devised  to enable the National Government t o finance i t s r e s i s t a n c e t o the foreign invasion.  1. The S p e c i a l Municipal Governments, though they were l o c a l governments i n character, were q u a l i f i e d as p r o v i n c i a l governments i n p o l i t i c a l administration.  1  110. Chapter VI - Appendix t o Chapters IV and V A.  A b o l i t i o n of the Chuan Levies. The a b o l i t i o n of the Chuan l e v i e s was one of the three  c h i e f p a r t s of the program of the Second National F i n a n c i a l Conference.  Because of the f a i l u r e t o enforce a new p r o v i n c i a l - H s i e n  t a x a t i o n system and because the Hsien governments had depended h e a v i l y on them, the Chuan l e v i e s were abolished more s l o w l y than they should have been.  From J u l y t o December 193k, 21 out of 2k  provinces had reported t o the M i n i s t r y of Finance of the C e n t r a l Government the c a n c e l l a t i o n of the Chuan and s i m i l a r l e v i e s .  The  number of c a n c e l l a t i o n s was 3,600 and was equivalent t o a t o t a l  1  revenue of 28,890,000 yuan.  The year 1935 saw f u r t h e r progress  when 1,600 l e v i e s were discontinued, amounting t o 20,lk0,000 yuan.  2  By December, 1936, 1,190 a d d i t i o n a l Chuan l e v i e s were c a n c e l l e d , t o 3  the amount o f 10,039j500 yuan.  In the f i s c a l y e a r o f I936, the  Hsien governments were s t i l l c o l l e c t i n g some Chuan l e v i e s , on the k  average amounting t o more than 20 per cent of t h e i r annual income; and more than 10 per cent o f the income of the p r o v i n c i a l govern5  ments. 1. 2. k. 5.  Cf., Chinese Year Book, I937 i s s u e , p. U$5. Ibid. 3. I b i d , I n s i x t e e n provinces, p. 77 supra. I n nineteen provinces, Table V I , supra. Note: These f i g u r e s include the abolished 6huan l e v i e s i n 20 provinces and 3 S p e c i a l M u n i c i p a l i t i e s . The c a n c e l l a t i o n s a l s o include Chuan l e v i e d formerly by the p r o v i n c i a l , Hsien and the 3 Municipal governments. The greatest c a n c e l l a t i o n among these governments was from Kwangtung, 30,98k,k36 yuan. Cf., The Chinese Year Book, 1937 i s s u e , p. k56.  111.  B.  Adjustment of the Farm Land Taxes. A f t e r the F i n a n c i a l Conference of 1928  there were two farm  taxes, the farm land t a x and the farm land surtax.  The farm land  t a x was l e v i e d and enjoyed by the p r o v i n c i a l governments, and the farm l a n d surtax by the Hsien governments. A f t e r the F i n a n c i a l Conference of 1934, there were three d i f f e r e n t methods of land t a x a t i o n : the l a n d value t a x , the farm land t a x , and the farm land surtax.  The l a n d value tax was recom-  mended by the F i n a n c i a l Conference of 1934 to replace both the o l d taxes, the farm land tax and the farm land surtax.  two  The two o l d  taxes were based on the acreage of the land concerned, while i t was proposed to l e v y the l a n d value tax at 1 per cent of the value of the l a n d concerned.  In the d i s t r i c t s where a new l a n d survey had  not been completed, the p r o v i n c i a l and Hsien governments s t i l l posed the farm l a n d tax and the farm l a n d surtax r e s p e c t i v e l y they always had.  imas  But i n those d i s t r i c t s where a new l a n d survey had  been completed, both the p r o v i n c i a l and the Hsien governments were t o surrender the ttwo o l d taxes and t o i n s t i t u t e the land value t a x which was t o be shared between the p r o v i n c i a l and Hsien governments. Therefore, a f t e r 1934, there were three d i f f e r e n t taxes on l a n d . Another  new method, the l a n d increment t a x , was recommended by the  F i n a n c i a l Conference of 1934 t o replace the e a s t i n g land t i t l e deeds tax.  But a f t e r 1934, the p r o v i n c i a l and Hsien governments r e t a i n e d  113. the o l d t i t l e deeds t a x because the l a n d increment t a x was not a new t a x i n f a c t , but merely a new name f o r the o l d " t i t l e deeds tax". Another F i n a n c i a l Conference was held i n 19kl during the war to help the National Government finance the r e s i s t a n c e t o the Japanese and a l l p r o v i n c i a l t a x revenues were incorporated i n t o the c e n t r a l finances.  The C e n t r a l Government thus administered  the t i t l e deeds t a x , although the name "land increment t a x " was used instead.  This change has l i t t l e importance f o r our present  discussion. Owing, l a r g e l y to t h e unstable p o l i t i c a l s i t u a t i o n , the l a n d taxes had long been administered i n e f f i c i e n t l y .  P r i o r t o the e s t -  ablishment of the Republic, the l a s t t a x r o l l of farm l a n d had been completed i n 1713, under the Ch'ing Dynasty.  Though the a g r a r i a n  areas as a whole d i d not change appreciably during t h i s time, the t a x r o l l of 1713  was by no means adequate f o r use i n the nineteenth  century. From 1850  t o 186k  there was a great r e v o l u t i o n a r y movement,  known as the Taiping R e b e l l i o n , or the Hong-Yang Revolution.  The  r e v o l u t i o n a r y leaders, during t h i s p e r i o d , founded a kingdom w i t h t e r r i t o r i e s s t r e t c h i n g over most of s i x t e e n provinces.  This Kingdom  p r o h i b i t e d p r i v a t e ownership of land, and destroyed the tax r o l l s i n the provinces under t h e i r c o n t r o l .  A f t e r t h i s Kingdom had been  crushed out by the Government of the Ch'ing Dynasty, the t a x r o l l s i n these provinces were completed on the b a s i s of other records which were much l e s s s a t i s f a c t o r y . 1.  Chinese Y a r Book, 1937 e  1  No r e a l attempts were made under the  i s s u e , p.  k57.  114.  Ch'ink  Dynasty t o improve the t a x r o l l s , because a f t e r i860 i t  was busy waging war against f o r e i g n powers,and during the twentieth century i t was involved i n coping w i t h the r e v o l u t i o n a r y movement. Owing t o t h i s l a c k of an accurate t a x r o l l , the a d m i n i s t r a t i o n of the land tax met w i t h enormous d i f f i c u l t i e s . . A f t e r the Revolution of 1912,  the p o l i t i c a l s i t u a t i o n was  even worse than that under the Ch'ing Dynasty.  The Central Govern-  menlB i n Peking came and went one a f t e r another, but none of them attempted to adjust the l a n d tax r o l l s .  Successive  c i v i l wars a l s o  made improvement impossible. A f t e r the Kuomintang had come i n t o power i n 1931,  a National  Economic Council was set up by and was subordinate t o the chairman 1  of the C e n t r a l Government.  I t was empowered t o p l a n p r o j e c t s f o r  the economic r e c o n s t r u c t i o n of the s t a t e .  In 1934  a report  was  made by t h i s Council i n the f i e l d of a g r i c u l t u r e . I t stated that: A l l studies agree that the fundamental f a c t o r s i n the s i t u a t i o n are the low output of Chinese a g r i c u l t u r e , the very high cost of c r e d i t f a c i l i t i e s , the burden of t a x a t i o n , p a r t i c u l a r l y of surtaxes, and i n l a r g e parts of the country the harsh and uneconomic system of land tenure. 2  1. The Council consisted of various m i n i s t e r s of the National Government and of u n o f f i c i a l members designated by the Government so as t o ensure the p a r t i c i p a t i o n of i n t e l l e c t u a l , i n d u s t r i a l and other c i r c l e s . The power of the s a i d Council was t o p l a n and execute various p r o j e c t s f o r economic r e c o n s t r u c t i o n of the s t a t e . Cf., The China Year Book, 1934, Pp 763-64. 2. I b i d . , p.  766.  115. I t continued t o d e s c r i b e t h e farm l a n d t a x : Another burden, b e s i d e s t h e system o f t e n u r e , w h i c h w e i g h s h e a v i l y upon a g r i c u l t u r e , i s t h e l a n d t a x . T h i s t a x , b a s e d on a n assessment made o v e r two hundred y e a r s ago, w h i c h i n t h e c o u r s e o f t i m e has become o b s o l e t e and anomalous, i s n e v e r t h e l e s s moderate. However, d u r i n g t h e l a s t s e v e r a l y e a r s t h e t a x has i n many p r o v i n c e s been m u l t i p l i e d s e v e r a l t i m e s . Though l e g a l l y p a y a b l e b y the landowner, t h e t a x appears i n many c a s e s where t h e tendency p r e v a i l s t o be p a i d i n whole o r i n p a r t b y t h e t e n a n t . I n Kansu i t was d i s c o v e r e d , f o r example, t h a t t h e t e n a n t p a i d 60 p e r c e n t of t h e ( l a n d ) t a x and t h e ( l a n d ) s u r t a x e s . I t i s n o t p o s s i b l e t o g i v e any f i g u r e s f o r t h e ushole o f C h i n a demonstrati n g t h e burden w h i c h t h i s t a x c a u s e s , s i n c e c o n d i t i o n s v a r y from one p r o v i n c e t o a n o t h e r . 1 The r a t e s o f t h e f a r m l a n d t a x d e s c r i b e d b y t h e same r e p o r t a r e as f o l l o w s : A c a r e f u l s t u d y was made ( b y t h e group o f the N a t i o n a l Economic C o u n c i l ) o f t h e methods o f c o l l e c t i o n , amounts p a i d , amounts r e c e i v e d b y t h e p r o v i n c i a l government. The r e s u l t s a r e enumerated i n t h e i n t r o d u c t i o n t o t h e r e p o r t : "The o l d l a n d t a x w i t h a l l i t s f a u l t s , would b y i t s e l f , i f l e g a l l y a p p l i e d w i t h o u t a d d i t i o n a l charges o r e x a c t i o n s , c o n t r i b u t e no undue burden. The f e a t u r e s o f l a n d t a x a t i o n w h i c h make i t a c e n t r a l f a c t o r i n a g r i c u l t u r a l d i s t r e s s a r e ( a ) t h e s u r c h a r g e s , ( b ) t h e i n e q u a l i t i e s between d i f f e r e n t r e g i o n s , ( c ) t h e s y s t e m o f t a x c o l l e c t i o n , w i t h the waste and e x a c t i o n t h a t i t i n v o l v e s . S u r c h a r g e s i n C h e k i a n g a r e a r e c e n t phenomenon. They have n e a r l y a l l come i n t o e x i s t ence s i n c e 1927. They now range f r o m 20 p e r c e n t t o 30 p e r c e n t i n t h e d i f f e r e n t H s i e n , and t h e y a r e e x t r e m e l y u n e q u a l i n i n c i d e n c e , f a l l i n g much more h e a v i l y o n t h e p o o r e r l o c a l ities. I n f i v e r e l a t i v e l y r i c h H s i e n t a k e n a t random, f o r example, t h e s u r c h a r g e s were f o u n d o n t h e average t o i n v o l v e an excess o v e r t h e l a n d t a x o f o n l y 25 p e r c e n t . I n f i v e r e l a t i v e l y p o o r H s i e n t h e average e x c e s s i n v o l v e d was 350 per cent. ?  "Among t h e f i r s t f i v e H s i e n t h e t o t a l l a n d t a x a t i o n o n l y amounted , i n one c a s e , t o over 65 c e n t s a Mou (2,)j among t h e l a t t e r i t averaged o v e r $1 (one y u a n ) , and i n one H s i e n r e a c h e d #2.80."  1. The C h i n e s e T e a r Book, 193k, p.766 2. S i x Mou e q u a l one a c r e .  116. With such gross i n e q u a l i t i e s a general average i s d i f f i c u l t t o f i n d , and would be misleading i f given. But even these i n e q u a l i t i e s , and these l o c a l l y excessive l e g a l charges, might i n some cases be t o l e r a b l e , though unjust, i f they represented a l l t h a t the peasant had t o pay. Unhappily the system o f tax c o l l e c t i o n leads t o a d d i t i o n a l exactions (Chuan l e v i e s ) , which add g r e a t l y t o the r e a l burden o f t a x a t i o n , admits of evasion on a l a r g e s c a l e , e s p e c i a l l y on the part o f those best able t o pay, and r e s u l t s i n a great l o s s of revenue ... At the c racial p o i n t o f the i n t r i c a t e chain of t a x c o l l e c t i n g stand, as elsewhere i n China, the u n o f f i c i a l r e g i s t r a r s w i t h t h e i r books of " f i s h scale" (the land r e g i s t r a t i o n records made a f t e r 1713), transmitted from f a t h e r t o son, as the only record o f taxable owners and p r o p r i e t o r s ... I t i s impossible t o estimate what t h i s system i n v o l v e s i n evasion and e x t o r t i o n . But a l l the evidence suggests that both are on a very l a r g e scale indeed ... Land-tax i s , of course, i n any country where economic conditions resemble those of China the main source of p r o v i n c i a l revenues. And, heavy as are the burdens o f l a n d t a x a t i o n i n Chekiang, the t o t a l revenue shown i n the accounts as received would probably not necessitate an excessive burden i f i t were e q u a l l y and inexpensively c o l l e c t e d without l a r g e evasion, misapprorpiated exactions and g r o s s l y disproportionate incidence i n d i f f e r e n t d i s t r i c t s . With an e f f e c i e n t system o f c o l l e c t i o n , reductions i n rates could be made, and a t the same time the revenue maintained or even increased. 1 The essence of t h i s Report can be reduced t o three p o i n t s : 1. The l a c k of a uniform t a x r a t e —  the farm land surtaxes were  the major f a c t o r causing unequal burdens on the peasants; the d i f f e r e n t i a l s of the t o t a l tax burden ranged as high as 30 per cent. 2. The l a c k of an accurate t a x r o H —  the government l e v i e d the  farm land t a x and the surtaxes i n accordance w i t h the o l d t a x regardless of the a c t u a l acreage o f the land c u l t i v a t e d by the taxpayers.  I n e v i t a b l y , a l a r g e scale o f t a x evasion  resulted.  1. C i t . , The China Year Book, 1934, p. 768.  117. 3.  Adjustment i n tax rates —  i f an accurate t a x r o l l were  adopted, the abuses of t a x evasion would be eliminated; the t o t a l revenue from the l a n d might be maintained o r even increased though the e x i s t i n g tax rates wereareduced. In many cases, the market values of the farm land were wiped out, and i n other cases abnormally increased, as a r e s u l t o f success i v e c i v i l wars.  Because o f t h i s any r e l a t i o n s h i p between the land  taxes and the l a n d values was d i f f i c u l t t o a s c e r t a i n .  Similarily,  i t was impossible t o f i n d accurately what p o r t i o n o f the t a x e s were s h i f t e d t o the consumer i n the form of higher p r i c e s .  Speaking  generally, the burden o f the farm l a n d taxes was not f u l l y born by 1 the tenants and l a n d l o r d s , but was p a r t l y s h i f t e d t o the consumers.  1. "The farmer i s i n a very poor bargaining p o s i t i o n as against the merchant. This was pointed out i n the report on the studies made l a s t December i n K i a n g s i , a paragraph o f which may be quoted: ' In a d d i t i o n t o h i s burdensome t a x a t i o n and l a n d tenure conditions, the Kiangsi farmer i s faced w i t h a serious d e c l i n e i n the p r i c e o f a g r i c u l t u r a l produce and an enormous discrepancy between p r i c e s which he can obtain l o c a l l y and a c t u a l market p r i c e s i n the l a r g e towns. According t o f i g u r e s furnished by the P r o v i n c i a l Reconstruction Bureau, the d i f f e r e n c e between p r i c e s p a i d t o K i a n g s i farmers f o r t h e i r produce and p r i c e s charged t o consumers i n Shanghai may amount t o no l e s s than 100 p e r cent. This question o f middlemen's p r o f i t s i s regarded i n o f f i c i a l c i r c l e s i n the province as one o f the most important problems i n the work o f r u r a l r e c o n s t r u c t i o n . " Various provinces, notably Kiangsu, have attempted t o deal w i t h t h i s problem by p r o v i d i n g warehouses where the farmer can pledge h i s gain, thus enabling him t o hold i t o f f the market u n t i l he can obtain the most favourable p r i c e s . C i t . The China Year Book, 193a, p. 769.  118.  P a r t i c u l a r l y during the p e r i o d of w a r l o r d ! sm, the p r o v i n c i a l governors r e l i e d on the revenue from the farm l a n d taxes as the major source f o r t h e i r extensive m i l i t a r y expenditures.  The  r e s u l t was t h a t the amounts and the r a t e s of the farm land taxes 1  v a r i e d not only from one Hsien t o another, but from time t o time. I t i s d i f f i c u l t t o compute an average r a t e on the farm l a n d through out the country.  I f given, i t would merely mislead readers because  the v a r i a t i o n s were so great. 1917,  For instance, i n Szechwan, a f t e r  the power t o l e v y the farm l a n d taxes was l e f t i n the hands  of the warlords.  I n each year f o l l o w i n g the farm l a n d taxes were  c o l l e c t e d t o as much as 12 times i n advance ( o r , s i x years Not u n t i l 1934,  ahead).  when Generalissimo Chiang Kai-shek himself was i n  Szechwan coping w i t h the Communist r e v o l t s , was t h i s p r a c t i c e abolished.  P r e v i o u s l y the rate i n Szechwan, i n c l u d i n g the surtaxes  1. The China Year Book, 1926, p. 9 0 3 , "The m i l i t a r i s t s have at the same time been l e v y i n g excessive and i l l e g a l t a x a t i o n on the a g r i c u l t u r a l d i s t r i c t s from which Shanghai obtains i t s food supply. The wholesale index number f o r c e r e a l s , i n c l u d i n g r i c e , f o r Shanghai on the base of 100 f o r February, 1913, i n d i c a t e s a constant r i s e . Beginning w i t h August, 192k, the index numbers are as f o l l o w s : 1924: August - 1 4 4 . 6 ; September - I48.I; October - 145.6; November - 1 5 1 . 8 ; December - 148.1; 1925:  January - 1 4 7 . 9 ; February - 1 4 5 . 7 ;  March - 1 5 2 . 9 . "  2. Chia Teh-huei, V o l . I I , p. 5 8 5 .  \  119. which were three-quarters of the t o t a l , averaged more than 7 yuan per 1 Mou. But t h i s rate d i d not include other miscellaneous forced pay2 ments imposed on the farmers. There were many other i l l u s t r a t i o n s of the v a r i e t y i n land t a x r a t e s . For instance, i n Shangtung, from 3 k 1925 t o 1927, every p i c u l of r i c e was taxed 8 yuan, so that the rate was 20 yuan a Mou£ ^Assuming 2.5 p i c u l s of r i c e per Mou) At  that  time the p r i c e f o r r i c e i n Shanghai was only about Lk t o 16 yuan per 5 picul. In K i a n g s i , a f t e r 1927, the rate was determined at k yuan 6 per p i c u l of r i c e . U n t i l 1925 i n Kiangsu, the rate was f i x e d at 5 yuan per p i c u l of r i c e j and a f t e r 1930, In 1932,  the rate was somewhat reduced. 7  the rate was reduced by 4 O per cent.  tendency a f t e r 1928  Though there was  a  toward reduction of the farm land t a x r a t e s , the  National Economic C o u n c i l , quoted above, proposed measures f o r reformi n g the l a n d t a x a t i o n system because the surtaxes, at the same time, were i n c r e a s i n g .  I t recommended an adequate survey of l a n d .  But  1. Chia Teh-huei, V o l . 1 1 , p. 585. 2. I b i d . 3. A p i c u l i s equal to 60.4 kilograms. k. Chia Teh-huei, V o l . 1 1 , p. 585. 5. Cf., The China Year Book, 1926, p. 896. 6. Chia Teh-huei, V o l . I I , p. 587. 7. I b i d . Note: Other a l t e r n a t i v e rates of the farm land taxes, the rates i n other provinces and the increase i n c e r e a l p r i c e s d i r e c t l y caused by taxes w i l l not be discussed here.  120. "such a reform must be immensely d i f f i c u l t ,  lengthy and, i n i t s  initial  1  stages, expensive  ... And some reform i s urgent.  The f i r s t n e c e s s i -  t i e s are s i m p l i f i c a t i o n , e q u a l i z a t i o n and reduction, and a removal, o r 2 at l e a s t m i t i g a t i o n , of some of the worst anomalies o f assessment. In the same year, 1934, the Second National Financial. Conference was held.  Three major tasks were worked out a t t h i s Conference,  namely, the a b o l i t i o n of miscellaneous Chuan l e v i e s , a demarcation o f p r o v i n c i a l - H s i e n t a x a t i o n r i g h t s and the adjustment of the farm l a n d taxes.  The l a s t was emphasized p a r t i c u l a r l y .  The recommendations o f  t h i s Conference regarding the adjustment of farm land t a x a t i o n could be summed up as f o l l o w s : 1.  The removal of the Hsien surtaxes on the farm l a n d —  Before  1928, the heavy farm l a n d t a x was a t t r i b u t e d t o the expanding m i l i t a r y a c t i v i t i e s of the warlordsj but a f t e r 1928, i t was due l a r g e l y to the r i s i n g expenditures of the Hsien governments which, at that time, had no independent t a x sources.  The abuses of the  l a c k o f an accurate t a x r o l l caused l a r g e - s c a l e t a x evasion. 1. A p r e l i m i n a r y paper, the R u r a l Economic Reconstruction i n China by F r a n k l i n L. Ho, presented t o the S i x t h Uonference o f the I n s t i t u t e of P a c i f i c Relations h e l d a t Yosemite, C a l i f o r n i a , August 15-29,1926, s t a t e d that "A complete c a d a s t r a l survey f o r the whole o f China w i t h i t s area of 11,000,000 square kilometers would take 30 years and cost $2,200,000,000, provided 100 planes were a t work a l l the time." This d e s c r i p t i o n was t r a n s l a t e d from the Journal o f the Chinese A s s o c i a t i o n o f Land Economics ( i n Chinese), January, I934; Pp 19-21. 2. China Year Book, 1934, p. 768.  121. The  gross i n e q u a l i t i e s hampered f u r t h e r t h e development o f  t h e a g r i c u l t u r a l economy, and h a n d i c a p p e d t h e r e c o v e r y o f 1 the a g r a r i a n bankruptcy.  B o t h t h e e x i s t i n g p r o v i n c i a l and  H s i e n t a x e s on l a n d s h o u l d be c o n s o l i d a t e d i n t o one s i n g l e land tax f o r the e f f i c i e n c y of future administration. 2.  The maximum r a t e o f l a n d t a x - One p e r c e n t o f the l a n d v a l u e s h o u l d be t h e maximum r a t e o f t h e c o n s o l i d a t e d l a n d t a x .  3.  The r e g i s t r a t i o n o f l a n d ownership - The l a n d owners s h o u l d r e p o r t t o the government the v a l u e and t h e a c r e a g e o f t h e i r own l a n d .  ij..  The l a n d v a l u e t a x -  A f t e r the completion  of this land  registra-  t i o n , t h e l o c a l and p r o v i n c i a l governments s h o u l d l e v y t h e l a n d t a x a t one p e r c e n t o f t h e r e p o r t e d l a n d v a l u e . One m i g h t a s k why t h e C h i n e s e Government a l l o w e d t h e l a n d owners t o d e c l a r e t h e v a l u e o f t h e i r own h o l d i n g s .  I n answering t h i s  q u e s t i o n , we must c o n s i d e r t h e background o f t h e p r o p o s a l . Back i n 1924 when t h e Kuomintang was r e f o r m e d and i t s F i r s t Congress was convened, D r . Sun Y a t - s e n drew up a "Fundamentals o f t h e N a t i o n a l R e c o n s t r u c t i o n " w h i c h was i n s t i t u t e d as t h e o r g a n i c l a w o f t h e N a t i o n a l Government.  The A r t i c l e s w i t h r e g a r d t o l a n d t a x a t i o n  stated that: A r t i c l e 10. E v e r y H s i e n , a t t h e commencement o f s e l f - g o v e r n m e n t , s h a l l f i r s t a s s e s s t h e v a l u e o f p r i v a t e l a n d i n t h e whole H s i e n , w h i c h v a l u e i s t o be d e c l a r e d b y t h e landowner. The l o c a l government s h a l l t a x p r i v a t e l a n d on t h e b a s i s o f t h e v a l u e a s s e s s e d , and a t any t i m e may buy i t on t h e same b a s i s . I f a f t e r  1. See t h e Economic A s p e c t s L e a d i n g t o t h e Second N a t i o n a l F i n a n c i a l C o n f e r e n c e , Pp 8 5 - 7 .  122. t h i s assessment the l a n d increases i n value as a r e s u l t of p o l i t i c a l advancement or s o c i a l progress, such unearned increment should be shared by the people i n the whole Hsien and should not be kept by the landowners as private benefit. A r t i c l e 11. Annual r e c e i p t s from land tax, unearned i n c r e ment, products of p u b l i c l a n d , y i e l d s from'mountains, f o r e s t s , r i v e r s and l a k e s , proceeds from mineral deposits and water power, a l l belong t o the l o c a l government, and s h a l l be used f o r the operation of l o c a l p u b l i c enterp r i s e s of the people, f o r the care of the young and the aged, the poor and the s i c k , f o r famine r e l i e f , as w e l l as t o meet various p u b l i c demands. Dr. Sun Yat-sen's i d e a regarding the d e c l a r a t i o n of l a n d value by the landowners can be i n t e r p r e t e d t h a t , "The land owners would not declare t h e i r l a n d value much lower than that i n the a c t u a l market, because the Government could buy t h e i r lancL^ at any time, according t o the declared value.  Neither would the  land owners declare t h e i r l a n d value much higher than that i n the a c t u a l market, because the landowners would pay more taxat i o n than presumably they could a f f o r d .  Therefore, the l a n d value  declared by the landowners would be r e l i a b l e and there would be no over assessed burden, nor evasion of t a x a t i o n . " A f t e r the proposal regarding the r e g i s t r a t i o n of land ownership was submitted by the F i n a n c i a l Conference of 1934,  and  was promulgated by the C e n t r a l Government, some provinces put t h i s proposal i n t o e f f e c t , on an experimental b a s i s . The f o l l o w i n g Table i n d i c a t e s t h a t i n 20 Hsien, 12 m i l l i o n Mou of taxable land had p r e v i ously evaded the land t a x e n t i r e l y , that i s , more than 2$ per cent of the taxable land.  123.  TABLE XIV Taxable Land Before and A f t e r R e g i s t r a t i o n i n 20 Hsien 1 Unit: Hsien  Mou- one s i x t h o f 1 acre  Befor Regist.  Shuyang (Kiangsu) Hsiaohsien ( " ) Kiangtu I " ) Liyang ( " ) Ihsing ( " ) Chinkiang (" ) Kiangyin ( " ) Hwening ( " ) Tangtu (Anhwei ) Hohsien ( " ) Minhow (Fukien ) Shenhsien (Honan) Hsiangyu ( " ) Hweishien ( " ) Taikong ( " ) Hwaiyang ( " ) Chehlu ( " ) Yuhsien l " ) Yunan ( " ) Ningpao ( )  1,422,137 1,332,081 1,878,251 1,352,062 1,254,082  1:M  724,978 901,895 619,109 486,066 2,16^, %2 919,009 1,101,590 1,564,215 ,  11  Total  22,699,080  Average  2,2697908  A f t e r Regist.  Increases  3,145,561 2,453,665 2,326,889 l,426;i77 1,296,533 1,102,OB? 1,242j141 2,267,817 1,197,804. 909,187 586,066  1,723,424 1,121,584 448,638 74,115 42,^1  3,384', 423  l,22i;53l  m  m  1,653,878 1,665,004 3,005,013 OLD'713 34,745,741  1,54^, 839 295,909 290,078  m  89,663 239,795  12,046,661  1,-1 31 ,<t£-7 1,204,666 3^747^74  1. Cf., The Chinese Year Book, I937 i s s u e , p. 456.  124. In those areas where t h i s land value tax was introduced and the r e g i s t r a t i o n o f ownership was completed, the revenue from 1 land t a x a t i o n g e n e r a l l y increased.  The Hsien governments i n these  areas withdrew t h e i r surtaxes on land and received as t h e i r share of the land value t a x from the p r o v i n c i a l governments, an amount equivalent t o t h a t c o l l e c t e d under the o l d system.  I n many other  cases the increased revenue from the land value t a x was e q u a l l y d i s t r i b u t e d between the p r o v i n c i a l and Hsien governments, and i n s t i l l othar cases, the Hsien governments received a greater 2  portion. Many Hsien governments i n most o f the provinces, however, d i d not f u l l y enforce the l a n d value tax though the r e g i s t r a t i o n o f land ownership had been accomplished, but somewhat reduced the o l d surtaxes.  Moreover, i n many Hsien, the r e g i s t r a t i o n o f ownership  had not been completed by 1937,and therefore, the p r o v i n c i a l and Hsien governments s t i l l l e v i e d the l a n d t a x i n the o l d way. As a r e s u l t o f the l a c k of a uniform l e v y i n g method, a f t e r the F i n a n c i a l Conference o f 1934, there were thus three d i f f e r e n t methods of land t a x a t i o n , namely: 1.  The l a n d value tax - Shared by both the p r o v i n c i a l and l o c a l governments who had adopted the new method of t a x i n g land: no "land surtax" appeared on t h e i r accounts;  1. Cf., Pen Yu-sing, p. $. 2. Cf., I b i d .  120. 2.  The land tax - C o l l e c t e d by the p r o v i n c i a l governments who had not adopted the l a n d value t a x instead of the o l d l e v i e s ;  3.  The land surtax - C o l l e c t e d by the l o c a l governments who had not adopted the l a n d value t a x i n s t e a d o f the o l d surtaxes. The l a n d value t a x , introduced by the F i n a n c i a l Conference  of 1934, though i t was not used i n many l o c a l i t i e s from 1934 on, d i d represent a remarkable step i n land t a x a t i o n .  One of the advantages  of the land value t a x was that i t could eliminate most of the t a x d i s c r i m i n a t i o n among d i f f e r e n t areas.  The second advantage o f the  l a n d value t a x was that i t provided means f o r s o l v i n g the d i f f i c u l t i e s of t a x evasion which had appeared p a r t i c u l a r l y since the middle o f the nineteenth century.  P a r a l l e l w i t h t h i s r e g i s t r a t i o n o f land owner-  s h i p , the N a t i o n a l Government undertook a nation-wide l a n d survey beginning i n 1934 on; but t h i s program was i n t e r r u p t e d by the war i n 1937. In 1936 the National Government promulgated a new Land Law, which had been d r a f t e d o r i g i n a l l y i n 1930, introducing a land increment tax. According t o Sun Yat-sen*s Fundamentals o f National Reconstruction, the Land Law placed a heavy burden on p r o f i t s derived from the sale o f land.  That p o r t i o n of the p r o f i t exceeding 20 p e r  cent of the declared farm l a n d value was subject t o the land i n c r e ment tax; the p o r t i o n exceeding lf> per cent o f the declared urban land value was a l s o subject t o t h i s t a x . shown i n the Table f o l l o w i n g .  The rates were defined as  t  126.  TABLE XV Rates o f the Land Increment Tax of the Land Law o f 1936 1  Rates  Profits Less than 15$ o f the declared urban land II II 20$ " " " " " Exceeding 20$ but l e s s than 50$ o f the declared value o f both urban and r u r a l land  None None 20$ o f the excess over the "permitted profit 1  Exceeding 50$ but l e s s than 100$ Exceeding 100$ "  "  Exceeding 200$ "  "  " 200$ 11  300$  Exceeding 300$ and above  i|0$ 60$ 80$ 100$  The purpose o f t h i s land increment t a x was t o prevent concentration i n land ownership and t o replace the e x i s t i n g t i t l e deeds taxes which were l e v i e d a t d i f f e r e n t rates i n d i f f e r e n t provinces.  This Law was never put i n t o e f f e c t because o f the outbreak  of War w i t h Japan i n 1937.  Since the proclamation o f t h i s Lav/-,  many economists have c r i t i c i z e d i t s t h e o r e t i c a l basis as unsound. 2 For instance, A German land s p e c i a l i s t , Adolph Damaschke, once issued an essay c r i t i c i z i n g t h i s Land Law.  He s a i d , " I t i s by no  1. Sun Shan-fu, p. 65. 2. I b i d . , Part of Damaschke's essay here i s t r a n s l a t e d from a Chinese a r t i c l e quoted above, i n which the author d i d not give d e t a i l s regarding A.Damaschke and h i s essay, except a q u a l i f i c a t i o n o f "land s p e c i a l i s t " .  127. means s a t i s f a c t o r y to assess the l a n d increment t a x merely according to the percentage of the increased l a n d value. farmer, who  owned a piece of land worth 1,000  For instance, a small yuan, now s e l l s h i s l a n d  at a value of 2,000 yuan w i t h an increment i n value of 1,000  yuan, or  a p r o f i t of 100$ of the o r i g i n a l value.  purchased  I f a speculator who  a piece of l a n d at a value of 100,000 yuan now s e l l s h i s l a n d at a value of 100,000 yuan he w i l l make a net p r o f i t of 00,000 yuan, or 00$ of the o r i g i n a l value.  Yet the small farmer w i l l be taxed at a 1  higher r a t e than the speculator". A famous Chinese land s p e c i a l i s t , Mr. Chu Chi c r i t i c i z e d t h i s land increment tax, saying t h a t i t should be based on three important  factors:  "1. The percentage of the increased value t o the o r i g i n a l value, 2. The a c t u a l amount of the increased value, and 2 3. The d u r a t i o n of the ownership." Mr. Sun Shan-fu emphasizes "the d u r a t i o n of the ownership" because "the longer the period of ownership the l e s s would i t be speculative  3  i n character". As mentioned above, f o l l o w i n g the F i n a n c i a l Conference of 191+1, the C e n t r a l Government took over a l l p r o v i n c i a l taxes obligations.  Meantime, the C e n t r a l Government proclaimed  " P r o v i s i o n f o r the Enforcement of Wartime Land Taxation". 1. I b i d . , p.  65.  2. I b i d . , Pp  65-6.  3. I b i d . , p.  66.  the This  and  128. P r o v i s i o n set f o r t h the graduated rates f o r l a n d increment t a x as f o l l o w s : TABLE XVI Rates of the Land Increment Tax A f t e r 1941 1  Rates  Profits The increased value l e s s than 100$ of the o r i g i n a l value o f both urban and farm land  20$ on the excess over the "permitted p r o f i t " .  Exceeding 100$ but l e s s than 200$  ko%  "  Exceeding 200$ but l e s s than 300$  60$  "  "  Exceeding 300$ and above  80$  "  "  The same P r o v i s i o n defined the rates of land value t a x as f o l l o w s : TABLE XVII The Rates of the Land Tax A f t e r I9I4I 2  Land value per Mou  Rates  Less than 000 yuan Exceeding 000 yuan but l e s s than 10,000 " "  "  10,000 00,000  100,000  " "  "  " "  " "  and above  " "  00,000 100,000  6 t o 10 per m i l l e 11 to 10 " " 16 t o 20 21 t o 20  26 t o 30  " "  11  " "  "  This t a x was only applied t o urban l a n d , since r u r a l land was taxed i n k i n d , at d i f f e r e n t r a t e s , which w i l l be discussed i n the f o l l o w i n g chapters. 1. Cheng Cheng-mo, p. 11. 2. Sun Shan-fu, p. 06.  129.  C.  P r o v i n c i a l and Hsien Finances i n K i a n g s i Province. 1928-1937 K i a n g s i Province i s s i t u a t e d i n the middle-east p a r t of I t s area i n 1937 was 200,000 square kilometers, d i v i d e d  the country.  up i n t o eighty-three Hsien and one p r o v i n c i a l m u n i c i p a l i t y ; and i t s 1  population was 15,820,000.  This Province had s u f f e r e d severely along w i t h i t s neighbouring provinces during the U n i f i c a t i o n War before 1928 and a l s o i n the s e r i e s of c i v i l wars between the National Government and the Communists a f t e r 1929.  I t i s proposed i n t h i s Appendix t o discuss  the p r o v i n c i a l and Hsien finances of t h i s province, emphasizing the r e l a t i o n s h i p s between the three l e v e l s of government. The finances of t h i s province were t y p i c a l of the characteri s t i c Chinese f i n a n c i a l d i f f i c u l t i e s caused by p o l i t i c a l c r i s e s .  Most  of the materials i n the f o l l o w i n g paragraphs have been s e l e c t e d and t r a n s l a t e d from an A r t i c l e on "The C e n t r a l - K i a n g s i F i n a n c i a l Problems i n the Last Ten Years", by a Chinese scholar, Mr. Ben Yu-sing, and published i n the F i n a n c i a l Review, Volume X I I I , Number 4, A p r i l , 1945, i n Chungking.  Ordinary p r o v i n c i a l and Hsien revenues and disbursements  were not discussed i n t h i s A r t i c l e , but the f i n a n c i a l r e l a t i o n s h i p w i t h the C e n t r a l Government was analyzed e s s e n t i a l l y as f o l l o w s : 1.  P r o v i n c i a l Finances. From 1912 t o 1917, the K i a n g s i P r o v i n c i a l Government s t i l l drew up budgets even though there were d e f i c i t s .  1.  Chinese Year Book, 1937 i s s u e , Pp 278-9.  But i n 1918,  130.  1919, and 1920, t h e s e d e f i c i t s , c a u s e d by m i l i t a r y e x p a n s i o n , were s o g r e a t t h a t no a t t e m p t was made t o p r e s e n t a budget. T h i s s t a t e o f a f f a i r s l a s t e d u n t i l t h e F i n a n c i a l Conference o f 1928. D u r i n g t h i s e n t i r e p e r i o d t h e r e was no o r d e r i n t h e c o l l e c t i n g and s p e n d i n g o f revenues because o f t h e c o n f u s e d p o l i t i c a l s i t u a t i o n , not o n l y w i t h i n the province but also throughout the e n t i r e country. A f t e r the N a t i o n a l Government became e s t a b l i s h e d i n Nanking and a r e l a t i v e l y s t a b l e regime was e s t a b l i s h e d , t h e f i n a n c e s o f t h i s p r o v i n c e were g r a d u a l l y improved and, a s a r e s u l t , p r o v i n c i a l budgets were a g a i n b r o u g h t down i n 1928 and 1929. There were d e f i c i t s t o o , b u t l o a n s were^sought by t h e P r o v i n c i a l Government  t o remedy t h i s  situation.  A f t e r March, 1929, however, t h e revenues o f t h e P r o v i n c i a l Government r a p i d l y d w i n d l e d because o f t h e Communist r e v o l t s .  P r e v i o u s l y t h e m a j o r revenue o f p r o v i n c e s  was t h a t f r o m t h e f a r m l a n d t a x .  B e f o r e I929 i t brought i n  an a n n u a l income o f about 9,000,000 yuan.  But i n 1929 t h e  revenue f r o m t h i s t a x amounted t o o n l y 3,000,000 yuan. The c i v i l wars n o t o n l y c a u s e d a s h o r t a g e i n t h e government's revenues, b u t i t a l s o expanded t h e government's e x p e n d i t u r e s . F o r example, i n 1929,  t h e P r o v i n c i a l Government r e c e i v e d i t s  t o t a l revenue o f 11,000,000 yuan o n l y , w h i l e i t s t o t a l e x p e n d i t u r e s t o t a l l e d 14,000,000 yuan.  I n 1930, t h e revenue f r o m t h e  131. farm land tax f e l l from 9,000,000 yuan to 2,000,000 yuan. The t o t a l revenues were estimated a t l e s s than 10,000,000 yuan while the t o t a l expenditures were more than 17,000,000 yuan. These f i g u r e s do not i n c l u d e the funds spent d i r e c t l y from the C e n t r a l t r e a s u r y f o r m i l i t a r y purposes. In 1931 the N a t i o n a l Government promulgated a new law regarding the o r g a n i z a t i o n of p r o v i n c i a l and l o c a l government administration.  According t o t h i s law, l o c a l s e l f -  government was t o be set up i n each Hsien; and the N a t i o n a l Government was t o improve the p r o v i n c i a l and l o c a l finances necessary t o promote the development of l o c a l s e l f - g o v e r n ment.  Thereafter, the i n c r e a s i n g expenditures seemed l e s s  burdensome t o the provinces and Hsien.  I n the same year,  the s u r t a x on s a l t was handed over by the K^ensi Government to the C e n t r a l Government which, i n t u r n , granted s u b s i d i e s equivalent t o the o l d y i e l d s , t o the province. 2. The Importance o f the s a l t surtaxes t o the P r o v i n c i a l Finances. Before the Kuomintang u n i f i e d the country, the p r o v i n c i a l governments had u t i l i z e d land taxes, L i k i n l e v i e s and the s a l t tax as t h e i r main revenue sources.  I t was recommended by the  F i n a n c i a l Conference of 1°28 that p r o v i n c i a l governments surrender t h e i r power t o l e v y the L i k i n l e v i e s and the s a l t taxes to the C e n t r a l Government.  I n 1930,  the L i k i n l e v i e s were  132.  abolished and the s a l t t a x was taken over b y the C e n t r a l Government.  I n I93I t h e C e n t r a l Government f u r t h e r demanded  that the s a l t surtaxes be placed under c e n t r a l c o n t r o l i n order t o make a uniform s a l t t a x r a t e e f f e c t i v e .  Before the  surtax on s a l t was administered by the C e n t r a l Government, i n t h i s Province, t h i s s u r t a x had been r e l i e d upon by the P r o v i n c i a l Government f o r the f o l l o w i n g purposes: (i)  Adjustment o f the P r o v i n c i a l Bond Market Before 1926, the P r o v i n c i a l Government had issued various bonds t o meet d e f i c i t s .  Some bonds were issued  against the o l d bonds which became a reserve fund f o r the new i s s u e s .  Some bonds were permitted t o c i r c u l a t e  i n the market as means o f payment, and others were issued t o redeem the o l d bonds.  Because o f a l a c k o f systematic  planning, the p r o v i n c i a l bonds were issued i n a c a p r i c i o u s manner.  As a r e s u l t , the bond market i n t h i s  Province  was s e r i o u s l y undermined by these unending i s s u e s . I n January 1928, the P r o v i n c i a l Government issued " C i r c u l a t i o n Adjustment Bonds" i n the amount o f 8,000,000 yuan, t o absorb a p a r t o f the K i a n g s i P r o v i n c i a l Bank notes and two outstanding bond i s s u e s .  Part o f the surtax on  s a l t , 1,800,000 yuan was annually a l l o t t e d f o r the repayment o f t h i s new i s s u e .  133. Again i n 1930 the P r o v i n c i a l Government issued bonds t o meet t h e i r budgetary d e f i c i t s .  The fund f o r  repayment, t o t a l l i n g 1,200,000 yuan was a l s o t o be provided by the s a l t surtax.  This surtax was a l s o  planned t o provide 240,000 yuan annually f o r redempt i o n of p a r t o f the P r o v i n c i a l bond i s s u e o f 1931? which t o t a l l e d 400,000 yuan, ( i i ) Educational Funds I n 1927 the budgetted expenditure f o r education was only 1,200,000 yuan.  But a f t e r 1928 i t was increased t o  more than 2,000,000 yuan annually.  This e n t i r e increase  i n the expenditure f o r education was t o be covered by p a r t o f the s u r t a x on s a l t .  L a t e r , because o f the  Communist r e v o l t s and the drop i n p r o v i n c i a l revenues, a l a r g e r p o r t i o n o f the s a l t surtax was s e t aside t o balance the expenditure o f 2,000,000 yuan f o r education, ( i i i ) Communication In order t o expedite the suppression o f the Communists, the P r o v i n c i a l Government r a p i d l y b u i l t a highway net work.  Besides funds d i r e c t l y assigned by  the C e n t r a l Government, t h e P r o v i n c i a l Government provided 1,000,000 yuan annually, derived from the s a l t surtax I n 1934 the completion of the l u p i n g Railway was a s s i s t e d by a 12,000,000 yuan issue of bonds, once more secured by the s a l t surtax.  134.  (iv)  Subsidies t o Subordinate  Governments  There had been i n the past no independent t a x sources f o r the Hsien governments. T h e i r l i m i t e d funds were by no means adequate f o r the expenditures on p o l i c e p r o t e c t i o n and on r e l i e f i n the war-torn areas.  Extraordinary subsidies o f 400,000 yuan t o  the Hsien governments were derived from the s a l t surtax. From these d e t a i l s , i t i s evident that the surtax on s a l t was extremely important t o the K i a n g s i P r o v i n c i a l Government, p a r t i c u l a r l y when other income was sharply reduced by the Communist r e v o l t s .  Since p r o v i n c i a l finances depended so  h e a v i l y upon the s a l t surtax, the C e n t r a l Government had t o subsidize the P r o v i n c i a l Government a f t e r t a k i n g i t over.  New  subsidies from 1934 on were assigned by the C e n t r a l Government t o the Province i n the f o l l o w i n g amounts: Education Reserve f o r the o l d P r o v i n c i a l bonds Highways  2,000,000 yuan 1,834,000 96,000  " "  3,930,000 yuan I n a d d i t i o n , a subsidy o f from 1,000,000 t o 1,500,000 yuan was annually granted by the C e n t r a l Government t o t h i s Province f o r highway c o n s t r u c t i o n . When p a r t o f the P r o v i n c i a l bonds were redeemed i n 1934, the subsidy from the C e n t r a l Government was re-appropriated t o t h e reserve fund o f the Tuping Railway Bonds.  135. The subsidy o f 96,000 yuan under the heading o f Highways was a l s o l a t e r assigned t o the reserve fund o f the Railway Bonds. Two months a f t e r the war w i t h Japan broke out, the C e n t r a l Government reduced by 30 p e r cent i t s subsidy f o r education. 3. Hsien Finance Ever since the Republic had come i n t o existence i n 1912, the expenditure f o r p o l i c e p r o t e c t i o n i n l o c a l finance had always c o n s t i t u t e d one o f the l a r g e s t outlays o f the l o c a l governments.  This l o c a l phenomenon a l s o appeared i n K i a n g s i ,  e s p e c i a l l y during c i v i l wars between t h e . N a t i o n a l i s t s and t h e Communists.  I n order t o cope w i t h the Communist expansion,  the Hsien governments, under the C e n t r a l and the P r o v i n c i a l order, organized m i l i t i a f o r c e s .  I n 1933 these Hsien m i l i t i a  i n K i a n g s i comprised t h i r t y - t w o u n i t s , each u n i t containing more than 300 s o l d i e r s .  The funds were derived from the s u r -  taxes on farm l a n d and on s a l t . A f t e r 1933 depression i n farm communities throughout the country rendered inadequate f o r m i l i t a r y maintenance these funds from the farm l a n d surtaxes.  The C e n t r a l Government,  therefore, assumed p a r t o f the cost o f t h i s m i l i t i a organizat i o n , and assigned 250,000 yuan monthly t o a l l Hsien governments. On the other hand, because o f the departure o f the Communists from t h i s Province, the m i l i t i a was g r a d u a l l y reduced i n membership.  136.  By 193$, t o an end.  the c i v i l wars i n t h i s Province had come completely  As a r e s u l t , the P r o v i n c i a l and Hsien governments  were able t o d i v e r t a l a r g e r p r o p o r t i o n of t h e i r revenue from war expenditures t o post-war r e l i e f and reconstruction.  The  P r o v i n c i a l Government could now draw up budgets and could enjoy r e l a t i v e l y adequate revenue sources.  General subsidies t o the  Hsien governments were increased annually u n t i l they exceeded those r e c e i v e d by K i a n g s i from the C e n t r a l Government, as shown i n the f o l l o w i n g Table: TABLE X V I I I  Subsidies from the C e n t r a l and P r o v i n c i a l Governments t o the Hsien Governments i n K i a n g s i  1935  - 19la  (Unit: yuan) Year  1935 1936 1937 1938  1939 1940 1910.  Note:  Grants from the C e n t r a l Government t o the Provi n c i a l Government 120,000 210,000 290,000 290,000 230,000 220,000 280,000  Grants-from the P r o v i n c i a l Govt, to the Hsien Governments 130,000 250,000 450,000 222,000 534,944 692,524 1,639,310  Percentage of the Central Grants i n the P r o v i n c i a l Grants 92* 84 54 45 39 32 17  These grants d i d not include subsidies from the Central Government f o r p a r t i c u l a r purposes discussed i n the preceding pages, such as education, bond redemption and communication.  137.  This l a s t Table i s h i g h l y i n d i c a t i v e of the P r o v i n c i a l Government's new a b i l i t y t o subsidize i t s subordinate governments. This s t a t e of a f f a i r s was due l a r g e l y t o the peaceful s i t u a t i o n i n the Province i n l a t e r years, o r , s h a l l we say, the previous f i n a n c i a l d i f f i c u l t i e s could be a t t r i b u t e d t o c i v i l wars and the need f o r expanded p o l i c e p r o t e c t i o n .  PART I I I  138.  Selected References Chinese: Ben Yu-sing, Hsien Finance, Chungking, Commercial Press, February 19Ui>, f i r s t e d i t i o n ; Shanghai, Commercial Press, November 1940, Shanghai-first e d i t i o n ; A p r i l 1948, Shanghai-second e d i t i o n . Cheng Nien-chung. L o c a l Self-Government, Chungking, Commercial Press, A p r i l 194^, f i r s t e d i t i o n ; J u l y 19U4, f o u r t h e d i t i o n ; Shanghai, Commercial Press, September 194°, S h a n g h a i - f i r s t e d i t i o n ; J u l y 1947, Shanghai-second e d i t i o n . Chia  Teh-huei, F i n a n c i a l H i s t o r y of the Republic of China  L i Jan-nung, Chinese P o l i t i c a l H i s t o r y i n the Last One Hundred Years'. English: Hawtrey, R. G., The Gold Standard i n Theory and P r a c t i c e , Longmans, Green & Co., L t d . , London, New York, Toronto, C a l c u t t a , Bombay and Madras, 1927. Ho, F r a n k l i n L., R u r a l Economic Reconstruction i n China, a paper presented t o the S i x t h Conference of the I n s t i t u t e of P a c i f i c R e l a t i o n s , 1926. P e r i o d i c a l s (Chinese): Ben Yu-sing, The C e n t r a l - K i a n g s i F i n a n c i a l Problems i n the Last Ten l e a r s , Shanghai F i n a n c i a l Review. A p r i l iy45. Vol. 0, No. 4. Chang Peh-yi, Wartime Finance of the National Government, Shanghai, f i n a n c i a l Review, February 194?, V o l . 16, No.2 Cheng Cheng-mo, New Land Act and Land P o l i c y . Shanghai, F i n a n c i a l Review, November 1946, V o l . l b , No. b. Sun Shan-fu, The Arguments o f Tax Rates on Land. Chungking, F i n a n c i a l Review, June 1944, V o l . i±, No. 6.  139.  P e r i o d i c a l s i n English: China Handbook, 1937-1940. Compiled by Chinese M i n i s t r y o f Information, Revised and enlarged w i t h 1946 supplement, New York, MacMillan Company, 1947. China Year Book, 1926, T i e n t s i n , T i e n t s i n Press L t d . China Year Book, 1934, Shanghai, The Northern-China D a i l y News and Herald, L t d . Chinese Year Book, 1937 i s s u e , Shanghai, Commercial Press. I n t e r n a t i o n a l Year Book, 1928, New York. Money and Banking, I936-7, V o l . I I , League of Nations.  PART IV  W a r t i m e F i n a n c i n g 1937  -  19A5  lkl. PART 1Y Chapter 711 F i n a n c i a l Developments Between 1937  and  1941  Introduction In t h i s Bart the Third National F i n a n c i a l Conference w i l l be stressed i n d e t a i l .  Before the wartime f i n a n c i a l projects recommended by  t h i s Conference are reached, however, i t i s advisable to discuss the development of the Eight Years War which persisted from J u l y 1937  to August  1945. In  the f i r s t years of the War, neither China nor Japan d i d an-  t i c i p a t e that the h o s t i l i t i e s would l a s t f o r eight years.  The Central  Government developed i t s wartime financing rather spasmodically, and no permanent and comprehensive  f i n a n c i a l p o l i c i e s followed f o r the p r o v i n c i a l  and Hsien governments u n t i l 1941,  when China was convinced that the War  was chronic and the F i n a n c i a l Conference of 1941  was  called.  In the f i r s t years of the War, since the danger was worse i n China than i n Japan, the f i n a n c i a l strength of the Central Government was greatly weakened by the l o s s of the taxpayers i n enemy t e r r i t o r y .  In order  to enable the Central Government to liberate the nation from the foreign invasion, the F i n a n c i a l Conference of 1941 f o r solving c e n t r a l economic handicaps.  was assembled to provide means  The p r o v i n c i a l governments there-  by surrendered t h e i r tax levying power to the Central Government enabling i t to handle national defence more e f f e c t i v e l y . This Chapter i s e n t i r e l y a discussion of the background of t h i s F i n a n c i a l Conference.  1U2. A.  War Areas and F i n a n c i a l D i f f i c u l t i e s Before the outbreak of the Eight Tears War, the Four Eastern  Provinces, known i n English as Manchuria, had already been occupied by the Japanese.  The Japanese f i e l d forces could e a s i l y attack the Provinces  of Hopeh and Chahar, the south and west. On the night of J u l y 7, 1937, what was termed by the Japanese an "incident", following a Japanese " m i l i t a r y manoeuver", took place i n the v i c i n i t y of Pelping, formerly known as Peking, Hopeh Province. The Chinese Government attempted at the beginning to s e t t l e t h i s "incident" through diplomacy, and, on July 10, sent a written protest t o the Japanese Embassy i n Nanking.  However, i t was believed that no s a t i s f a c t o r y r e s u l t s could  be expected through diplomacy and on J u l y 17, General Chiang Kai-shek, i n a public speech, l a i d down four minimum conditions f o r the settlement of the so-called "incident".  In response to Chiang s statement, on July 25, ,  Japanese F i e l d Headquarters sent an ultimatum t o General Soong-Cheh-yuan, the Chinese commander i n the Hopeh-Chahar area, demanding the evacuation of a l l Chinese troops from Peiping and the v i c i n i t y .  When the Chinese Gov-  ernment refused t h i s ultimatum, the "incident" enlarged and spread over North China. On August 13 of the same year, the Japanese guns f i r e d on Shanghai.  The Chinese Government then announced that 200 kilometers of the  Yangtze River, from Shanghai upwards, had been mined and were closed to traffic.  One week l a t e r , a Non-Aggression Treaty was signed between the  Chinese and Soviet Governments i n Nanking. law was put into e f f e c t .  On August 30, a conscription  Two days l a t e r , on September 1, the Central Gov-  ernment issued i t s f i r s t wartime bonds, amounting t o 500,000,000 yuan, 40 per cent of the t o t a l Central budget f o r the preceding year.  The eight  no. Years War had begun; not u n t i l August, 1945» did the Japanese forces surrender and the War come to an end. The f i s c a l year of the Chinese Government ran i n the twelve months from July 1937 to June 1938.  (1)  The h o s t i l i t i e s broke out Just at  the beginning of t h i s f i s c a l year.  I t was necessary f o r the Central Gov-  ernment t o rush the f i r s t wartime bonds, which were issued two months a f t e r the outbreak; but a r e l a t i v e l y permanent wartime f i n a n c i a l plan was out of the question because both China and Japan never realized that t h i s " i n c i dent" would l a s t f o r eight years. Following the e a r l y bloody campaigns, China's forces withdrew westward from the maritime provinces. The loss of the land together with the taxpayers there domiciled, was p a r t i c u l a r l y inconvenient, so f a r as the f i n a n c i a l matters were concerned.  The following Map and Table give a rough  picture of the war areas and population s i t u a t i o n s .  1. Beginning from 1938, the f i s c a l year was a l t e r e d from January to December of each year.  International Boundaries  Provincial Boundaries  Rivers  Great W a l l  A r e a under Japanese c o n t r o l f r o m 1896 t o 19U0. P r o v i n c e s o c c u p i e d by t h e Japanese f r o m 1931-33 t o 19U5>. P r o v i n c e s e n t i r e l y o c c u p i e d by t h e Japanese a f t e r 1937. I — i P r o v i n c e s where a f t e r 1937, t h e Japanese c o n t r o l l e d m a j o r I 'portion of land. P r o v i n c e s where major p o r t i o n o f l a n d s t i l l under Government c o n t r o l .  Note: T h i s Map'shows t h e 28 P r o v i n c e s and t h e t e r r i t o r i e s of M o n g o l i a and T i b e t i n 1937? t h e I s l a n d H a i n a n was under t h e j u r i s d i c t i o n o f t h e Kwangtung P r o v i n c i a l Government. The changes of t h e i n t e r n a t i o n a l and p r o v i n c i a l b o u n d a r i e s a f t e r 19U0 w i l l n o t be shown h e r e .  145.  TABLE m i l l Population and War Areas i n the 28 Provinces of China.  (1)  (Population and acreage quoted below i n accordance to 1937*s census ) * Popula- ' Per• t i o n 'centage to* • (000) ' T o t a l • * •452,614 » 100,0 1  P R O V I N C E S The 28 Provinces Provinces f u l l y occupied by the Japanese: Four Eastern. Provinces Chahar Hopeh Total ' the Hsien i n 63 per cent of the Provinces occupied by the Japanese: Kiangsu Che kiang Anhwei Kiangsi Hupeh Hunan Shantung Honan Shane! Fukien Kwangtung Suiyuan Kwangsi Total The Provinces intact during the War: Szechwan Yiman Sinklang Chinghal Kweichow 1 Sikang Kansu 1 Ningsia 1 Shensi 1 Total  Areas sq.km. (000) 8,766  • Per* centage t o » Total ' 100.0  30,007 2,036 28.6U 60.687  6.6 0.5 6.3 13.4  1,247 279 154 1.680  14.3 3.3 1.8 19.4  36,469 21,231 23,265 15,820 25,542 28,294 38,029 34,290 11,601 11,756 32,290 2,084 13.385 293.956  8.0 4.7 5.1 3.5 5.6 6.2 S.7 7.3 2.6 2.6 7.1 0.6 2.9 64.9  108 103 134 200 208 273 179 173 156 159 217 291 218 2,419  1.4 1.3 1.5 2.2 2.4 3.1 2.0 1.9 1.8 1.8 2.5 3.3 2.5 27.7  52,963 11,995 4,360 1,196 9,043 968 6,705 1,023 9.718 97,971  11.7 2*7 0.9 0.2 2.0 0.2 1.5 0.2 2.3 21.7  431 320 1,828 697 179 372 378 275 187 4,667  4.9 3.7 20.8 7.9 2.0 4.2 4.2 3.1 2.1  52.9  1. These Provinces not e n t i r e l y i n t a c t . 1. Cf., Chinese Year Book, 1937 issue, pp 278-79 and China Handbook, 1937-1945, P.112. Figures do not include those of Special M u n i c i p a l i t i e s and the T e r r i t o r i e s of Mongolia and T i b e t .  11*6. Before 1937, 13*4 per cent of the t o t a l population and 19.4 per cent of the land among the 28 provinces had already been occupied by the Japanese.  During wartime an a d d i t i o n a l 45 per cent of the population  and an a d d i t i o n a l 20 per cent of the land were l o s t from the administrat i o n of the Central C3overnment.  Roughly speaking, i n the l a t e r years of  the War, the Central Government was only d i r e c t l y supported by 40 per cent of the population, inhabiting 60 per cent of the land which was much poore r than that occupied by the enemy.  Since the Central Government had pre-  viously depended on the revenues from the i n d i r e c t taxes , as we s h a l l see i n the next s e c t i o n , the l o s s of majority of the population would nece s s a r i l y put a tremendous burden on the Central Government i n i t s struggl e s against foreign invasion.  This was the elementary f a c t o r that handi-  capped the c e n t r a l treasury i n financing the war expenditures, and that led t o the convening of the T h i r d National F i n a n c i a l Conference i n 1941» by which time China was p o s i t i v e l y convinced that the "incident" was"chronic".  B.  I n e f f i c i e n c y of the Central War Financing Since the pressure on the c e n t r a l finances was the chief eause  f o r the F i n a n c i a l Conference of 1941» i t i s advisable to discuss,as background, b r i e f l y the economic projects of the Central Government p r i o r t o  19U. In order to cope with the f i n a n c i a l d i f f i c u l t i e s of the War, the Central Government had adopted three p o l i c i e s , namely the issue of bonds, the imposition of new taxes, and the I n f l a t i o n a r y p r i n t i n g of banknotes.  These p o l i c i e s , however, were by no means s u f f i c i e n t to raise the  funds necessary f o r the huge war expenditures, as the separate headings  U7. below w i l l show. F i r s t p o l i c y : Wartime Bonds The f a i l u r e of the c o a s t a l defences of China was i n e v i t a b l e because she lacked a strong navy, while Japan a t that time was preeminent i n sea power. I n 1937 and 1938» the Japanese had s u c c e s s f u l l y occupied a l l the important sea p o r t s , i n d u s t r i a l centers and commercial c i t i e s along the coast.  As a r e s u l t of t h i s , the C e n t r a l Government  not only l o s t a l l revenues from the maritime customs d u t i e s , and the t a x on the s a l t produced on the coast, but a l s o the considerable annual i n come from commodity t a x e s .  I t was the worst period i n the records of the  c e n t r a l finances since the U n i f i c a t i o n era of 1928, f o r the C e n t r a l Government had l o s t i t s three major revenue sources, while i t had t o carry the c o s t s of t o t a l war.  The f o l l o w i n g Table shows the percentages of the  I n d i r e c t taxes i n the C e n t r a l Government's budgets since 1928. Table XX Importance o f the three major Revenue sources i n the Estimated Budgets of the C e n t r a l Government, 1928-1937 (1) 1  Revenues 'from I n d i r e c t Taxes Borrow- • Other Customs S a l t Commodity T o t a l " ings Revenues fo % (1) # * -21 1928 22 26 48 31 — 1929 18 29 34 19 53 1930 18 28 40 7 65 7 20 42 18 9 69 13 1931 -11 1932 52 89 24 13 — 21 52 84 1933 13 14 12 20 22 5 1934 41 73 11 65 28 7 1935 35 19 22 14 32 64 1936 19 13 — 22 17 36 25 1937 75 Tne n s c a j . year sta.n,eu 1 ™ o u x j r ^yji w « u ^ « , < - ^ a - C T ~ZZ*™2 -^^A„ broke out i n J u l y 1937. The f i g u r e s do not include the wartime bonds, Year  w  1U8. On the average, i n the ten years up to 1937» the Central Government's revenue from customs d u t i e s 7 s a l t taxes, and commodity taxes, were 69 per cent of i t s t o t a l annual income. When the War broke out these r e l i a b l e revenue sources dwindled sharply.  By 1939» the revenue  from these taxes amounted to only 46 per cent of that of 1937» while the t o t a l expenditure f o r 1939  rose to 125 per cent of the 1937  f i g u r e . With  an eye to the expected loss of the i n d i r e c t taxes, the Central Government endeavoured both to frame a new centralized taxation system and a l so to issue wartime bonds to meet i t s budgetary d e f i c i t s .  1  The  latter  p o l i c y could be administered more e a s i l y and e f f i c i e n t l y i n the emergency.  Thus, the f i r s t wartime bonds were issued two months a f t e r the  outbreak of the  War.  In these e a r l y War years, the c e n t r a l budgetary d e f i c i t s were not so great t h a t the Government could not balance i t s t o t a l expenditures with i t s t o t a l income. A f t e r 1940,  however, d e f i c i t s increased so rap-  i d l y that bond sales were no longer s u f f i c i e n t to o f f s e t them, as shown i n the following Table.  1. Cf., Yen Wen-Bhin, p.112.  1U9. TABLE XXI D e f i c i t s and Domestic Bonds o f the Central Year  1937  Government,1937-1941  Unit: 000,000 yuan Bonds Issued Names and Purposes Amounts Total Liberty Banking  500 17  517  1  Central D e f i c i t s  496  1938  National Defence Relief  4,500 30  4,530  1939  Reconstruct! on National Defence  600 1,200  1,800  1,383  Reconstruct iom National Defence  1,200 2,000  3,200  4,007  2,400  9,000  1940  1941  x  Reconstruction National Defence  1,200 1,200  396 x  The f i s c a l year ran from J u l y to December i n 1938  1. Source:  Yen Wen-chin, Ppl21-2 & Chang Feh-yi, Pp 10,12,13,15 & 17.  100. From 1937 to 1939, the wartime bonds were the backbone of a balanced central budget.  In 1940, however, the d e f i c i t s exceeded the am-  ount of the bonds issued plus a l l other sources of revenue of the Central Government.  By 1941, the bonds o f f s e t only 37 per cent of the budgetary  d e f i c i t . A remedy had to be provided f o r the Central Government, so that i n the summer of 1941, the T h i r d National F i n a n c i a l Conference was held for t h i s purpose. Second P o l i c y : New Taxes of the Central Government Ever since the U n i f i c a t i o n of the country, and p a r t i c u l a r l y a f t e r the Japanese seizure of the Four Eastern Provinces, the Central Government had been attempting t o strengthen paration f o r a war with Japan.^  i t s f i n a n c i a l system i n pre-  In 1934, the Second National F i n a n c i a l  Conference had proposed new income taxes and succession duties imposed by the Central Government.  In the following year, an income tax act was  a c t u a l l y put into force, and, i n 1937, succession duties were imposed. One year a f t e r the War began, l e g i s l a t i o n regarding a wartime excess p r o f i t s tax was promulgated.  This tax was f i r s t imposed i n 1939•  In 1940, the Central Government temporarily established a monopoly of the sales of sugar, s a l t , tobacco, c i g a r e t t e s , and matches i n a few areas.  Because of the good results of t h i s operation the Central  Government, i n 1941» applied t h i s p o l i c y throughout the whole country.  1.  Chang Peh-yi, "Because of the Japanese invasion at the Northeast, the National Government attempted to plan i t s finances to meet the impending threat of war with Japan, p a r t i c u l a r l y evident a f t e r 1932 (the Japanese attacked on Shanghai)".  151. As the war s i t u a t i o n worsened, voluntary donations from the people to the Central Government increased from year to year.  From 1940  on, the Central Government i n i t s budgets put t h i s sort of income under a separate heading.  The following Table shows the percentages that the  new taxes, monopoly s a l e s , and donations were of the t o t a l income of the Central Government, from 1937 t o 1941* TABLE XXII New Receipts as a Percentage of the T o t a l Receipts of the Central Government,  1937- 1941  Year  Income Tax  1937 1938 x 1939 1940 1941 x  1.6 0.3 1.3 1.0 1.5  E.P.T.  0.2 0.7 1.7  Succession Duties  0.1 0.01 0.1 0.1 0.1  - -  (1)  Monopoly Sales  0.8 7.9  Donations  1.1 3.4  Bonds  37.0 89.9 77.9 84.6 58.2  Total  38.7 90.2 79.5 88.3 67.8  F i s c a l year ran from J u l y t o December, 1938, while the bonds were not by f i s c a l year. Although the revenues as a whole increased annually, the t o t a l  d e f i c i t s of the Central Government s t i l l mounted more r a p i d l y , as shown i n the following Table:  !•  Source: Chang Peh-yi, Pp 10-7, & Table XX  supra  152. TABLE XXL11 T o t a l Income as a Percentage of the Total Expenditure of the Central Government  1937 - 1941 Unit: T o t a l Income  Tear  1,515,357,000 1937 x 5,037,679,000 1938 2,309,089,000 1939 3,784,439,000 1940 4,118,985,000 1941 x  1  *  yuan  T o t a l Expenditure  Per cent  1,511,293,000 903,329,000 1,892,269,000 4,591,595,000 10,729,941,000  100.3 556.3 126.8 82.4 38.4  F i s c a l year ran from J u l y to December, 1938. As the t o t a l incomes as a percentage of the t o t a l expenditures  dwindled, the Central Government's a b i l i t y t o s e l l more new bonds was weakened. dilute  I t was, therefore, necessary f o r the Government t o resort t o  i t s currency to meet i t s d e f i c i t s .  I n f l a t i o n , however, was  poor remedy f o r such a prolonged struggle. Third' P o l i c y :  Fapi, the inconvertible f i a t money  From 1934  on, the price of s i l v e r had increased r a p i d l y abroad,  which l e d t o the export of a great deal of s i l v e r t o the gold standard countries.  This event brought to China a shortage of s i l v e r i n the money  stream and a c r i s i s in the domestic economy. The Government, therefore, had to divorce the exchange value of i t s currency from the world price of s i l v e r and had prevented the free movement of s i l v e r a f t e r the middle of October, 1934.  1.  Ibid  In November, 1935  an emergency decree was issued by  103. the Central Government authorizing an inconvertible paper money, known as Fapi, as f u l l l e g a l tender.  In that peaceful year Fapi was expected t o  prevent a domestic economic panic, but i n f a c t , i t was one of the whole l i n k of the N a t i o n a l i s t war p o l i c i e s .  Mr. Ping Liang, the head of the  Issue Department of t h e Central Bank of China, i n h i s a r t i c l e issued i n 1948 t o observe the twentieth anniversary of the Central Bank of China, stated that, ".....Moreover, the relationships between China and Japan became so tense that the Government had to reform i t s currency by emergency decree, as a preparation f o r war".  1  In the same a r t i c l e , Mr. Liang  went on and said t h a t , "During the l a t e r years of the War, the Government had done i t s best to avoid the use of note issues f o r war purposes"." In 1948, the M i n i s t e r of Finance, Wang Tu-wu, i n h i s statement regarding a l a t e r monetary reform said that, "At present, the Fapi has met with i t s fate a f t e r several s t i r r i n g years.  During these years, i t  did p e r i o d i c a l l y increase i n quantity but not as much as our c i t i z e n s imagined".  J  The Government had never made a d e t a i l e d statement  concerning  the extent of the note issue while the War was going on; even during the post-War years, when the c o n f l i c t s between the Government and the Chinese Communists were spreading.  I t i s d i f f i c u l t to discover how important was  the role played by the Fapi i n f l a t i o n i n the c e n t r a l financing of the War. According t o Mr. Liang's a r t i c l e , the i n f l a t i o n was not c r i t i c a l i n the f i r s t three years.  He also said t h a t , "during these three years, a quan-  t i t y of Fapi was necessary only i n order to meet emergency needs a t the  1. 2. 3.  Ping Liang, p.34. Ibid. F i n a n c i a l Records, F i n a n c i a l Review, V o l . 19, No. 2, p.10.  154. front and to f a c i l i t a t e development of some industries i n the i n t e r i o r " * 1  Further, one must remember that i n the f i r s t three years of the War,  the Government had issued wartime bonds in the amount of 11,500  m i l l i o n yuan.  These funds had to be provided from the e x i s t i n g money  stream which was at the eve of the War only 1,410  m i l l i o n yuan.  There-  f o r e , the Central Bank had to increase the quantity of the Fapi through loans to private business i n order t o maintain a useful volume of the currency In c i r c u l a t i o n . ion to 32.4  In 1938,  m i l l i o n yuan; i n 1939,  the Fapi was  increased from 31«2  mill-  by 340 m i l l i o n yuan; and i n the f i r s t  2 s i x months of 1940,  by 540 m i l l i o n yuan.  From then on, there was  no  o f f i c i a l statement regarding the Fapi i s s u i n g , but Mr. Liang s a i d t h a t , "The Fapi should be e l a s t i c i n i t s quantity".^ In view of the central budgets, one would believe that the Government, beginning i n 1940,  had begun to spend the Fapi d i r e c t l y to  meet a part of i t s expenses because i n that year i t f i r s t met with net deficits. 1. 2. 3. 4.  4  Ping Liang, p.34. Ibid. Ibid. See Table XXU supra. Chang Peh-yi,p.5 How to Maintain the Value of the Gold Yuan, "Through the f i r s t three years, t h i s continuing issue of the Fapi caused gradual but stable decline i n i t s value. But a f t e r Pearl Harbour was bombed, the sudden reduction i n ports caused serious shortage of various staple goods (because l e s s and less the staples imported across the P a c i f i c Ocean)• This resulted i n a rapid r i s e of the general price l e v e l and was a further f a c t o r i n tbs seemingly l i m i t l e s s f a l l i n the value of the F a p i " .  155. Of the three wartime f i n a n c i a l measures, .the, the bond issue, the taxes and i n f l a t i o n , the d i l u t i o n of the Fapi was the l a s t and most desperate r e s o r t .  But such i n f l a t i o n was never an e f f e c t i v e weapon f o r  coping with f i n a n c i a l d i f f i c u l t i e s i n the long run.  Other remedies had  to be provided i f the Government was t o continue the war e f f o r t t o the end. (C)  Thus, the Third National F i n a n c i a l Conference was c a l l e d i n  1941.  Developments i n the P r o v i n c i a l and Hsien Finances, 1937 to 1941 In 1934,  the Second Naticmal F i n a n c i a l Conference took a s i g n i f -  icant step through which to provide an expansion of the Hsien finances was expected.  But only a few of i t s Resolutions —  such as a b o l i t i o n of the  Chuan l e v i e s and the introduction of land value taxes —  were put into  e f f e c t by the p r o v i n c i a l governments, while the Demarcation incial-Haien Taxation was never r e a l i z e d . Government promulgated an Enforcement  In March, 1937,  of the Provthe Central  Provision f o r the Demarcation Act."*"  This Provision was t o be i n force by July, 1937*  However, the h o s t i l i t i e s  between China and Japan broke out in that month, so the enforcement  of the  Provision was postponed by a central decree. The materials i n t h i s section are arranged to s t r e s s the f i n a n c i a l developments among the p r o v i n c i a l and Hsien governments from 1937 1941*  to  Of these, the New Hsien System was the most important, and w i l l be  discussed i n a following chapter. P r o v i n c i a l Finances The p r o v i n c i a l governments s t i l l had a broader revenue base than the Hsien, because the Demarcation Act had not been as yet put into practice.  They could reserve bond issuance power f o r t h e i r extraordinary  The Provision was of the same pattern of the Demarcation Act, decided by the F i n a n c i a l Conference of 1934, with s l i g h t changes i n names and terms.  156.  expenditures, as i s shown i n the following Table. TABLE  m i l l  P r o v i n c i a l Wartime Bonds, Issued Annually 1937-1940 * 1  Unit;000 yuan t t t 'PURPOSES Tear 'Reconstruction * R e l i e f • Highway & * Deficit'Defence * T o t a l '& Othersi ' • Industry ' & Public works * 500 14,460 6,000 2,960 1937 5,000 17,000 88,980 15,980 1938 56,000 9,200 25,600 8,900 1939 7,500 5,000 90,000 25,000 20.000 £0,000 1940 26,000 42,960 49.880 31.700 219.040 Total! 68,500 Note: the f i g u r e s include the bonds which had been authorized and not yet issued. The P r o v i n o i a l Governments of Anhwei, Chekiang, Fukien, Honan, Hunan, Hupeh, Kansu, Kiangsi, Kiangsu, Kwangsi, Kwangtung, Shantung, Shensi, Sikang, & Szechwan. 1  The f i n a n c i a l conditions of the i n d i v i d u a l p r o v i n c i a l governments were varied with t h e i r proximity to the f r o n t . shows the finances of three Provinces.  The following Table  In Chekiang, there was f i g h t i n g  with the Japanese i n 1939. Fukien was one of the neighboring Provinces of Chekiang, and war areas i n t h i s Province were small. free from active h o s t i l i t i e s .  1. Cf., Chia Teh-huei, V o l . 11. p.664-66.  Szechwan was  157. TABLE XXV P r o v i n c i a l Budgets of Chekiang, Fukien, and Szechwan f o r 1939 Unit;000 yuan From:  ' Amount  1  •  t  5,800 Farm land taxes 500 T i t l e deeds taxes Business taxes 5,729 — Improvement taxes Public properties 266 Public enterprises 819 Administration 8,152 Subsidies from the Central Government 1,861 12,000 Debts & borrows Others A.347 Total (cit.) 39,475  14.8 1.3 14.5 —  0.7 2.1 20.5 4.7 31.0 11.0 100.0  Fukien Amount . 1,540 154 2,364a 4,000b 146 57 687  2,144 1,983 30 13,105  Szechwan  % ';Amount 1  11.8 0.2 17.3 30.5 0.1 0.5 16.4 15.2 100.0  29.000 3,000 11,000 1,000 100 90 2,700  30.8 3.2 11.8 1.1 0.1 0.1 2.9  14,000 15.0 30,300c 32.0 200 0.2 94,000 100.0  Expenditures For Administration (d) 3,050 3,708 24,900 26.2 28.5 7.7 25.8 9,400 10.0 Police protection 3,288 10,194 25.3 Subsidies t o subordinate govern— 700 ments 0.7 7,153 18.0 7,400 23.0 Education 6.6 2,999e 2,599 7.9 5,700 6.2 F i n a n c i a l Ad. 1,780 2,104 5.3 13.7 — 26,000 Debt Service 9,756 27.7 24.7 — — — Public enterprises 199 Pensions to r e t i r e d 1.1 1,000 110 60 o f f i c i a l s , etd. 328f 15,000 16.0 Construction, e t c . 1,127 2.9 2.5 — — Other 5.7 . 744 Reserve funds 4.2 744 3,182 9.0 3,900 5.7 otal ( c i t . ) 39,475 100.0 13,105 100.0 94,000 100.0 The budget had not been submitted t o the Central Government f o r approval, a) Including butchery tax, e t c . b) Including a part of land taxes, c) Debts:300,000 yuan,Deficits:30,000,000 yuan, d) Including t h e expenditures f o r administration, j u d i c i a l adm i n i s t r a t i o n , and the Party. f) Including the expenditures f o r s p e c i a l t r a i n i n g of c i v i l o f f i c i a l s . j£) Including the expenditures f o r public health, e t c . 1. Cf., Chia Teh-huei, V o l . 11. Pp 656-67. M  M  M  M  M  M  e  M  M  M  M  108. In Chekiang, the income from debts and borrowing was the greate s t , 31 per cent of the t o t a l income of the P r o v i n c i a l Government, while that from the central subsidies was  only 4.7 per cent.  In Fukien, the  taxes from land and improvements were the greatest revenue, 42 per cent of the t o t a l income of the P r o v i n c i a l Government; while the subsidies from the Central Government was  16 per cent.  In Szechwan, the revenue from  debts and borrowing was the greatest, 32 per cent of the t o t a l income of the P r o v i n c i a l Government, while that from the land tax was the next, 30 per cent. Chekiang and Szechwan had heavily depended on borrowing, but both of them had the increasing burden of refunding t h e i r old debts, 24 and 27 per cent of t h e i r t o t a l expenditures r e s p e c t i v e l y . Since actual battles waged i n Chekiang, the P r o v i n c i a l Government also had an expenditure, the largest one of a l l , for c i v i l protect i o n and police amounting t o 25.8  per cent of i t s t o t a l expenditures. But,  i n Szechwan, the cost of police protection was only 10 per cent of the t o t a l expenditures, while i n Fukien, the same expenditure was 25.3 cent of the t o t a l .  The expenditure f o r construction was  only 2.9  per per  cent i n Chekiang compared to 21.5 per cent i n Fukien and 16 per cent i n Szechwan.•• In Chekiang, as the areas under the P r o v i n c i a l administration s t e a d i l y diminished, the expenditure f o r administration became l e s s important.  But i n Fukien and Szechwan, the same expenditure amounted to  28.5 and 26.2  per cent r e s p e c t i v e l y .  This expenditure included the cost  incurred i n maintaining p r o v i n c i a l people's assemblies.  The  Chekiang  Government was burdened by subsidies t o i t s subordinate governments, of 18 per cent of i t s t o t a l expenditures, while such costs i n Szechwan were  159. only 0.7 per cent.  In Fukien, t h i s cost was incorporated into that f o r  admini st rat i o n . A better understanding of the p r o v i n c i a l wartime financing w i l l be given by the following Table, which shows the variations i n Chekiang's budgets f o r the years 1936 and 1939• TABLE XXVI Comparison of the Chekiang P r o v i n c i a l Budgets of 1936 and 1939.  1  Revenues & ' Receipts •  Unit;000 yuan Amount * Percent 'Expendi* Amount Percent * I936.. 1939 • 1936. 1939 ' tures f o r• 1936. 1939 '1936.1939'  Land taxes 10471 T i t . deeds 1080 Business 5665 Pub. prop. 610 Pub. enterp . 3905 Administ. 1033 Subsidies from the Gen.Gov't. 4669 Debts 1194 Others 311 Total  1  5800 36.2 500 3.7 5729 19.6 266 2.1 819 13.5 8125 3.6 1861 12000 4347  16.1 4.1 1.1  28938 39475 100  1. Tables V I & Xx/v supra.  14.8 1.3 14.5 0.7 2.1 20.5 4.7 31.0 11.0 100  Administ. Pol.Prot. Subsidies to Sub. gov'ts Financial  5681 3050 19.6 7.7 3423 10194 11.8 25.8 1035  7153  1218 Debts 5959 Pub .enterp . 3373 Pensi on 98 Construct. 4089 Others 107 Reserve 824 Total 28938  2104 9756 199 110 1127  3.6 18.0  4.2 5.3 20.6 24.7 11.7 0.3 14.1 2.9 0.4 3182 2.9 9.0 39475 100 100  160. Because f i g h t i n g was going on i n t h i s Province, the revenue from the land taxes was sharply reduced from 36.2 14.8  per cent i n 1939» of the t o t a l r e c e i p t s .  p r o v i n c i a l enterprises was 13*5 come i n 1939 was  per cent i n 1936  In 1936,  to  the income from  per cent, of the t o t a l , but the same i n -  only 2.1 per cent.  In 1939.  the receipts from t i t l e  deeds, and public properties had f a l l e n to 50 per cent of those i n  1936.  The receipts from debts being a stable amount of money increased from 4.1 per cent i n 1936  to 31 per cent i n 1939  of the t o t a l revenues of the  Provincial Government, and the debt charges i n 1939 points alove that of 1936.  In 1936,  rose 4  percentage  administration, construction and pub-  l i c enterprises were 45«5 per cent of the t o t a l expenditures; but these expenditures were not of importance  i n 1939,  being 10.6  per cent only.  The cost f o r police protection and the subsidies to the subordinate governments were only 25.4  per cent i n 1936;  however, by 1939  they were  43.8  per cent. To sum up, the essences of the p r o v i n c i a l wartime financing can be analyzed as follows: 1) In these provinces where b a t t l e was carried on, the provinc i a l governments not only had an increasing costs f o r police protection, but the heavy burden of subsidizing the subordinate governing bodies. They had t o keep a reserve fund of high percentage of t h e i r t o t a l expenditures to meet emergency needs.  Here, the subsidies from the Central Government  were not important. 2) In these provinces removed from the direct a c t i v i t i e s of the War,  construction and public works were c a r r i e d on a greater scale than  i n the pre-War years.  Here, the subsidies from the Central Government be-  came more important than ever.  161. 3) Generally speaking, a l l p r o v i n c i a l governments developed t h e i r debt financing during the War years. The expenditure f o r the repayment of the o l d debts, therefore, increased each year. Hsien Finances Since the outbreak of the War, the Hsien governments had been increasingly burdened by t h e i r extraordinary functions, such as organizing m i l i t i a , supplying foodstuffs, carrying propaganda, administering refugees, moving, r e h a b i l i t a t i o n , m i l i t a r y works, reconstruction. One must remember that the Hsien governments were s t i l l without adequate revenue sources, because the Demarcation Act had never been put into e f f e c t .  The Hsien f i n -  ancial methods were rushed and p a r t i c u l a r l y i n those d i s t r i c t s close t o the theater of War.  When the subsidies from the Central or the p r o v i n c i a l  governments were not received, or were inadequate, the Hsien treasuries had t o d i s t r i b u t e the burden of the extraordinary costs among the people. In 1939, the Kwangsi P r o v i n c i a l Government f i r s t  promulgated  9  rules governing such " d i s t r i b u t i o n " of extraordinary costs of i t s Hsien governments.'  A f t e r t h i s i n i t i a l step, other provinces made s i m i l a r rules  for t h e i r respective l o c a l bodies.  The regulations drafted by the Kwangsi  P r o v i n c i a l Government can be summed up as f o l l o w s .  1  1) The t o t a l amount of the " D i s t r i b u t i o n " should be f i r s t approved by the people's assembly i n the Hsien concerned. 2) The i n d i v i d u a l levies of the " D i s t r i b u t i o n " should be determined by each D i s t r i c t Assembly, (which was subordinate to the Hsien people's assembly) i n accordance with the f i n a n c i a l a b i l i t y of each Hu ( one Hu usu a l l y contained one family; and every business f i r m was considered as a separate Hu). 3) The spending of the " D i s t r i b u t i o n " i n each d i s t r i c t of the 1. Chia Teh-huei, Vol.11, p.660.  162. Hsien should also be decided by the D i s t r i c t Assembly, 4) The t o t a l c o l l e c t i o n of the " D i s t r i b u t i o n " should be i n each Hsien treasury f o r safe keepingJbut,5) The Hsien governments must spend the " D i s t r i b u t i o n " i n accordance with the budgets o r i g i n a l l y made by each D i s t r i c t Assembly, Conclusion A f t e r the outbreak of the War,  the Central, p r o v i n c i a l  and Hsien governments were a l l confronted with d i f f i c u l t i e s .  The most  c h a r a c t e r i s t i c feature i n China's wartime financing was that none of the three l e v e l s of government had adequate sources of revenue.  Because of  the loss of taxpayers and t e r r i t o r i e s , the Central Government was  con-  fined t o increasing i t s funded debt to meet i t s huge war expenditures. The currency was, therefore, diluted i n order to expedite sales of war bonds. The p r o v i n c i a l governments developed debt financing too, but t h e i r annual repayments of t h e i r old debts increased i n d i r e c t proportion. Because of the l a c k of adequate revenue sources, the Hsien governments resorted t o the Chuan l e v i e s .  In short, none of the government with i t s revenue  sources could deal with the war expenditures e f f i c i e n t l y enough to keep i t s finances i n good condition. Another c h a r a c t e r i s t i c feature of China's wartime f i n a n c i n g was the continually advancing price l e v e l , which was the p r i n c i p a l problem of a l l three l e v e l s of government. A f t e r 1940, the general wholesale index number accelerated more r a p i d l y than ever before, as shown i n the following Table.  A l l these forces l e d to the Third National Financial  Conference i n 1941, which r e d i s t r i b u t e d the government functions and tax levying powers among the three l e v e l s of government.  163.  TABLE m i Index Numbers of Wholesale Prices of 22 Basic Commodities i n Chungking  Base Year. Jan-Jun,1937t slOO Weighted geometric mean Items 'General' Food ' T e x t i l e s • Fuel * Metal • Timber Sundries index ; 1 i t t • No.of Com-' » 10.5 ' » 1 » modities ' 22 3 2.5 ' 2 3 Date 1937 Decern. 96 186 148 98 95 125 54 1938 July 98 91 103 254 193 51 153 Decern. 104 89 156 213 400 217 64 1939 June 120 102 170 233 344 471 73 Decern. 262 576 922 249 102 177 151 1940 June 336 852 1362 309 439 305 171 Decern. 1129 1889 1095 208 1094 715 1453 1  19U March June Sept. Decern. 1942 March June Sept. Decern. 1943 March June Sept. Decern. 1944 March June Sept. Decern. 1945 March June Sept. Decern. Source:  1187 1726 2336 2848  1171 2194 2568 3100  844 982 1222 1550  2192 2058 2936 3508  3515 4162 5238 57a  3718 4310 4971 5098  2046 2556 5597 7688  4963  1604 1456 1817  2607  390 408 494 596  6044 9691 21536 28286  29a 4a2 8223 10340  1008 951 902 1173  8403 13942  7435 11250 15920  6787  10374  15351  12840 23522 2/,/,/,l  15771 18931 23600  28391 30556  9202 IO656  4a70  14442  1571 2125 3543  36219 54470 47180 54860  38660 59532 47330 49850  42803 62674 63555 71210  37031 44785 59860 145500  42712 50974 48910 56260  18850 23247 33556 78860  13218 14890 70250  118900 155300 122600 140448  114500 141200 109950 127124  H1150 229400 151600 258324  134650 124000 275700 213700 147570 155650 169573 72863  36936 57740 57781 67670  6347  216150 315900 413020 254975  1823  I832 2214 2397  Central Bank Monthly, V o l . IV N o . l . pp 141r2  9711  16U  Chapter T i l l - The New Hsien System In the l a s t Chapter some s i g n i f i c a n t features i n China's wartime financing were discussed. The Central Government attempted t o balance i t s budgets through bond issuance, wartime taxation, and Fapi i n flation.  The p r o v i n c i a l governments strove to meet t h e i r d e f i c i t through  indebtedness.  The Hsien governments i n s t i t u t e d " D i s t r i b u t i o n " methods  through which part of t h e i r obligation were assumed by the Hsien people's assemblies, so that the Hsien government properly could balance i t s i n comes with i t s expenditures.  In t h i s Chapter, the chief topic i s the  Hsien System which was created to replace the " D i s t r i b u t i o n " system.  New Be-  fore t h i s , however, i t i s advisable to discuss the nature of the " D i s t r i bution" method. The " D i s t r i b u t i o n " method was d i f f e r e n t from that of Chuan levies.  The c o l l e c t i o n and disbursement of the " D i s t r i b u t i o n " method were  determined by the people *s assembly while the Hsien governing authority was the decision-making group*  But the Chuan l e v i e s before the War had been  collected by the Hsien governing authority while the Hsien assembly was the l e g i s l a t o r .  Funds raised from the Chuan l e v i e s had been spent on gen-  e r a l obligations of the Hsien government, but those raised from " D i s t r i bution" were spent f o r s p e c i f i c purposes which were referred from the Hsien government to the people's assembly, p a r t i c u l a r l y where the cost of m i l i t i a maintainence was  concerned.  The advantage of the -"Distribution" method-was that i t s y i e l d was determined according t o the need. surplus nor d e f i c i t .  T h e o r e t i c a l l y , there would be neither  However, i t had an undesirable feature: even within  165.  a Hsien the burden on s i m i l a r taxpayers domiciled i n d i f f e r e n t d i s t r i c t s would be unequal.  According to the Kwangsi rules mentioned i n the l a s t  Chapter, each d i s t r i c t assembly was to spend the funds from the " D i s t r i bution" i n that very d i s t r i c t .  I t was quite reasonable that, w i t h i n t h i s  d i s t r i c t , the subscription of " D i s t r i b u t i o n " was raised i n accordance with the f i n a n c i a l a b i l i t y of each i n d i v i d u a l Hu. However, i t was very i n equitable when t h i s method was applied f o r a l l d i s t r i c t s , f o r a poor taxpayer i n a d i s t r i c t where many wealthy people resided would have a much l i g h t e r burden than one who was domiciled i n a poorer d i s t r i c t .  1  The Central Government had attempted unsuccessfully t o persuade the Hsien governments to give up t h i s sort of f i n a n c i n g , but the Hsien governments were unable to manage t h e i r wartime obligations with l i m i t e d  2 sources of revenue.  Other means must be provided t o prevent the growth  of "Distribution": e i t h e r t o reduce the Hsien wartime obligations or t o strengthen the Hsien taxing powers. One must remember that the p o l i t i c a l intentions of N a t i o n a l i s t China were unfavourable t o the provinces, as has been seen i n preceding chapters.  I t was, therefore, enacted that a part of the ex-  i s t i n g p r o v i n c i a l t a x revenue be transfered to the Hsien i n the "Organiza t i o n a l Outline of Various Graded Units i n the Hsien", known b r i e f l y i n Chinese as the New Hsien System. In September, 1939, the Central Government promulgated Organizational Outline. I t was enforced a f t e r 1940. 1. 2.  Ben Yu-sing, Hsien Finance, p.89 Chia Teh-huei, p. 660 Cf., V o l . 11  this  I t had ten chapters,  L66. namely, 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)  General p r o v i s i o n s Hsien government Hsien c o u n c i l Hsien finance Chu » Hsiang ( o r Chen) Hsiang ( o r Chen) c o u n c i l Hsiang ( o r Chen) finance Fao-chia Annex 2  Three points should be noted i n the New Hsien System. They are: ( l ) the Hsien o b l i g a t i o n s . (2) the Hsien sources of revenue, and (3) the budgetary procedure and the power of Hsien c o u n c i l ; which were s t a t e d i n t h e second, f o u r t h , and the t h i r d chapters of the Organizational O u t l i n e . Hsien o b l i g a t i o n s The Functions of the Hsien governments were stated as f o l l o w s :  1. 2.  3.  Hsien people's assembly. Under the Hsien there were Hsiang ( r u r a l d i s t r i c t ) o r Chen (urban d i s t r i c t ) . The Hsiang and Chen were f u r t h e r d i v i d e d up i n t o Pao (borough) and Chia (ward). Of a Hsien i s unusually l a r g e and has s p e c i a l conditions, i t may be f i r s t divided i n t o a number of Chu ( d i s t r i c t ) , each of them i s governed under a Chu o f f i c e . Under the Chu, there were 15 t o 30 Hsiang. Subordinate t o the Hsien c o u n c i l .  NOTE: the Hsiang and Chen finances w i l l not be discussed i n t h i s Thesis.  167. A r t i c l e 7) Each Hsien s h a l l have a Hsien government and a magistrate, whose powers and functions s h a l l be as follows: (a) To administer a l l a f f a i r s of the Hsien self-government under the supervision of the p r o v i n c i a l government; (b) To execute, under the d i r e c t i o n of the p r o v i n c i a l government, a l l orders of the National Government. The execution of the preceding orders of the National Government and the p r o v i n c i a l government s h a l l be stated on o f f i c i a l documents. A r t i c l e 8) In the Hsien government there s h a l l be sections of c i v i l a f f a i r s , finance, education, reconstruction, m i l i t a r y a f f a i r s , land administration and social a f f a i r s . Each provinc i a l government s h a l l , according to the c l a s s i f i c a t i o n of the Hsien and a c t u a l requirements, determine the number of sections and the d i s t r i b u t i o n of t h e i r d u t i e s , and report same to the M i n i s t r y of I n t e r i o r (of the Central Government) f o r reference.- * 1  These A r t i c l e s were quite ambitious, p a r t i c u l a r l y where wartime financing was concerned.  The function of m i l i t a r y a f f a i r s was considered to be one  of the r e s p o n s i b i l i t i e s of the Hsien governments. I t was the f i r s t time that l o c a l governments had undertaken m i l i t i a t r a i n i n g i n Chinese h i s t o r y . The i n t e n t i o n was evidently that the nation should not again  experience  the consequences of the r a d i c a l p r o v i n c i a l i s m which had existed during the decade following 1917* The power of the provinces over Hsien a f f a i r s was p r a c t i c a l l y removed.  They could supervise the Hsien government d i r e c t l y only i n prom-  oting the development of f u r t h e r Hsien self-government.  No p r o v i n c i a l or-  ders were to be executed by the Hsien government, except those o r i g i n a l l y received from the Central Government.  A f t e r having c l a s s i f i e d the Hsien  governments i n t o various grades according to the conditions of population,  1.  China Handbook, 1937-1945. P. 122  168; area, e t c . , the provinces were to report these facts t o the Central Government.  In other words, the Hsien governments under the New Hsien System  should c a r r y out t h e i r functions under the d i r e c t i o n of the Central Government only. Hsien sources of revenue A r t i c l e 18) The revenues of the Hsien come from the following: 1) Part of the land tax (the whole of Hsien land sur-taxes i n case of Hsien where the Land Law has not yet been enforced); 2) Surplus of land t a x and of i t s surtax a f t e r the completion of land r e g i s t r a t i o n ; 3) T h i r t y per cent of the revenue stamp tax set aside by the National Government to the Hsien; U) Tax on improvements on land ( or house tax i n case of Hsien where the Land Law has not yet been enforced); 5) Part of the business tax (the entire butchery tax and over twenty per cent of a l l other business taxes pending the r e vision of the rates in according with the Business Tax Law); 6) Income from Hsien public property; 7) Income from Hsien publio enterprises; ^ 8) Other l e g a l l y permitted taxes and l e v i e s . In explaining the Hsien taxes under the New Hsien System, i t i s f a c i l i t a t e d by comparison with the recommendation of the Financial Conference of 1934• The land value tax was to be introduced to replace the old l e v i e s on land: the p r o v i n c i a l land t a x and the Hsien land surtax. To framing the land tax reform, there had been two devices, namely, a complete cadastral survey and the r egistraticn of land ownership.  The preparation of these re-  cords was interrupted by the outbreak of the War.  Thus, by 1939,  the land  value tax could not be adopted i n many Hsien; so the provinces s t i l l  coll-  ected the old land tax and the Hsien governments imposed the land surtax i n t h e i r old manner. The term "land Law"  quoted above means the "land  value t a x " . The registration of land ownership was a subsidiary means i n 1. I b i d . ,  p.123  169. troducing  the land value t a x i n d i s t r i c t s where the land survey had not  been carried out.  Because land registration i n pre-War years had brought  about more y i e l d to both the p r o v i n c i a l and Hsien governments,^ the Organizational Outline induced the Hsien governments to adopt the new land r e g i s t r a t i o n with a promise that the Hsien governments were to enjoy the entire revenue surplus through t h i s operation. The Central Government was t o grant t h i r t y per cent of i t s f i s c a l stamp tax revenue to the Hsien where i t was r a i s e d . The most important part of f i n a n c i a l adjustment under the New Hsien System was the revenue transfer from the improvement tax and butchering tax by the province to the Hsien.  Before 1937» the improvement tax  had been imposed, i n many cases, by the.provinees; i n other cases, by the Hsien; and i n s t i l l other cases, by both the p r o v i n c i a l and Hsien governments.  Recommended by the F i n a n c i a l Conference of 1934* t h i s levy was to  have been imposed by the Hsien governments, but the provinces were t o enjoy 15 t o 30 per cent of the t o t a l y i e l d .  This proposal had never been  r e a l i z e d before 1937* and therefore, the administration of t h i s t a x r e mained unchanged in wartime. Since the outbreak of the War, some provinces had independently granted the improvement t a x to the Hsien.  But t h i s tendency was not gen-  e r a l i n the provinces. Not u n t i l the enforcement of the New Hsien System did a l l p r o v i n c i a l governments have to r e l i n q u i s h e n t i r e l y t h e i r improvement tax.  The same situation occurred i n the administration of the butch-  ering tax* 1. Appendix, supra.  170. As we have seen before 1937» the business taxes (including the butchering t a x and the business license) were enjoyed by both the provi n c i a l and Hsien governments, with the former receiving a s l i g h t l y greater portion.  The Demarcation Act of 1934 had stated that the provinces could  enjoy 70 per cent and the Hsien 30 per cent, of the t o t a l business taxes. Though the Act was never operative, there had been a trend f o r the provinces t o grant the butcher^ revenues t a x t o the Hsien, p a r t i c u l a r l y a f t e r 1937. Now, under the present New Hsien System, the Hsien governments were not only t o enjoy the entire revenue from the butcher^} tax, but also 20 per cent of that from the other business taxes. The other " l e g a l l y permitted taxes and l e v i e s " of the Hsien i n cluded the revenue grants of 30 per cent of central income taxes and 25 per cent of central succession duties, as w e l l as these Chuan levies which had not been abolished but considered l e g a l before the War. The Organiza t i o n a l Outline did not mention various license taxes which were p a r t l y enjoyed by the provinces and p a r t l y by the Hsien. The Organizational Outline provided another means f o r Hsien finance in case of i t s deficiency.  I t stated that:  A r t i c l e 20) In order to meet reconstruction needs the Hsien government, upon the resolution of the Hsien c o u n c i l , (the Hsien people's assembly) and with the approval of the provi n c i a l government, may i n accordance with law issue Hsien loans. Although In the past statutes there were d i s t i n c t i o n s between the p r o v i n c i a l and l o c a l governmental functions, the provinces often r e ferred matters t o the l o c a l governments f o r execution without adequate funds.  This was embarrassing t o l o c a l finances.  a t i o n a l Outline stated that: 1. China Handbook, 1937-1945, P. 123. 2. Ma Da-ying. p.6.  Thus, the Organiz-  171. A r t i c l e 19) Expenses incurred f o r national or p r o v i n c i a l a f f a i r s s h a l l be defrayed by the national treasury or the p r o v i n c i a l treasury. The Hsien government s h a l l not be ordered to raise funds l o c a l l y to meet such expenses. In a f i n a n c i a l l y s e l f - s u f f i c i e n t Hsien i t s administrative and enterprise expenses s h a l l be paid by the Hsien treasury. In the case of Hsien whose i n come i s not enough to meet i t s expenses, i t s h a l l r e ceive a subsidy fromthe p r o v i n c i a l government. In the case of a sparsely populated Hsien, where land has not been reclaimed, funds needed f o r i t s development s h a l l be paid by the p r o v i n c i a l treasury, and any further def i c i e n c y shall be met by the national treasury. Hsien budgetary procedure and the power of the Hsien council Two purposes were expected to motivate the New Hsien System. One was t o create a sound Hsien f i n a n c i a l system i n order to meet the greater r e s p o n s i b i l i t i e s of the Hsien governments. The other was t o promote the development of l o c a l self-government i n order to make t h e " l o c a l autonomy finance" more e f f e c t i v e .  Because the System was conceived f o r  war purposes rather than other reasons, the power of the Hsien people's assembly over the Hsien budget was l i m i t e d , and the magistrate was granted great power i n drawing up emergency Hsien budgets.  The Organizational  Outline stated that: A r t i c l e 22) Pending the formation of the Hsien c o u n c i l , Hsien preliminary and f i n a l budgetary estimates s h a l l be examined and approved by the Hsien administrative council (formed by the top o f f i c i a l s of the Hsien government with the magistrate of the same as chairman) f i r s t , a n d then presented by the magistrate to the provi n c i a l government f o r approval. A f t e r the formation of the Hsien council, Hsien preliminary and f i n a l budgetary estimates s h a l l be passed f i r s t by the Hsien council and then presented by the magistrate to the p r o v i n c i a l government f o r approval. In case of necessity, the magistrate may f i r s t present the estimates to the p r o v i n c i a l government f o r approval, enforce them, and then send them to the Hsien c o u n c i l . ^ 1. China Handbook, 1937-1945. p.123. 2. I b i d , Pp 123-24.  172  The F i n a n c i a l Conference of 19U1 created a new name f o r the Hsien f i n a n c i a l system under the "New Hsien System" the "Hsien Autonomy Finance", a nd no s i g n i f i c a n t changes were made w i t h respect t o the Hsien f i n a n c i a l powers. The features of Hsien finances a f t e r 19k0 (under the New Hsien System) w i l l be discussed i n the Chapter a f t e r the next.  173.  Chapter IX The T h i r d National F i n a n c i a l Conference Summary P r i o r t o 1937,  China had divided her public finance into three  l e v e l s : c e n t r a l , p r o v i n c i a l , and Hsien,  Although the three l e v e l s of  government had endeavoured to overcome t h e i r f i n a n c i a l d i f f i c u l t i e s , n o n e of them had had adequate revenue sources to meet t h e i r obligations, even on the eve of tbs War.  In wartime, the finances of a l l the l e v e l s of  government were confronted with handicaps more serious than ever before. Under such circumstances,  to work out an e f f i c i e n t f i n a n c i a l system mere-  l y on the basis of the old one, was a discouraging task. The T h i r d National F i n a n c i a l Conference was 19A1*  A two  l e v e l - f i n a n c i a l structure was  > dependence of provinces disappeared.  The  convened i n June,  decided upon, so that the i n structure was  indeed a pathetic  r e s h u f f l i n g of the same old taxes and o b l i g a t i o n s . I t did contribute t o wartime streamline and e f f i c i e n c y but only a t the price of a d r a s t i c and u n s k i l l f u l removal of p r o v i n c i a l powers. the new  The  c h a r a c t e r i s t i c features of  structure can be summarized In three aspects:  1) P r o v i n c i a l finances were taken by the Central Government. Following the outbreak of the War,  the provinces because t h e i r  r e s p o n s i b i l i t i e s were increased, p a r t i c u l a r l y i n areas adjacent to the f r o n t , heavily r e l i e d on borrowing to handle f i n a n c i a l a f f a i r s .  Theoret-  i c a l l y , there would be no advantages t o the Central Government i n taking over the c r i t i c a l p r o v i n c i a l finances.  But the wartime China was  in  f a c t under a m i l i t a r y administration. ; and the c e n t r a l authority, i n 1  Tl  In the N a t i o n a l i s t China, the Central Government was responsible to the Kuomintang. The National Congress of the Kuomintang was the highest organ of authority of the Party. The Congress was to  1. footnote  cont'd  to be held every two years. Since the outbreak of the War, there had been no Congress c a l l e d , except an Extraordinary Congress which was held i n 193&. In the r e cession of the Congress, the Central Executive Committee of the Party was the supervisor and policy-forming body of both the Party and the Government. In t h i s Committee the power of the P o l i t i c a l Committee was the greatest* "Since February, 1939, the P o l i t i c a l Committee of the Central Executive Committee has turned i t s functions over to the Supreme National Defence Council to meet war emergencies", "...the Supreme National Defence Council was created as the highest wartime body to be i n charge of a l l organs of the Kuomintang Central Executive Committee, the f i v e Yuan of the National Government, and the boards and departments of the National M i l i t a r y Council". Cf., China Handbook, 1937-1945. Pp 39,40,60 & 61.  control of the p r o v i n c i a l finances could economize on many functions previously performed by the provinces.  On the other hand, the greatest  revenue source of the province, the farm tax, would be put under c e n t r a l administration f o r war purpose. 2)  Farm land t a x was paid i n kind. The advance cf price l e v e l s i n the wartime China was the r e -  sult of many causes, mainly lack of c a p i t a l investments and materials,as w e l l as the high cost of transportation.  From 1939 onward, a new power-  f u l f o r c e , the Fapi i n f l a t i o n , had g r e a t l y accelerated the increase of prices.  As a rule under continuous i n f l a t i o n , the revenues received by  the government had one value, and when spent had another.  In order t o  feed m i l l i o n s of s o l d i e r s , to provide food r a t i en systems, and e s p e c i a l l y to avoid the influence of the s t e a d i l y r i s i n g p r i c e s , the Conference of 1941 proposed t h a t the farm land tax be levied in kind. 3) Hsien finances remained the same as before. In N a t i o n a l i s t China, the Hsien government was considered as the l a s t unit of the nation's governing authority; and the establishment of Hsien self-government was the fundamental step towards c o n s t i t u t i o n a l ism, as recommended by Sun Yat-sen's "Fundamentals of National Reconstruction".  To encourage t h i s the New Hsien System had been i n s t i t u t e d .  The most important part of the System was the "Hsien autonomy finance". When the Financial Conference of 1941 was held, the Hsien finances were not a l t e r e d (except f o r minor changes of Hsien revenues);  because the New  Hsien System i t s e l f was created f o r war purpose and because the Nationali s t China had been t r y i n g to inculcate a democratic s p i r i t .  T~. See: China Handbook / 1939-1945• P.H8.  1  i n the Hsien.  176. A.  Resolutions of the F i n a n c i a l Conference of 1941 In June, 1941* the Third National F i n a n c i a l Conference was  c a l l e d at Chungking, the wartime c a p i t a l of China.  The target of the  Conference was indicated by Chiang K a i - 3 h e k , the Chairman of the Supreme National Defence Council, i n a speech at the inaguration of the Conference.  He said: "Since the National Government was established, we have  had two National F i n a n c i a l Conferences.  Each of them, with s p e c i f i c ends,  has worked out various f i n a n c i a l projects which are extremely valuable. Today, we hold the t h i r d one.  The aims of the present Conference d i f f e r  greatly from those of the past two: we must make our national f i n a n c i a l scheme sound enough t o enable the Government t o undertake defensive war and t o reconstruct the country at the same time".  A f t e r proposing a two  l e v e l - f i n a n c i a l system, Chiang continued, "After the nation's frnances have been divided into two l e v e l s (national and Hsien), not only the cent r a l finance could be s t a b i l i z e d ; but the New Hsien System would be promoted more e f f e c t i v e l y under the d i r e c t i o n of the Central Government, the funds necessary f o r the System would be provided without obstacles: (the Central Government was to subsidize Hsien d i r e c t l y ) ; economic reconstruct i o n i n each province could be carriedut more e f f i c i e n t l y than before,esp e c i a l l y as f a r as the industries f o r national defense are concerned".1 Previously the farm t a x was imposed by the provinces according to the acreage of the land concerned.  Under continuous i n f l a t i o n , y i e l d s  from t h i s tax declined i n importance among the governments* revenues because the rates were not raised s u f f i c i e n t l y .  Thus, Chiang proposed that  the farm land t a x be levied in kind " f o r an equal burden of the War cost on taxpayers as a whole". 1.  F i n a n c i a l Year Book, 1934-1942, Vol.1. Pp32-4.  177i  Resolutions passed by the Conference of 1941  contained s i x  chapters, which were: 1) 2) 3) 4) 5)  Taxation Bonds Financial administration L o c a l finance Money & Banking  6)  M a t e r i a l resources  For the sake of convenience, the f o l l o w i n g m a t e r i a l s do not discuss the Resolutions i n the sequence above, but summarize them i n some s p e c i f i c aspects* Provincial  Finance Under the new s t r u c t u r e , the p r o v i n c i a l f i n a n c i a l department  should e i t h e r be replaced by a "Board" d i r e c t l y subordinate t o the Mini s t r y of Finance cf the C e n t r a l Gkivernment or serve merely as an agency of the M i n i s t r y . The f u n c t i o n of the new f i n a n c i a l Board was t o c o l l e c t the revenues p r e v i o u s l y belonging t o the province, and t o disburse the funds which t h e r e a f t e r , were to be assigned from the C e n t r a l Government. The e x i s t i n g p r o v i n c i a l t r e a s u r i e s should be incorporated into the Cent r a l Treasury. The ordinary a d m i n i s t r a t i v e cost of the province should be audited by the f i n a n c i a l Board, which should then send the statements t o the F i n a n c i a l C o n t r o l Department, which was  subordinate t o the Chairman  of the Central Government, f o r approval. The cost of the province other than that f o r a d m i n i s t r a t i v e purposes was considered not "ordinary" and the p r o v i n c i a l government was t o make a p r e l i m i n a r y budget f o r i t .  The Resolutions s a i d that each  1. F i n a n c i a l Year Book 1934-1942,Vol.1. Pp 105-120  178. province should, according to the "nation's' f i n a n c i a l a b i l i t y " , plan the "necessary" economic programs and construction i n d e t a i l as t o t h e i r character, timing and the funds required. Those plans should be f i r s t presented to the Executive Yuan f o r approval. Furthermore,  1  one a r t i c l e of the Resolutions, which was the  o strongest  i n terms of waging war, stated that: "The head of the provin-  c i a l f i n a n c i a l department should execute decrees from the M i n i s t e r of Finance (of the Central Government) applying to a l l f i n a n c i a l administrat i o n i n the province". Thus, the independence of p r o v i n c i a l finance had 2  disappeared. Farm Land Tax A l l kinds of farm land should be taxed on the same basis as paddy land, i t was  recommended by the Conference of 1941*  payment yuan" of 1941 or 0.44  Every "tax-  on the land should be, thereafter, paid i n two  gallon, of paddy.  In other words, the actual rate of the  farm tax was one-tenth of the t o t a l crop from the land.  Tou,  new  The maximum rate  was computed according to a selected standard which assured 50 Tou of paddy could be produced per Mou a year.  There were two other rates of  the same tax on poorer grade land, which were also set at one-tenth of the t o t a l crop.  In other words, the land as a whole was c l a s s i f i e d into only  three major grades.  Each grade of land was taxed at a rate of 10 per 3  cent of the t o t a l y i e l d of a good season. Public Treasury System The Central Bank of China, and some other national banks had been the treasury or f i n a n c i a l agency of the Central Government. 1. 2. 3.  Ibid. Ibid. Cf., I b i d .  By  179. 1939t a more centralized national banking system was completed, known as the Public Treasury System. To concentrate a l l funds of the three l e v e l s of government in the hands of the Central Bank f o r forming a more u s e f u l wartime banking structure, the Conference of 1941  proposed that the Pub-  l i c Treasury System be expanded. The Central Bank was to be charged with the disbursement, safekeeping and t r a n s f e r of cash, notes and bonds, and the safekeeping of t i t l e deeds of the property of the three l e v e l s of government.  In places where the Central Bank had no branch o f f i c e s , the  post o f f i c e , or other banks might be authorized to handle matters r e l a t ing to the public treasury. ^' In order to strengthen t h i s banking system, some changes had been made, of which the most important were as follows: Inspection o f f i c e r s ( of the Public Treasury System) were appointed to work i n various designated d i s t r i c t s t o see to i t that the tax- c o l l e c t i n g units and the public treasuries handle revenues and expenditures i n accordance with law. When necessary, supervision i s exercised. To ensure better c i r c u l a t i o n of treasury checks, thereby making the public treasury system more e f f e c t i v e , treasury checks are guaranteed f o r payment by the banks acting f o r the public t r e a s u r y . 2  Hsien Finance Hsien finance modifications contained i n the Resolutions of the Conference w i l l be d i scussed i n the Chapter following. Act of 1941 Preceding the Act of 1941,  there had been two  important  laws, the Organization Outline of Various Graded Units i n the Hsien, and 1. Cf., I b i d . 2. China Handbook, 1937-1945, p.204.  180. the Enforcement Provision of the F i n a n c i a l C o l l e c t i n g and Disbursing System.  The former was promulgated  1940 on. The l a t t e r was promulgated  i n 1939, and had been i n effect from i n 1936 and was t o be i n e f f e c t by  1937 i n order to implement the Demarcation Act of 19341 but i t was postponed because of the outbreak of the War. The Act a f t e r the  Conference  of 1941 was the Revised Enforcement Provision of the F i n a n c i a l C o l l e c t ing  and Disbursing System which had been i n force i n 1942. The A r t i c l e s  read as follows: A r t i c l e 1) The nation's finances are divided into national finance and l o c a l finance. A r t i c l e 11) The National Finance s h a l l include a l l the revenues and expenditures pertaining to the N a t i o n a l , prov i n c i a l , and special municipal governments under the d i r ect j u r i s d i c t i o n of the Executive Yuan and therefore not included i n l o c a l finance. A r t i c l e 111) Local finance includes a l l revenues and expenditures pertaining to m u n i c i p a l i t i e s , Hsien, towns and villages, provincial. A r t i c l e IV) National Government tax receipts t o be apportioned to Hsien and p r o v i n c i a l municipalities are based on the following standard: a) 30 Per cent of net stamp tax receipts to Hsien and p r o v i n c i a l municipalities; b) 25 per cent of net inheritance duty receipts t o Hsien and p r o v i n c i a l m u n i c i p a l i t i e s ; c) 30 t o 50 per cent of net business t a x receipts t o Hsien and p r o v i n c i a l m u n i c i p a l i t i e s ; d) The portion of land t a x ( i n areas where the Land Tax Law i s not enforced, the name farm tax i s s t i l l used), ori g i n a l l y belonging to the provinces, i s now turned over t o the National Government, while the Hsien and p r o v i n c i a l governments s t i l l retain t h e i r o r i g i n a l shares. During the period when the land tax i s collected i n kind, the National Government c o l l e c t s the entire amount i n kind. The Hsien and p r o v i n c i a l municipal portion i s paid back t o them by the National Government i n cash. e) The portion of tax on t i t l e deeds, o r i g i n a l l y belonging to the provinces, i s turned over t o the National Government, while the Hsien and p r o v i n c i a l municipal governments s t i l l r e t a i n t h e i r o r i g i n a l shares the t i t l e deeds surtax. f) The entire butchery tax s h a l l , separated from the business tax, go to Hsien and p r o v i n c i a l municipal governments} A r t i c l e V) The entire income tax goes to the National Government. A r t i c l e VI) Subsidies t o Hsien and p r o v i n c i a l municipal governments are decided by the National Government  181. Footnote prey, page  1.  China Handbook,  1937-1945, p. 201.  Note: Special Municipality was q u a l i f i e d on the basis of province, while the P r o v i n c i a l Municipality on the basis o f Hsien. Those A r t i c l e s r e l a t e t o Hsien finance w i l l be discussed i n the Chapter following.  182. (B  Enforcement of the Act of 1941 The Act o f 1941 had been put i n t o e f f e c t i n 1942. The revenue  from the farm t a x was the greatest amount of a l l the C e n t r a l Government's incomes. Table XXV11  shows the importance of two major p r o v i n c i a l t a x -  es now l e v i e d by the Central Government and a l s o the Wartime E x c i s e "Duty which a l s o recommended by the Conference of 1941J i n the N a t i o n a l Budgets of 1942 and 1943* These Budgets summarized not only the c e n t r a l , but a l s o the p r o v i n c i a l f i n a n c e s . Because the Central Government had taken over the p r o v i n c i a l finanoes, i t was necessary f o r i t t o administer the o l d p r o v i n c i a l debts. I n 1942, i t banned the f l o a t i n g of f u r t h e r p r o v i n c i a l loans; and i n 1943» a P r o v i n c i a l Readjustment l o a n of 175*000,000 yuan was issued by the Central Government, t o absorb and replace a l l p r o v i n c i a l bonds outstanding.  1  Thus, because from 1942 on China had no p r o v i n c i a l f i n a n c e s , only the Hsien f i n a n c i n g w i l l be discussed i n the chapters f o l l o w i n g , a t l e a s t u n t i l the t o p i c of post-War finances i s reached.  1. China Handbook, 1937-45. p.207.  TABLE XXV111 National Budgets of 1 9 4 2 & 1 9 4 3 Unit:000 yuan  Revenue from: -  Farm tax Business t a x Wartime Excise Duty T o t a l new incomes Other receipts (bonds not  * '  1 9 4 2 Amount 3  • 1 9 4 3 ' Amount '  5  3,092,774 400,000 410.000 3,902,774  36.3 4.5 4.5 45.3  included)  4,603,504  54.7  T o t a l Revenue  %506,278  100.0  Deficits  19,777,034  6,829,500 28.4 1,200,000 5.0 1.000.000 5.0 9,029,500 38.4 14,212,869  61.6  23,242,369 100.0 12,994,045  Expenditure f o r : Provincial affairs National public works Subsidies to Hsien (not i n c l u d i n g revenuegrants)  1,914,050  6.8  8,789,028  31.0  59,915  Defense  12,505,547  Other purposes T o t a l Expenditure  5.014.772 28.283.312  1. Cf., Chang Peh-yi, Pp 19-22.  3,510,527  9.6  9,712,06? 26.8  37,416 44.2  17,313,767  47*8  18.0 5 . 6 6 2 . 6 3 7 15*8 100.0 36.236.414 100.0  1 8 4 - .  Chapter X- Hsien Autonomy Finance • Introduction Hsien f i n a n c i a l powers i n N a t i o n a l i s t China changed frequently. In 1928 when the N a t i o n a l i s t s had just come into power, the Hsien were not granted independence i n e i t h e r p o l i t i c a l or f i n a n c i a l f i e l d s , but were placed under the province. A f t e r the Central Government had a c t u a l l y consolidated i t s rule i n 1934* Hsien finances were planned to be dent of the provinces.  Although the Demarcation Act of 1934 was  indepennever  put i n t o e f f e c t , Hsien finances, with limited t a x resources, gradually became s t a b l e .  In the f i r s t two years of the War, many provinces i n d i v i d -  u a l l y added t o Hsien economic strength and i n 1940, under the New System, a uniform Hsien f i n a n c i a l system was founded.  Two  Hsien  years l a t e r ,  the "Hsien Autonomy Finance" replaced the New Hsien System with some l i g h t changes i n Hsien powers* In t h i s Chapter the revenue sources i n the "Hsien Autonomy F i n ance" w i l l be discussed, and i t s functions i n the next.  For the sake of  convenience, the New Hsien System w i l l hot be analyzed separately, but i s mentioned throughout the entire discussion of the "Hsien Autonomy Finance"* A summary of the Revenue sources under both the New System and the "Hsien Autonomy Finance" reads as follows: (A)  Autonomy taxes: Improvement tax Butchering tax License tax Amusement tax Feast tax  (B)  Other Hsien taxes: Part of the land tax T i t l e deeds surtax Special assessment  Hsien  185". (C)  Central revenue-grants and subsidies: 30 per cent of net stamp t a x 25 per cent of net succession duty 30 per cent of net business tax Subsidies  (D)  Other Hsien receipts: Administration fees and f i n e s Incomes from public property and enterprise Donations from public or private individuals Borrowings  (A) Autonomy Taxes 1) Improvement tax Before 1934» the levying power on houses belonged to the province.  In some cases, the revenue was, f u l l y or p a r t l y , assigned from  provinces to the Hsien; and i n other cases, the Hsien could levy a separate surtax on b u i l d i n g s .  In 1934» the Second Financial Conference  decided  that the improvement t a x was t o be imposed by Hsien, but t h i s proposal was not adopted i n some provinces.  In 1940, under the New Hsien System the  p r o v i n c i a l governments transferred the levying power to the Hsien.  In  1941, an enforcement provision concerning the improvement tax was promulgated by the Central Government, i n which a uniform assessment rate and method were defined t o be e f f e c t i v e i n 1942.  Before t h i s new rate and  method are discussed, however, i t i s advisable to review b r i e f l y the o l d ones • Because the l e v y i n g power had long been i n the hands of each province before the War, the rates d i f f e r e d among provinces.  Moreover,  as we saw, i n some provinces the Hsien governments l e v i e d surtaxes on houses, so that rates d i f f e r e d from one Hsien to another.  Generally speak-  ing, p r i o r to 1942, the assessment rates on the houses where businesses  were operated were greater than those on residences. For instance, by 1928,  i n Chekihg, a r a t e of 15 per cent of the r e n t a l value of business  premises had been set, while residences were taxed at 10 per cent. Hunan, p r i o r to 1940,  In  the improvement tax was 16 per cent of the rental  value on business buildings and 8 per cent on homes. Kiangsi before the War had l e v i e d an improvement tax on businesses at 10 per cent of r e n t a l value, while rates on residences were c l a s s i f i e d into f i v e categories, varying from 2 to 8 per cent of the monthly rental values which ranged from 5 to 200  yuan.  1  In most cases, the house owners and the tenants each were t o pay one h a l f of the t o t a l improvement tax.  In some exceptional cases, a  custom had developed whereby the p r o v i n c i a l and Hsien a u t h o r i t i e s allowed the landlord to claim a deposit from the tenants i n advance against t h i s tax, i n case the tenants defaulted i n paying r e n t . Before the War  2  i n Ewangsi, the improvement tax was considered  as a property levy only the assessment base was the appraised value of the buildings with the maximum rate set at 1 per cent of the appraised value.  The owners were subject t o the tax regardless of whether t h e i r  houses were f o r rental purposes or not. f o r the tax rather than the owner.  The house-mortgagees were l i a b l e  But, those tenants who permanently 3  occupied a house were subject t o the l e v y . Hsien improvement surtax rates, i n those l o c a l i t i e s were the p r o v i n c i a l governments were t o levy t h i s t a x and the Hsien were permitted to levy surtax, i n general were 50 per cent of the p r o v i n c i a l Tl Ben Yu-sing, Pp 90-1. 2. Ben Yu-sing, p. 94 3. Ibid.,Pp. 93-4  187. rates, but i n some cases they exceeded them.  For example, in. 1926  the  Chaoshing Hsien Government i n Chekiang l e v i e d improvement surtax at per cent  24.8  of the rental value of the business buildings, while at that  time the p r o v i n c i a l rate was  only 15 per c e n t .  based on r e n t a l value d i r e c t l y discouraged cause the tax discouraged By 1940,  new  increases i n rents".  under the New  "Such a heavy tax burden  1  houser construction, be2  Hsien System, the p r o v i n c i a l governments  had transferred the improvement tax to the Hsien, but no substantial r e duction i n the rates followed.  In November 1941,  the Central Government  promulgated an enforcement provision of the improvement tax to be applied throughout the country.  The tax was to be l e v i e d i n two ways: one was  rented buildings and the other on owned houses.  on  The maximum tax rate on  the former was set a t 5 per cent of the r e n t a l value, while that on the l a t t e r was  0.5  per cent of the appraised value.  were no longer allowed by law.  Surtaxes on improvements  Tenants were to pay the tax, although  they were authorized to deduct the t a x amount from the rent to the owners. (The w r i t e r knows personally that the improvement tax was  customarily paid  by the tenants.) I f the b u i l d i n g was mortgaged, the mortgagees were subject to the tax. A peculiar feature i n Chinese improvement tax administration i s the r o l e of "Erh Fang Tung", or the "second house owner", who i n most c i t i e s .  exists  Between the Erh Fan Tung and the o r i g i n a l owner there  are written contracts which state the r i g h t s of both the p a r t i e s . Commonly, the Erh Fang Tung has the entire right to conduct the r e n t a l opera t i o n , and assumes the maintenance costs and r i s k s of the business. 1. 2.  I b i d . , Pp Ibid, p  93-4 94.  The  188. o r i g i n a l owner then receives h i s rent only from the Erh Fang Tung, which i s l e s s than that paid by the tenants to the Erh Fang Tung.  Thereby,  the Erh Fang Tung earns his income through the d i f f e r e n t i a l between the two "rents . 11  In such cases, the enforcement provision stated that Erh  Fang Tung was to pay the tax on the basis of t h i s d i f f e r e n t i a l .  1  Another peculiar feature i n Chinese improvement t a x administ r a t i o n i s t h a t , p r i o r to 1941» there had been no tax imposed on the land on improved l o t s .  This was simply because, up to that time, the  owner of the house and the land was usually the same person.  2  This state  of a f f a i r s had been changing during wartime because of speculation i n house construction and land purchase and because of the i n f l a t i o n a r y prices; so that the owner of the land would not n e c e s s a r i l y always own the house.  The enforcement provision stated that the improvement t a x  should be levied at d i f f e r e n t rate than the land tax. Temporarily, the assessment rate on t h i s sort of land was 50 per cent of the improvement tax rate.-' Therefore, the t o t a l improvement t a x rate was 7*5 per cent of the r e n t a l value cf the rented buildings, and 0 . 7 5  per cent of the  appraised value of the owned houses. Those buildings exempted from the improvement tax i n the provision were as follows: 1.  2. 3.  I f the Erh Fang Tung pays to the o r i g i n a l owner 100 yuan per month, and he charges the tenants a rent of 150 yuan, the t o t a l assessment value is 150 yuan. The o r i g i n a l owner i s to pay 5 yuan f o r the improvement tax and the Erh Fang Tung pays 2 . 5 yuan, on the basis of the tax rate of 5 per cent of t h e i r respective r e n t a l incomes. Ben Yu-sing, p. 95* Ibid.  1) Public b u i l d i n g s used non-profit organizations 2) School, c h a r i t y , and public association buildings 3) Buildings and establishment f o r r e l i g i o u s purposes and clansmanships 4) Buildings with an appraised value not exceeding 500 yuan or a monthly rent not exceeding 5 yuan 5) Buildings erected by poor people themselves f o r l i v i n g purpose, including the temporary and simple houses b u i l t by refugees and the poor houses b u i l t by farmers.  189,  I t has been suggested previously t h a t the economic conditions among the Hsien greatly d i f f e r e d . Taking population as an index of Hsien 1  economic strength, i t i s apparent that the improvement tax could not y i e l d income of any importance t o many Hsien governments. the 1941  According t o  census, the Hsien population varied from 200 to 1,500,000 within  an average area of 4»300 square kilometers.2  Moreover, i n general Hsien  had much less urban population than the special or p r o v i n c i a l m u n i c i p a l i ties.  Most peasants other than landlords i n Chinese farming areas b u i l d  simple l i v i n g accommodations f o r themselves, and such houses were excepted by law.  Thus, except i n some prosperous Hsien, the house tax was not an  important revenue source of the Hsien governments, as shown i n Table XXIX. By 1944» the Legislative Yuan revised the improvement tax enforcement provision.  The new rates were defined as follows:  1) The business premises f o r r e n t a l purposes should pay the improvement tax at 20 per cent of the rental value 2) The owned business premises should pay the improvement tax at 10 per cent of the rental value  1. See Table X, supra. 2 • Cheng Nien-chung, p.39*  190. TABLE XXIX Revenue From Improvement Tax i n Kwangsi and Szechwan i n 1942 and 1943 Unit: yuan  ,1  Kwangsi i n 1942' Revenue classes No. of Hsien  Szechwan i n 1943 Revenue c l a s s e s  450,000  700,000 100,001-300,000 50,001-100,000 10,001- 50,000  50,001 and more  10,001-50,000 1,001-10,000 501- 1,000 500 and less No revenue  1 2 8 54 12 21 3  No.of Hsien  1 4 12 60 62  10,000 and less  3) The resident houses f o r r e n t a l purposes should pay the improvement tax at 10 per cent of the r e n t a l value. 4) The owned resident houses should pay improvement tax at 1 per cent of the appraised value. Through these rate increases, the revenue from the improvement tax was expected to become more important  i n Hsien finances, p a r t i c u l a r l y i n  prosperous Hsien. 2)  But oner ing t a x The butchering tax had been a p r o v i n c i a l levy before the War,  though i n some cases, the revenue had been granted, p a r t l y or e n t i r e l y , to the Hsien.  I n 1931, the Central Government promulgated the Business  Tax Act which defined the levying method on the butchering business according to the number of l i v e s t o c k slaughtered f o r sale.  T h i s Act did  not set rates but stated that the r a t e was to be determined by each province in accordance, with the state of the butchering business. 1. 2.  Yee Hong-lin, 112. Ben Yu-sing, 106.  191. Before and a f t e r 1931 among the provinces, the butchering tax rates ranged from 30 cents to 1 yuan (100 cents equal 1 yuan) per head of sheep, pigs, and oxen.  At that time the tax was not an important rev-  enue source to either the p r o v i n c i a l or Hsien governments.  By 1933, the  Kiangsi Government had a l l o t t e d the e n t i r e levying power t o i t s Hsien governments.  Some other provinces adopted t h i s policy i n l a t e r years i n or-  der to help s t a b i l i z e Hsien finances. A f t e r the tax had come under administration of the Hsien, the v a r i a t i o n i n the tax rates gradually and greatly inoreased among d i f f e r e n t t a x i n g areas. In 1935» the t o t a l revenue from the butchering tax i n Kwangsi was  only 2,000,000 yuan.  But from then on, the Hsien governments had  s u b s t a n t i a l l y raised the assessment rates from time to time.  In 1941»  the t o t a l revenue from the butchering tax i n this Province exceeded 9,490,000 yuen. In Hunan since 1938, the P r o v i n c i a l Government relinquished the levying power of the tax to the Hsien; and, the rates had been i n creased each year.  Previously i n that Province, the t o t a l revenue from  the tax amounted to less than 1,000,000 yuan only, but by 1940, an annual revenue of 5,800,000 yuan was being received by the Hsien governments. Following these expedients, other provinces also adopted the same method so that the Hsien governments gradually became dependent on t h i s revenue source• Under the New Hsien System, the butchering tax was  considered  only as Hsien levy. Those provinces (who had not yet done i t ) now to r e l i n q u i s h t h e i r levying power. uniform tax rate among the Hsien.  had  But, there was s t i l l a lack of a Owing to the great d i f f e r e n t i a l s i n  the tax rates, i t was inevitable that livestock-smuggling from one province t o another r e s u l t e d .  1  To prevent t h i s , the F i n a n c i a l Conference  of 1941 proposed a separate butchering tax provision i n which a uniform rate was set out. The most s t r i k i n g aspect of t h i s provision was that the butchering tax was  considered as an excise tax instead of a business tax,  not because the butchering tax Cannot be treated as a business tax, but because i t s administration i n China had evolved towards that of an excise tax.  The f a c t s are:  1) According to the business tax a c t s , there are three a l t e r n a t i v e s bases f o r the assessment: c a p i t a l investments, gross r e c e i p t s , and net profits.  But the butchering t a x was levied at a f l a t rate per head of o  the l i v e s t o c k slaughtered. 2) I f owners slaughtered l i v e s t o c k f o r celebrating marriages, the New Year, e t c . , they weie paid the butchering t a x .  Apparently, t h i s tax 3  was not levied on business a c t i v i t i e s but on consumption.  J  3) Butchery i s d i f f e r e n t from other types of business. A butcher buys livestock when it is a l i v e ; and slaughters i t and processes i t before he makes a s a l e .  Before slaughtering has been completed he, l i k e  other workers and manufacturers, had no a b i l i t y to meet the tax payment, and he has t o , i n f a c t , s h i f t i t t o the consumers through p r i c e s .  It will  be more reasonable to impose license tax, or property tax on him but not a business t a x . Furthermore  i n China, some large c i t i e s have b i g centralized  a b a t t o i r s , under government or private operation, which handle a l l l i v e 1. Ben Yu-sing, p.97 2. I b i d . 3. I b i d .  193. stock f o r the l o c a l food supply.  Under such a system, dealers i n meat  markets are not butchers and should be taxed on one of the three a l t e r n a t i v e basis stated above. In August 1941, promulgated.  But i n most Hsien, there i s no such system. an enforcement provision of butchering tax was  The rates were set at from 2 per cent to a maximum of 6 per  cent of the r e t a i l s e l l i n g price of meat, beef, and mutton.  Up to that  time, no Hsien had imposed t h i s levy a t a rate exceeding 6 per cent, so that i n some cases, the new rates brought an increase of 300 per cent more over the same tax revenue under the old r a t e s .  1  The butchering tax played an extremely important role i n the wartime Hsien finance, as revenue from t h i s source became more preponderant in the Hsien budgets.  In some provinces, i t had exceeded a l l other o  Hsien revenues including that from the land tax,  as can be seen i n Table  XXX following. In 1943» the L e g i s l a t i v e Yuan revised the butchering tax enforcement provision and decided that the maximum rate should be 5 par cent of the r e t a i l s e l l i n g p r i c e . t h i s new maximum rate • 1.  Yee Hong-lin, p.  2.  Ben Yti-eing, p . 6 8 .  111.  At that time, no HsiBej had a rate exceeding  194. TABLE XXX Importance of the Butchering Tax i n Hsien Budget i n 1941 and  Provinces  Butchering tax as a Percentage of Hsien Budgets  1941  1942  Kwangsi Szechwan Hunan Anhwei  43 41 39 34  54 48 47 54  Chekiang Slkang Fukien Hupeh  30 30 24 23  12 54 55 43  Kweichow Kwangtung Kiangsi Honan  21 16  38 32 58 35  ? ?  Provinces where Revenue from Butchering tax Exceeded that from the Land tax 1941  1942  X X  X X X X X X X  X X  X X X X  1942  1  Provinces where Butchering tax Exceeded a l l othe r Revenues including those from the Central Government 1942  X X X X  X  3) License tax The license t a x was divided into two major categories, namely, the business license tax and the use tax*  Before the War, the former  had been administered by the provinces and the l a t e r by the Hsien. When the Financial Conference  of 1941 recommended that provin-  c i a l finances be put under c e n t r a l c o n t r o l , they also suggested that t h i s tax be levied by the Central Government. 1.  Ben Yu-sing,  p.68.  In January 1942 when the  new "National F i n a n c i a l System" became e f f e c t i v e , the Central Government promulgated a business license tax enforcement levying power was granted t o the H s i e n ,  provision under which i t s  1  The maximum rate of the business license t a x i n each year was set  at 0.25 per cent of the preceding year's gross r e c e i p t s .  I t was so  defined because the Central/had c o l l e c t e d i t s business t a x (under the new National F i n a n c i a l System) and inspected the firms accounts during that preceding year, so that the Hsien governments could save the expenditure of inspection and other c o s t s .  But with the continuous Fapi i n f l a t i o n ,  a c e r t a i n volume of trade i n the f i r s t year might appear only a f r a c t i o n of that i n the second.  Thus, the revenue from t h i s tax, o r i g i n a l l y unim-  portant to the provinces, now f u r t h e r dwindled i n importance i n Hsien f i n ance, p a r t i c u l a r l y i n the poorer Hsien. The enforcement  provision authorized provinces t o work out i n -  d i v i d u a l l y a c l a s s i f i c a t i o n by type of business f o r Hsien taxation purposes.  A f t e r the c l a s s i f i c a t i o n had been completed, each type o f busin-  ess was taxed a t d i f f e r e n t i a l - f l a t - r a t e s not exceeding the maximum rate; o the number of d i f f e r e n t i a t e d categories should not be more than s i x . Use tax before the War; each i n d i v i d u a l Hsien had imposed a license tax on vehicles and boats.  In September 1942, the Central Govern-  ment promulgated a use t a x enforcement  provision f o r a l l the Hsien. The  rate on such communication equipments f o r business purposes was 150 per cent of that f o r personal use. 1. Ben Yu-sing, 99. 2. Yee Hong-lin, p. 112.  The revenue from this t a x was not important  196. before the War and during wartime; because of the f l a t rates and the i n f l a t i o n , i t became even more i n s i g n i f i c a n t i n many Hsien, as i s shown i n Tables XXX and XXXI. TABLE XXXI Revenue From Business License Tax i n Kwangsi and Szechwan i n 1942 and 1943 Unit: yuan 1 Kwangsi i n 1942 Revenue Classes  2 Szechwan i n 1943 No. of Hsien  230,000 220,000 160,000 110,000 50,001-100,000 40,001- 50,000 20,001- 40,000 10,001- 20,000 201- 10,000  1 1 1 1 10 6 19 24 37  1.  Tee Hong-lin, p. 112  2.  Ben Yu-sing, p. 106  Revenue Classes  100,000 and more 50,001-100,000 10,001- 50,000 10,000 and l e s s  ?  No. of Hsien 3 15 60 58 1  197. TABLE XXXll Revenue From Use Tax i n Ewangsi and Szechwan i n 1942 and 1943 Unit:yuan  2  Szechwan i n 1943  Kwangsi i n 1942' Revenue classes  No. of Hsien  86,000 56,000 10,001-50,000 5,001-10,000 1,001- 5,000 1,000 and l e s s No revenue  1 1 15 7 29 22 25  Revenue classes  100,001-249,696 10,001- 50,000 10,000 and l e s s No revenue  No. of Hsien  2 12 60 65  4) Feast and Amusement taxes The feast tax was a new wartime l e v y which was imposed on consumers who held banquets i n restaurants or who ordered more expensive dishes.  In A p r i l 1942, the Central Government promulgated  the feast tax  enforcement provision, which set the maximum rates at 10 per cent of the price of the goods consumed. The amusement tax was an old levy, but there had been neither uniform, nor maximum r a t e s defined.  I n A p r i l 1942, a maximum rate was  set by the Central Government of 30 per cent of the admission t o teaters, recreation h a l l s , gymnasiums,etc. These two taxes would y i e l d a stable revenue only to the s p e c i a l and p r o v i n c i a l m u n i c i p a l i t i e s , or to r i c h Hsien because such businesses are not l i k e l y t o perate i n the poorer Hsien, as i s shown i n Table XXXJTL. Tl Tee Hong-lin, p. 112. 2. Ben Yu-sing, p. 106.  198  TABLE X m i l Revenue From Feast and Amusement Tax i n Kwangsi and Szechwan i n 1942 and 1943 Unit: yuan Kwangsi i n 1942' Revenue classes 1,440,000 640,000 100,001-500,000 50,001-100,000 10,001- 50,000 5,001- 10,000 5,000 and l e s s No revenue  Szechwan i n 1943' Revenue c l a s s e s  No. of Hsien 1 1 7 2 15 10 44 21  1,220,000 100,001-900,000 50,001-100,000 10,001- 50,000 10,000 and l e s s  ?  In summarizing the importance  No. of Hsien 1 11 10 29 87 1  of these "autonomy taxes", only  the butchering tax made a substantial contribution to the Hsien wartime finances:  i n 1942 and 1943 i t provided on the average 50 per cent of the  t o t a l Hsien income. For example i n Kwangsi i n 1942, the improvement tax, license tax, and feast and amusement tax together made Tip l e s s than 15 per cent of the t o t a l Hsien tax revenue. " 3  In Szechwan i n 1943, the revenue from  these taxes was only 25 per cent of the t o t a l Hsien income from taxation 2 plus the revenue-grants from the Central Government. B) Other Hsien Taxes l ) Part of the land tax P r i o r to 1942, the farm land tax was l e v i e d by the provinces while the Hsien imposed the farm land surtaxes.  The F i n a n c i a l Conference  of 1941 recommended that the entire land tax be administered by the Tl Yee Hong-lin, p.112, "The t o t a l Hsien revenue from taxes i n 1942 was 75,450,000 yuan." 2. Ben Yu-sing, p. 106.  199.  Central Government.  This proposal was  carried out i n 1942.  From 1942 on, that part of the farm land t a x which previously belonged to the provinces was  now  levied i n kind, and retained by the  Central Government; that part of the farm land surtaxes which previously belonged to the Hsien was  now  paid i n cash t o the Central Government which  i n turn paid i t back to the Hsien.  Those land taxes other than the farm  land tax were s t i l l paid i n cash and also put under central  administra-  t i o n ; the revenue from that portion of the land taxes o r i g i n a l l y belonged to the Hsien now went f i r s t t o the Central Government and then to the Hsien. Only the Central Government was land taxes.  the authority to levy the  The present rate of the farm land tax was  1941, while the ment.  now  f i x e d at that i n  other land tax rates were adjusted by the Central Govern-  In general, most Hsien had more farm land than urban land and  est areas, e t c .  for-  So the revenue from the Hsien farm land tax (now was  revenue-grant from the Central Government) was  the  fixed i n monetary amount  i n the f a l l of the steady increase in the price l e v e l . Because of t h i s i n f l e x i b l e return during the Fapi i n f l a t i o n , the farm surtax, the greatest revenue source of the Hsien before the now  War,  became l e s s and less s i g n i f i c a n t , as i s seen i n the following Table:  200.  TABLE XXELV Revenue From Farm Land Surtax as a Percentage of T o t a l Hsien Budgetary Income i n T h i r teen Provinces, 1935-1941  1  Provinces  1935  1936  1937  1940  Kiangsu Kansu Kiangsi Honan Hupeh Shensi Anhwei Hunan Kwangsi Szechwan Chekiang Fukien  77 66 55 57 48 55 70 42 33 46 27 36  74 70 63 57 69 50 51 37 39 32 20 11  67  45 52 41 38 33 16 10  44 46 39 26 34 15 12  53 53 30 26 20 8 15  50 29 17 20 26 16 43 10  Average  51  48  40  38  35  27  1939  194] immm  —  70 26 52  73 55 52  61 48 28  -—  26 —  28  Previously, the Hsien farm surtax rates ranged up to more than 50 per cent of the p r o v i n c i a l r a t e .  But, i n 1942,  the Central Govern-  ment decided that the surtax rate should be uniformly reduced to 15 per cent of the present central rate.  In the same year, the Central decided  that 30 per cent of the Hsiem farm tax — should also be l e v i e d in k i n d .  1  on the basis of t h i s new  This operation, however, made no s i g n i -  f i c a n t change, so that the revenue from the Hsien farm surtax was unimportant  1.  rate-  to the Hsien finances as a whole.  See the i l l u s t r a t i o n of the land tax following.  still  201  201 Illustration  I l l u s t r a t i o n of the D i s t r i b u t i o n of the Land Taxes Between the Province and the Hsien i n 1941-and Between the C e n t r a l Government and the Hsien i n 1942 I n the f o l l o w i n g i l l u s t r a t i o n s , f o r the sake of convenience, the land as a whole i s d i v i d e d i n t o two kinds only, namely, the "farm l a n d " and the "other l a n d " .  (continued)  Both the former p r o v i n c i a l "othef land t a x " and the Hsien "other l a n d surt a x " were now l e v i e d according t o the l a n d v a l u e . Thus, i n 1942, the d i s t r i b u t i o n of the l a n d taxes between the C e n t r a l Government and the Hsien can be shown as f o l l o w s :  Suppose t h a t i n 1941, the revenue from the p r o v i n c i a l "farm l a n d tax" was 200 yuan and t h a t from the p r o v i n c i a l "other land t a x " was 100 yuan. In t h a t year, the Hsien surtax rates were 40 per cent of the p r o v i n c i a l rates} thus, the Hsien revenue from the "farm l a n d surtax" was 90 yuan and t h a t from the "other land surtax" was 40 yman. The d i s t r i b u t i o n of the e n t i r e l a n d taxes between the province and the Hsien i n 1941 i s i n d i c a t e d i n the following figure:  C e n t r a l Government  P r o v i n c i a l land taxes (according to acreage)  1 ! I farm \ ;11 14 J-44 f-  1!  I}-  %m  I -i-l • -+  t!  -h  -l-H  • J . J . / /•  %\\\  Yu<tx'ft i i'  r r t " -H-H  •tr T i-\:r i.  \ e?Mer  IO,/H4 i i  Hhrr  - } H : -| - I — — * • - + — — * - t — - ^ - ^ - j - - - -r4-+-I  •  P  -  4-^-  —  4  t -  Tfj H" j ; [ i - [ - . 4 - i - -4 i-4-  -  C e n t r a l Government Hsien  -  _nr f! r_-_r:i r.  Suppose t h a t i n 1942, the p r i c e of paddy was 0 yuan per g a l l o n and the l a n d value doubled i n monetary value i n comparison w i t h the preceding year, the Central^Government would have a revenue from the "farm l a n d |ax" of 44O y u a n and t h a t from the "other l a n d t a x " would be 200 y u The Hsien would ahave a revenue from the "farm l a n d t a x " of 40.8 yuan and that from the "other l a n d t a x " would be 30 yuan. 1  Hsien land surtaxes (40 $ of the p r o v i n c i a l r a t e s )  In 1942, the C e n t r a l Government l e v i e d the l a n d taxes. The p o r t i o n of the l a n d t a x e s w h i c h p r e v i o u s l y belonged t o the province was now l e v i e d and r e t a i n e d by the C e n t r a l Government. That of the l a n d taxes which previousl y belonged t o the Hsien now was l e v i e d by the C e n t r a l Government which i n t u r n returned i t to the Hsien. The present surtax r a t e s were reduced t o 10 per cent of the c e n t r a l r a t e s . x  The e n t i r e p o r t i o n of the o l d p r o v i n c i a l "farm l a n d t a x " was now l e v i e d i n k i n d . 30 per cent of the present Hsien surtax on the "farm l a n d " was l e v i e d i n k i n d , the remainder i n cash, both were c o l l e c t e d by the C e n t r a l Government and returned t o the Hsien.  1. Each of 1941's t a x payment yuan i s equal t o 0.44 g a l l o n of paddy, and the amount of the C e n t r a l "farm l a n d t a x " w i l l be: 200 x 0.44 x 0-::44O (yuan). s.  2. 30 per cent of present Hsien "farm land surtax" was l e v i e d i n k i n d , o f , i n t h i s p a r t i c u l a r i n s t a n c e , 9 Hsien feax payment yuan were l e v i e d i n k i n d ; , and 21 yuan i n cash. Thus the Hsien revenue from the "farm l a n d surtax" w i l l be: (30 x 0.3 x 0.44  x 0) •» 21 :: 40.8(yuan) .  202. 2) T i t l e deeds surtax Before the War, the Hsien had long levied the t i t l e deeds surtax; tout t h i s tax did not y i e l d an important income t o the Hsien. wartime, i t remained a minor source of revenue.  During  Previously, i t s rate had  been 50 per cent of the p r o v i n c i a l r a t e , a f t e r 1942  i t was reduced to 25  per cent of the central r a t e . 3) Special Assessment The Hsien governments were authorized by the F i n a n c i a l Conference of 1941  t o levy s p e c i a l assessments i n case of necessity. In a  broad sense, the s p e c i a l assessment i s the same levy as the " D i s t r i b u t i o n " which was discussed i n preceding chapters.  The only difference between  the s p e c i a l assessment and the " D i s t r i b u t i o n " of wartime China i s that the former was  imposed by the Hsien governments under a budgetary  procedure,  while the l a t t e r was handled by the people's organization and not set 2 f o r t h i n the Hsien budgets. (C) Central Revenue Grants and Subsidies 1) Stamp tax and Succession Duty As recommended by the F i n a n c i a l Conference of 1934* the Central Government had, before the War, assigned 30 per cent of i t s income tax to  the Hsien.  the War.  This policy was s t i l l i n force during the f i r s t years of  When the Central Government's revenue became inadequate t o de-  f r a y war expenditures, i t was proposed by the F i n a n c i a l Conference of 1941 that the entire income tax should go t o the Central Treasury.^ This 30 per cent tax grant to Hsien was 1. Ben Yu-sing, p. 112. 2. I b i d . 3. Ben Yu-sing, p. 13  suspended, but i t was replaced i n  203 part by a new revenue grant of 30 per cent of the stamp tax. The stamp t a x , l i k e the business license t a x , yielded a stable revenue only to the special and p r o v i n c i a l municipalities and prosperous Hsien, not t o the poorer Hsien. l i a b l e income to the Hsien.  This tax-grant i n general was not a r e -  For instance, i n 1942 i n Kwangsi, where the  t o t a l stamp tax grant was only 266,770 yuan, one p r o v i n c i a l municipality alone received 100,000 yuan of i t , t h e rest being d i s t r i b u t e d among seventy-two H s i e n .  1  P r i o r t o 1941, 25 per cent of the revenue from succession duties had been annually assigned by the Central Government to the Hsien. Since the administration of t h i s tax i n China was rather haphazard, i t s y i e l d was never great and i t s d i s t r i b u t i o n was seriously unbalanced. For instance, i n 1942 i n Kwangsi, the t o t a l grant from the succession duty  2 was 11,850 yuan but one p r o v i n c i a l municipality alone shared 10,000 yuan. 2) Business tax Before the War, the business tax was a complicated provincial levy as i t included the business tax, the business license tax and the butchering tax; i n some cases, the Hsien governments were annually granted a part of the revenue from these three sources by the provinces; i n other cases, the Hsien was allowed t o levy a surtax on the same tax objects;and s t i l l other cases, the Hsien was to share a part of the butchering tax alone; and there were many other v a r i a t i o n i n the administration of these sources. Since the introduction of the New Hsien System, the butchering 1. Tee Hong-lin, p.113. 2. I b i d .  202*.  tax had been separated from the business tax, and the Hsien received the entire butchering tax revenue plus 20 per cent of the revenue from the p r o v i n c i a l business tax ( which composed of the business t a x and the business license t a x ) . As decided by the Central Government i n 1942, the business license tax was to be separately l e v i e d by each Hsien l y while the business tax was l e v i e d by the Central Government.  independentThe pres-  ent business tax was then to be s o l e l y a business including no other sources and 30 to 50 per cent of the y i e l d was to be returned from the Central Government to the Hsien. However, the business tax was not important to most Hsien. For example, i n 1942, the t o t a l business tax assigned to Kwangsi was 920,000 yuan of which one p r o v i n c i a l municipality alone received 900,000 yuan.' ' 1  In 1943 the Central Government i n s t i t u t e d two new taxes, the land increment tax and the land value tax.  The former intended i n part t o  check the i n f l a t i o n a r y r i s e i n land value, while the l a t t e r was levied om the land where the t a x was not l e v i e d i n kind i n order t o replace the o l d f l a t rates.  F i f t e e n per cent of each (land increment and land value)tax  was t o be assigned to Hsien.  In 1944, two further new c e n t r a l taxes were  introduced: the "Income Tax on Property Leases" and the "Income Tax on S e l l i n g of Property".  T h i r t y per cent of each of these taxes was t o be  2 a l l o t t e d to Hsien. The t o t a l central revenue grants from 1942 t o 1944 from a l l these sources are shown in the following Table: 1. Yee Hong-lin, p.113 2. China Handbook, p. 202.  TABLE XXXV Budgetary Estimates of the Central Revenue A L l o t t e r to Hsien and to P r o v i n c i a l M u n i c i p a l i t i e s i n 1942 1943 and 1944  1  Unit: 000 yuan  1942  Central Revenues - Grants  1943  Farm land tax 165,441 — Land increment tax . — land value t a x Business t a x 110,783 Stamp tax 10,650 Succession duty 4,700 — Income tax on property lease Income tax on s e l l i n g of propmmmm erty  538,788 7,500 37,500 245,640 28,215 11,750  291,574  819,393  TOTAL  wmmm mmmm  1944 1,057,015 6,975 34,980  525,3a  204,674 11,750 27,000 27,000 1,894,735  2) Subsidies Before the War, except i n minor cases, the provinces themselves had subsidized t h e i r subordinate governing u n i t s , the Hsien and P r o v i n c i a l Municipal Governments.  On the disappearance  of the provin-  c i a l finances with the F i n a n c i a l Conference of 19a, the Central Government replaced the provinces i n handling the subsidies. The p o l i c y i n regard t o subsidies of the Central and provinc i a l governments were quite d i f f e r e n t .  P r i o r t o 1 9 a , the provinces had  l e v i e d higher taxes, through the surtax system, or a l l o t t e d a part of o  t h e i r existing t o t a l revenue to the Hsien, or adopted both methods to meet a part of the Hsien expenditures.  But, the Central Government  206. developed i t s subsidy system to Hsien i n a d i f f e r e n t manner: through unconditional revenue grants and special cash subsidies. In order to frame a sound Hsien wartime f i n a n c i a l system, the Central Government, following the resolutions of the F i n a n c i a l Conference of 1941$  participated in Hsien finance in two major f i e l d s : the  "autonomy taxes" and the unconditional revenue grants which we have a l ready discussed.  I t seems to the w r i t e r the Central Government was work-  ing on the p r i n c i p l e that these two Hsien revenue sources should be s u f f i c i e n t to handle t h e i r obligations, and that the Central Government could withhold the special cash subsidies as f a r as possible i n order t o save more funds for the War.  And, i n actual f a c t , the s p e c i a l cash sub-  s i d i e s to the Hsien d i d decline i n importance i n both Central and Hsien finances.  For instance, the s p e c i a l cash subsidy to the Hsien was re-  duced from 356,220, 166 yuan i n 1942 to 18,000,000 yuan i n 1943. subsidy i n 1943 was only 6 per cent of that i n 1942, influence of the Fapi i n f l a t i o n .  In 1942,  1  The  quite apart from the  the s p e c i a l subsidy had been  125 percent of the t o t a l revenue grants t o Hsien, but in 1943,  i t was  2  only 2 per cent. D) Other Hsien Receipts Bowwowings, donations, administration fees and f i n e s , receipts from Hsien enterprises and revenue from Hsien properties, together made up the "other r e c e i p t s " . In actual f a c t , the borrowing was not important because most Hsien did not have a revenue system strong enough t o enable them to carry the burden of debt.  Furthermore, since the introduction of " D i s t r i b u t i o n "  and special assessments, and since the provinces (before 1942)  and the  Central Government (after 1942) were t o provide inter-Hsien works and 1. China Handbook, p.202 2. See Table XXV (on page 66 ) supra.  v  207.  communications, the Hsien borrowing was l a r g e l y unnecessary, except i n the few r i c h Hsien. Revenue from donations, f e e s , and fines was.also  unimportant  to the Hsien taken as a whole. Before the War, the public enterprises in each Province were customarily operated by the p r o v i n c i a l government, speaking generally, Hsien enterprises had developed very slowly. The Hsien revenue or p r o f i t from t h i s source was, therefore, n e g l i g i b l e . Among a l l the "other r e c e i pts", only that from the Hsien prope r t y i s s i g n i f i c a n t t o Hsien wartime finance. The major Hsien property i n China i s land and b u i l d i n g s .  Unfortunately, they had never paid much  attention t o the administration of t h e i r public properties, so that the " l o c a l gentry" had long used these public lands, buildings, and public funds f o r t h e i r private gain. Thus, the Financial Conference of 1941, strongly proposed that the administration of Hsien properties be adjusted. Following t h i s proposal, e f f o r t s were made by the Hsien, p r o v i n c i a l , and the Central Governments to reclaim these " l o s t " properties, throughout the country.  By the end of 1944, public funds and properties reclaimed  amounted to 97»520,867 yuan i n public funds; 66,890,661 yuan i n rent; 4,871»230 Shih Mow (or 811,871 acres) of land; 71,330 buildings; and 233,209 p i c u l s (or 1,500,000 kilograms) of r i c e .  1  Taking Szechwan as an  example, 30 Hsien reporting on the reclamation a c t i v i t i e s i n 1942 said that the revenue from public properties increased from 17 per cent of p the t o t a l Hsien income s i n 1940 t o 27 per cent i n 1942. 1. China Handbook, p.203 2. Ben Yu-sing, p. 110.  208. Conclusion In concluding tne subject of Hsien "autonomy revenue", i t i s advisable to summarize the trend of major Hsien taxes, as i s done i n the following Table: TABLE XKXV1 Variation of Hsien Tax Sources, 1934-1942 The s i g n (x) shows the levying power of the Central,Provincial or Hsien Government Names of Taxes  x Land T i t l e deeds surtax x Improvement t a x x Business tax,or x Business t a x Business license x tax Butchering tax x Feast & amusement t a x x  Proposed by Financial Conference of 1934  Actual D i e t r i bution between the Province & Hsien,1934-1939  New Hsien System 1940-  Autonomy Taxes from 1942 on-  1941  H:55-85%  x P: P H  x P: 45%  x C: 15%  100% H: 55-85% •  x H: 100% x P:, P H  x H: 100% x H: 100%  x H: 100% x H: 100%  H:  H: 30%  x P:  H: 100% P: 30%  x H: 100% x H: 100%  x H: 100% x H: 100%  x H: 100%  x H: 100%  H: 100%  x P: P H  20%  x C:30-50%  In the l a s t two columns, i t c a n be seen that a sound Hsien revenue system was formed during the War, although the l a r g e r proportion of the land tax was s t i l l out of the hands of the Hsien; and although the Fapi i n f l a t i o n d i l u t e d the new f i n a n c i a l power somewhat. The following Tables compare the Hsien wartime revenue system up t o 1942 with the prewar s i t u a t i o n .  209 TABLE XXX711 Hsien Revenue From Taxation as a Percentage to  the T o t a l Hsien Receipts i n 20 Provinces,  1935-1942  Provinces  1935  Shantung Kiangsu Hupeh Kweichow Fukiem Kansu Shensi Kiangsi Kwangtung Kwangsi Honan Hunan Chekiang Szechwan Mngsia Anhwei Yunan Shangsi Sikang Chinghai  988.18 3 . 7 6 89 14.. 07 21  7 6 . 4 3 87 7I .. 26 55 6 8 . 9 7 2278.. 74 67 83.39 37.94 67.77 8 5 . 5 3 8 5 . 2 5 65.03 3 8 . 1 4 4 0 . 1 2 8 5 . 5 9 7 3 . 7 2 762.68 63.02 4 8 . 5 5 8 3 . 2 5 4311.. 68 22 2.32 6 9 . 7 7 67.00 64.53 64.53 6 9 . 3 4 72.78 63.82 6 6 . 9 6 65.85 68.21 : 3 7 . 5 9 7 —8 . 7 1 7 —6 . 9 2 6 6 . 3 5 6 4 . I 8 5 6 . 2 9 3542..01 14 6 8 . 9 4 49.32 6 8 . 6 6 5 4 . 5 9 8O.36 6 6 . 1 3 58.15 4 9 . 3 9 4 7 . 4 1 6 0 . 4 4 51.13 8 7 . 7 2 61.98 630.25 1 . 3 4 57 . a 4 mmmm 9 . 5 3 41.86 39.03 — 7 9— 1 7 6 6 0— . 6 0 6 1 . 4 9 55.05 5 1 . 6 0 47 26 .. 06 76 63 25 .. 35 61 7 7 . 7 2 2 8 . 4 5 6 0 . 9 5 5 I5 .. 26 57 4 1 . 3 5 — 7 0 . 1 9 5 9 —. 7 4 9.18 — — — 4 3 . 3 5 3 8 . 8 4 1 9 .18 25.24  Average  82.39  1.  1936  70.64 8 3 . 2 0 _» 80.72 8 9 . 1 1 70.83  8823.. 31 89 8 6 . 3 3  1937  76.78  7 —4 . 2 5 6 —1 . 0 3  1939  1  — —  1940  —  74.09  72.59  1941  78.63 62.61  1942  Average  —.  9823.. 23 28  47.13 55.03  769.00 0.77  Ma*  WW  29.96  71.66 64.H 63.06  62.90  54.09  666.64 7.35 66.46  65.89  64.34  63.96 62.89 62.73  59.00  56.98 56.27 55.21  52.82  35.09  33.79  27.60  38.42  Ben Yu-sing, p.69 Taxes included: Butchering tax, T i t l e Deeds Surtax, license Tax, Feast and Amusement Tax, Chuan Levies, Land Tax, Business Tax and other revenue grants from the Central Government.  210.  It i s evident that owing i n part to the Fapi i n f l a t i o n , the revenue from taxation as percentage  of the t o t a l revenues declined each  year, p a r t i c u l a r l y so f a r as the land t a x was concerned.  Among the taxes  1  the butchering tax had been the most important since 1 9 4 0 when i t was ent i r e l y a l l o t t e d to the Hsien as we saw i n Table XXXIV, supra. TABLE  XXXV111  Hsien Revenue From Property as a Percentage to the T o t a l Hsien Receipts i n 2 0 Provinces, 1935-1942  Provinces Sikang Ningsia Szechwan Chinghai Yunan Hunan Honan Kweichow Shantung Anhwei Hupeh Kiangsi Kansu Kiangsu Kwangsi Chekiang Shensi Kwangtung Shansi Fukien Average  1935  1936  1937  45.79 37.10 24.37 10.76 10.55 11.17  — — —  13.80  13.80  20.96 8.38  9.23 - A  6.86  10.46 11.51  6.98  5.63 4.51  5.95 5.64  11.98 — — •  9.36  8.78 8.98  8.97 5.13  5.37  6.64  4.75 6.11 4.16 4.50  0.89 —  2.71  I.89  10.61  8.56  7.81  2  1939 15.01 17  .44  9.52 ' —  9.72 7.23 4.25  7.77  7.53  6.88  6.44  4.16  --  4.41 4.31 3.52 4.40  2.95 2.80  • —  4.65  2.81 3.84 2.88 2.34 —  1940 — 17.71 17.91 —  --  1942 49.16 35.98 1941  1.92  --  35.07  1.70  23.62  " 6 . 5 2 9.23 7.69 10.93 1 6 . 5 2 7.63 9.48 24.37  4.76  *_  4.34 -3.91  3.95 2.73 3.89  2.70  2.34 —  16.07  --  4.54 7.59  ~-  16.20 —  8.79 3.56  3.70  8.55 6.41  5.25 5.14  3.89 4.00  5.06  3.92  mmmm  1.95 —  1.42 —  1.19  1.14  1.31  1.32  2.50  8.05  6.78  6.23  16.82  10.67  Average  33.38 20.86 16.94 13.80  12.23 IO.64  10.73 10.01 7*92  7'.48 6*. 39 6.35 5.16  4*. 55 4.43  4.31 4.26  2.91 2.80  1.72  The revenue from property increased very rapidly from 1941 t o 1 9 4 2 because the reclamation of public properties had begun. Tl See Section ( 1 ) under the sub-heading "Part of the Land 2. Ben-Yu-sing, p . 7 1 .  Tax"supra.  211. TABLE XXXLX Hsien Revenue From Subsidies From the Provinces, 19351941,  and From the Central Government i n 1942, i n 20  Provinces, as a Percentage  of the T o t a l Hsien  Receipts ^ Provinces  1935  1936  1937  1939  1940  19U  1942  Average  Ningsia Chinghai Tunan Shensi Sikang Hunan Kwangtung Kiangsi Honan Kweichow Anhwei Fukien Shansi Chekiang Kansu Hupeh Szechwan Kwangsi Kiangsu Shantung  54.30  62.89  45.46 39.99  32.56  82.38  22.00  31.38  47.28 39.99 37.80 27.57 21.49 20.17 19.85 17.62 17.53 17.20 I6.76 16.29 15.10 14.29 13.33 IO.46 9.06 8.12 7.14  Average  IO.04  — — — — — — —  2.26 0.76 3.34 ——  5.31 —  1.89 2.47  —' mmm»  —  —  70.34 10.62 13.83 — 16.96 13.90 m»mm 17.44 29.83 — 6.89 12.93 1.71 16.35 15.87 mmmm20.51 8.39 27.14 28.29 28.29 11.14 27.77 16.37 — mm 0.42 27.90 5.95 11.68 22.02 — 10.88 1.16 — 6.43 15.20 9.10 1.41 2.39 1.82 1.10 12.24 — 5.03 13.93 —  19.01  —  17.53  21.69  —  17.12 16.97 — a.17 27.20 16.47 14.92 29.83 — 28.42 22.26 18.72 25.38 27.18 19.16 14.40 23.57 5.11 9.77 16.50 14.33 27.59 16.11 m»m» — . 17.18 21.99 20.84 14.23 13.61 13.83 27.17 m»mm 13.08 12.28 5.58 5.87 30.01 8.12 17.74 13.95 38.39 32.12  • M M * •»•»  12.09  —  25.37 59.13 9.48 26.35 7.25  — ——  25.04 15.09  — ——  ——  20.92  The revenue from subsidies from the provinces increased i n each year, p a r t i c u l a r l y during the early part of the War. When the new HBien System was put into e f f e c t i n 1940,however,the importance of the subsidies from the provinces deolined r e l a t i v e l y t o other sorts of income. In 1942, the Central Government was d i r e c t l y i n charge of subsidies t o the Hsien and the amount from t h i s source was increased i n order t o 1. Ben Yu-sing. p. 72.  f a c i l i t a t e the "Hsien Autonomy Finance".  A f t e r 1942, the subsidies from  the Central Government decreased, but the revenue-grants increased as we have seen i n preceding pages. TABLE XXXX Other Hsien Incomes as a Percentage to the Total Hsien Receipts i n 20 Provinces, 19351942 Provinces  1935  Shansi Chinghai Kwangsi Chekiang Szechwan Anhwei Kansu Kwangtung Kiangsi Fukien Hupeh Shensi Honan Sikong Yunan Hunan Kiangsu Ningsia Kweichow Shantung  29.80 37.03 56.23 20.65 22.80 19.27 27.58 10.65 24.44 26.62 15.20 26.06 25.10 7.51 2.43 3.27 — 12.16 5.87 — 7.22 29.32 7.41 20.90 3.53 5.41 14.13 9.99 5.22 12.51 6.37 _4.63 27.72 11.05 12.06 12.00 12.02  Average  10.47  1936  1937  —  — — •— — 1.31 — 5.70 5.49 4.81 4.84 — — 2.11 — — — —  1  1939  1940  1941  1942  Average  —  —  98.75  73.64  12.59 13.59 17.20 43.03 44.53 4.40  —  2.12 3.50 0.78 7.05 2.51 12.44 8.13  5O.4O 30.64 7.34 36.35 37.67 49.54 27.37 53.92 36.22 41.50 22.90 3.67 32.30 4.H  6.92  4.41 5.20  62.26 38.44 23.46 22.48 20.26 19.88 17.08 16.17 15.13 14.04 12.76 12.76 11.33 II.30 9.57 6.43 5.04 4.41 3.76  72.09 17.97 24.75 23.97 8.16 1.07 3.28 12.60 6.04  13.65 26.71 26.98 38.43 1.18 3.28 19.00 6.69  '—  0.23 0.13 10.54 .2.79 27.72 O.65 i.19 7.04 7.15 ~»  —  —  —  —  —  ——  18.78  13.42  1.14  3.47  ——  14.51  11.54  —  15.36  ——  39.42  The revenue from this source was complicated i n most cases sometimes including borrowings, the return from public enterprises,fines, administrative fees, s p e c i a l assessment and the funds i n t r u s t from other sources f o r special projects, e t c . 1. Ben Y u - 3 i n g ,  p.73  213. Among a l l the taxes, the farm tax was the most r e l i a b l e revenue source to the Hsien because a l l the Hsien included farming land, but i t had been taken by the Central Government which i n t u r n paid back to the Hsien smaller amounts. The improvement tax was not an important revenue source to the poorer Hsien.  Thus, the most c h a r a c t e r i s t i c feature of  Hsien wartime financing, i£ general, was that i t s chief revenue did not come from property, but from the butchering tax, the license tax and the feast and amusement t a x .  These sources, however, did not y i e l d much  to the poorer Hsien e i t h e r . Before 1941»  the provinces adopted a subsidy p o l i c y through  which the poorer Hsien were aided to carry out t h e i r r e s p o n s i b i l i t i e s . In 1942,  the Central Government was charged t o make the Hsien Autonomy F i n -  ance more e f f e c t i v e , and the Hsiem as a whole then received more subsidies from the Central Government than previously. A f t e r 1942,  however,  the Central Government adopted the p r i n c i p l e that the revenue grants were to replace the cash subsidies, so, as we have seen, the poorer Hsien again f e l t t h e i r revenues inadequate. i t s e l f was  But since the Central Government  struggling against i t s own budgetary d e f i c i t s , i t had no i n -  tention of increasing cash subsidies to the Hsien.  The remedy f o r t h i s  s i t u a t i o n was f i n a l l y determined i n 1943* the p r o v i n c i a l governments were to pool and r e d i s t r i b u t e a l l the Hsien revenue grants from the Central Government to the Hsien.  I t was decided that the provinces were to retain  50 per cent of the t o t a l revenue grants of the Hsien, and to d i s t r i b u t e them "systematically" to a l l the Hsien w i t h i n t h e i r boundaries. To make t h i s measure more e f f e c t i v e , i n 1944,  1  the Central  Government further decided that a l l the Hsien budgets were to be regulated by the provinces, instead of by the Hsien people's assemblies. 1.  Ben Yu-sing, p.123.  2. China Handbook, 203.  214. Chapter XI - Hsien Autonomy Finance (Cont'd.) The Hsien i n the past had no independent  revenue sources, the  funds f o r most of i t s expenditures being appropriated from the province. Hsien had never introduced budgets, s t r i c t l y speaking, but acted as an agent of the p r o v i n c i a l treasury, u n t i l 1934, when eaoh Hsien was required to present i t s own budget. I t i s d i f f i c u l t t o a s c e r t a i n the state of Hsien expenditures before 1934 because, i n most cases, the costs incurred by Hsien governments were incorporated i n t o t h e i r administrative expenses.  For instance,  the expenditure f o r education might be placed under the heading of "Expense of the Bureau of Education", or i n many cases, Hsien government accounting was made up of "appropriation" items under which the funds raised by Hsien and a l l o t t e d by the provinces were mixed. No d i s t i n c t i o n was made between the administrative cost and the actual amount spent f o r governmental s e r v i c e s , such as "Appropriation f o r Education", "Appropriat i o n f o r Public Safety"or "Appropriation f o r Public Health". The following Tables show the state of Hsien expenditures i n the years between 1935 t o 1942, while that before 1935 w i l l not be d i s cussed •  TABLE ZXXXl Expenditure f o r Administration as a Percentage of the Total Hsien Expenditure i n 20 Provinces, 19351942 Provinces  1935  1936  Kings i a Kweichow Kansu Anhwei Kwangsi Shantung Kwangtung Yunan Chekiang Fukien Shensi Hunan Honan Shansi Szechwan Sikang Hupeh Kiangsu Chinghai  26.34 21.34 100.0 — — 47.28 — 48.99 32.04 11.36 40.84 45.45 25.05 38.45 39.96 — 42.65 34.25 — 29.91 37.07 17.45 16.97 27.24 32.49 30.49 48.31 47.38 3.13 50.95 20.50 — 37.74 21.68 21.85 38.32 — 31.23 34.03 25.53 36.52 36.17  Average  1937  —  1  1942  1939  1940  68.81  68.05 35.60 46.21 60.39 55.92 25.67 55.29 38.31 30.06 50.09 65.13 46.25 40.64 46.74 53.09  66.18 54.53 —  34.85 —  —  —  52.92 24.94 56.21 37.04 28.32 30.06 41.20 30.77 43.71 42.35  —  —  37.33 20.71 ——  15.68 19.64 18.34  37.84 26.84 22.19  26.83  31.72  36.95 42.72  — — —  1941  52.92 39.87 59.03 58.74 54.20 29.72 39.37 24.77 40.a 45.46 30.88 31.18 42.66 40.92 — 32.21 31.67 32.46 — 28.38 — 42.48 — —  47.64  —  39.12  —  16.93 28.00 29.12 16.48 42.54 35.23 70.09 34.88 18.26 25.10 25.10  ~—  Average 52.34 47.09 43.20 43.19 39.82 38.45 38.27 37.63 35.14 34.83 34.19 33.02 32.39 32.26 32.05 31.94 31.94 22.40 20.27  30.23  This expenditure included the expense of the Hsien headquarters of the Kuomintang which were f i n a n c i a l l y maintained by the Hsien governments, i n d i s t r i c t s where the Hsien people's assemblies were not yet created.  This expenditure increased i n each year because the l o c a l s e l f -  governments were gradually established and improved, p a r t i c u l a r l y i n 1940 when the New Hsien System was f i r s t put into e f f e c t and the i n i t i a t i o n cost of Hsien people's assemblies reached i t s peak, declining i n the following years. 1. Ben Yu-sing, p. 21.  TABLE XXXX11 Expenditure f o r Education as a Percentage of the T o t a l Hsien Expenditure i n 20 Provinces,  Provinces Chinghal Shantung Szechwan Kiangsu Honan Sikang Kwangsi Ningaia Hupeh Hunan Kansu Kweichow Fukien Kiangsi Anhwei Sheiis i Chekiang Yunan Shansi Kwangtung Average  1935  1936  37.55 40.27 30.08 38.47  64.04 63.06 — 31.29 35.36 39.72 32.49 31.62 39.65 29.96  —  44.25 54.16 37.85  --  1937  --  37.54 32.35 —. 53.42 19.17 25.42 30.19 25.82 28.85 —— 31.51 29.28 23.56 33.24 16.95 25.55 27.66 32.67 25.45 31.14 22.11 24.85 22.77 23.86 21.33 17.98 — — 17.78 — 25.87 27.04 — 15.51 17.68 33.64  31.77  29.20  1939  1935  1940  -  1941  1942  1  1942  mmm* —  32.38 28.54 30.94 29.31 20.02 —  23.87 20.69 17.20  18.85  27.50 —  12.67 17.29 16.00 4.34 12.09 21.39  —  —  ' —  38.71  32.02 19.55  29.01  23.78 35.70 25.02 9.44 11.20 27.52 25.15 28.96  12.00  29.21 24.84 11.16 12.5441.12 24.52 27.61 29.95 £8.91 26.0? — 15.55 16.78 17.36 14.39 27.27 15.62 10.46 17.00 19.78 8.15 9.72 5.32 23.35  21.47  20.81  —  26.45 21.50 —  27.39 21.90 16.99 20.24 27.40 14.86 17.17 16.97 8.73 —  Average 63.55 34.42 34.00 31.40 31.23 30.49 29.44 28.52 26.95 26.70 26.6? 24.92 24.28 23 .44 23.04 20.18 17.64 15.86 15.02 14.34  20.75  The expenditure f o r education declined i n each i n percentage, because other expenditures increased. Since the outbreak of the War, t h i s expenditure decreased absolutely i n those provinces adjacent t o the war areas and increased the provinces remote.  1. Ben Yu-sing, p. 23.  217. TABLE XXXX111 Expenditure f o r Police Protection as a Percentage of the T o t a l Hsien Expenditure i n 20 Provinces, 1935-1942 Provinces  1935  1936  Yunan Shansi Shensi Kiangsi Chekiang Kwangtung Fukien Hupeh Anhwei Kiangsu Ningsia Hunan Kansu Honan Chinghai Kweichow Szechwan Sikang Kwangsi  mmmm mmmm 48.66 — 32.03 28.79 37.53 — . 27.7.7  44.36 37.01 42.6$ 28.18 29.80 29.44 27.15 25.12 16.98 18.95 41.09 42.31 23.24 17.95 29.81 25.64 5.31 15.49 — . 3.81 52.18 10.63 — 37.46 23.51 13.77 I8.64 20.06 I8.64 — 10.28 19.49 23.65 — 10.16 16.32 — , — 14.78 17.23 17.93 6.99 H.50 12.71 12.19 —.. 9.49 10.47 — — — 7.62 5.24 2.36 3.18 3.57 3.19 5.80  00.81  0.34  0.57  Average  20.90  20.19  17.66  20.09  1937  1939  —..  1  1942  Average  1940  1941  24.21  18.93 21.78 31.59 33.28 17.73 29.51  —  17.17  23.49  12.47  13.08 27.21 13.20 17.95 27.72 23.48 — 16.75 12.63 16.59 —  — ,  23.92 8.13 19 .44 7.86 12.40 15.57 12.99 -- ,  10.45 14.22 14.70 9.48  8.92 35.24 I8.50 13.09 9.21 4.72 7.06 12.74  8.70 14.33  7.37  16.42 9.70 1.83 6.64  10.61 4.98 8.91 4.64  15.68  16.40  12.6  —  —  — ..  26.92 24.37 23.12 20.42 19.9.8 19.79 19.49 19.11 18.01 14.46 13.10 10.38 9.98 9.72 5.90 5.37 3.74  The expenditure f o r police protection declined i n pre-War years, because the Communist revolts were subsiding. In wartime, t h i s expenditure increased only i n those provinces adjacent t o the war areas. The l a s t Table does not include the cost of m i l i t i a t r a i n i n g which was not i n the Hsien budgets, but was handled by the Hsien people's assemblies.  1.  Ben Yu-sing, p. 22  218. TABLE  XXXX1V  Expenditure f o r Construction, Public Health and Pensions f o r Retired O f f i c i a l s , as a Percentage of the T o t a l Hsien Expenditure i n 2 0 Provinces, 1 9 3 5 - 1 9 4 2  1939  Provinces  1935  Chekiang Kiangsu Kwangsu Shantung Kiangsi Hupeh Hunan Kweichow Fukien Yunan Szechwan Kwangtung Anhwei Honan Sikang Shansi Shensi Kansu Chinghai Ningsia  12.34  9.17  28.04  5.63  11.41  13.53 7.35 10.31  12.74 12.06  12.57  Average  8.46  11.37  8.81  1936  9.98  1937  10.85 15.49 10.08  10.51 —  5.07 — —  —  3.57 —  7.51 —  7.75  9.46  8.04  8.67  6.94  6.37 7.42 5.22  4.91  —  6.67 4.97 — 4.66 —  7.76  5.74 —  8.77 5.32  5.00  2.28  5.34  9.46  5.64  7.34  3.52 —  8.54  13.04  25.24  14.57 12.56  14.28  12.49  10.26 —  5.03 — 5.68 4.51  8.08  4.73  8.52 3.52  16.00  2.95 10.70  14.03 8.70  8.10  7.83 7.43 4.14  15.35  —  6.99  9.67  ~  4.80 4.33  4.27 —  6.93  9.73  5.93  11.07 10.84 10.20  3.40  1.07  4.27  Average  5.50 2.73 2.64  9.33  1942  4.61 5.45 6.32  4.95 5.65 —  4.24  1941  1940  4.75 4.23 —  5.18  1  11.12 8.09 7.15  8.87 9.58 8.27 4.45  8.66  8.09 7.54  7.18 6.99 6.96 6.03 5.53 5.42  8.62  4.81 4.32 4.71 4.27  1.00  1.99  •2.38  2.73 7.22  0.87  mm+m  0.27  1.77  5.51  6.14  6.46  9.85  This expenditure, l i k e that f o r education, increased i n some provinces and decreased i n others, depending on the war s i t u a t i o n . But since the New Hsien System imposed new burdens i n general i t increased s t e a d i l y r e l a t i v e l y t o that f o r education.  1.  Ben Yu-sing, p. 2 4 .  TABLE XXXXV Expenditure for Reserve or Emergency Funds and Others as a Percentage of the T o t a l Hsien Expenditures i n 20 Provinces, 1935 - 1942  Provinces Sikang Szechwan Honan Kwangtung Shensi Shansi Hunan Kansu Ningsia Kwangsi Fukien Kiangsu Hupeh Shantung Kweichow Kiangsi Chekiang Anhwei Tunan Chinghai Average  1935  1936  1937  1939  22.98 22.15  17.29 21.28 3.49 19.92 8.56  14.14 17.05 14.45 15.29 7.20 11.79  13.17 16.62 13.56 13.52 13.60 24.45 24.38 7.35  —  32.56 —  —  7.95 —  16.42 8.05 19.14 15.93 8.40 —  7.52 5.73 11.83  mmmm mmmm  14.88  —  20.82 0.48 16.69 10.58 14.26 7.21 17.13 15.97 9.35 17.14 4.86 —  — —  15.26 14.81 10.15 10.58  —  22.68 6.96  mmmm  —  6.46 4.50 4.41 6.63  1  1940  1941  1942  Average  28.14  36.69  6.74 13.91 13.52 28.29  18.80 50.03  26.00 20.90 20.37 19.98 19.54 18.5 17.69 17.67 16.81 I6.O4 14.78 14.51 13.60 12.76 11.76 11.30 11.09 8.57 7.88 3.84  22.77 29.79 13.89 61.03 23.33 3.54 — 23.53 29.04 21.80 12.07 18.42 6.12 33.94 29.86 — 19.44 30.53 11.23 9.10 20.90 4.58 25.38 33.10 —  —  6.00  —  7.70  9.35 2.77 7.21 13.71  10.86  3.28  14.40 2.85 1.19  18.A.0 35.80 15.72 13.80 22.34  10.96  17.89  26.86  —  4.21 5.95 7.92  —  26.59  mmmm —  —  3.84  12.34  11.05  12.88  On the average, t h i s expenditure decreased during the preWar years but increased r a p i d l y during the War years.  1. Ben Yu-sing, p.25  Selected References CHAPTERS 711,7111,IX, X and XI Chinese Ben Yu-sing, Hsien Finance, Shanghai-second  edition,194-8.  Chia Teh-huei, F i n a n c i a l History of the Republic of China, Shanghai-second e d i t i o n , 1947Yen Wen-chin, Wartime Bonds i n China, Review, December, 1943*  Chungking, F i n a n c i a l  Periodicals (Chinese) Chang Peh-yi, Wartime Finance of the National Government, Shanghai, Financial Review, February,1947Chang Peh-yi, How t o Maintain the Value of the Gold Yuan, Shanghai, F i n a n c i a l Review, August, 1948. F i n a n c i a l Records, Shanghai,Financial Review, July,  1946.  F i n a n c i a l Records, Shanghai, F i n a n c i a l Review, August,1948. Financial Year Book, Chungking, M i n i s t r y of Finance, V o . l ,  1934-1942. Index Number, Shanghai, Central Bank of China, Central Bank Monthly, January, 1948. Liang,Ping, Operation of the Issue Department of the Central PspV of China, Shanghai, Central Bank of China, Central Bank Monthly, October, 1948. Ma Da-ying, The Problems of the Improvement i n Local Finance, Shanghai, F i n a n c i a l Review, October, 1946. Yee Hong-lim, An Outline of Local Finance of our Country, F i n a n c i a l Review, A p r i l , 1945« Periodicals (English) China Handbook, 1937-1945* Chinese Year Book, 1937  issue, Shanghai, Commercial Press.  PART The Act of 1946  V  and the C o n s t i t u t i o n of and Their Practices  1946  222  :  PART 7 Chapter 2CL1 The Fourth National F i n a n c i a l Conference Introduction When the War suddenly broke out i n J u l y 1 9 3 7 * China d i d not ezpect i t would l a s t f o r eight years, so no comprehensive wartime f i n a n c i a l p o l i c y immediately followed u n t i l 1 9 4 1 , when the T h i r d National F i n a n c i a l Conference was c a l l e d .  Shortly a f t e r 7-J Bay i n A u g u s t , 1 9 4 5 ,  the Central Government, not expecting that the v i c t o r y would come so soon, was f u l l y preoccupied  i n rushing various emergency measures,such  as the t r a n s f e r of i t s troops from remote theaters, or even from as f a r as Chungking, to protect the people i n h a b i t i n g lands once occupied by the enemy (at present not yet disarmed) the l i q u i d a t i o n of currencies issued by-the enemy and t h e puppet government and the subsidization of r e h a b i l i t a t e d government u n i t s , p r o v i n c i a l and l o c a l governments i n the once enemy occupied land, where i t had been decided no taxes would be imposed that year  0  Thus the Central Government delayed consideration of what kind  of peacetime f i n a n c i a l system should be introduced. In January 1 9 4 6 , the famous P o l i t i c a l Consultation Conference was convened at Chungking, with representatives from the Kuomintang, the Chinese Communist Party, other minority p o l i t i c a l p a r t i e s , and non-partisan leaders.*  This Conference was expected to suggest means of co-oper-  ation of a l l p a r t i e s and non-partisans  i n formulating a post-War basic  1 . Other parties: China Youth Party, Chinese Democratic League, National Salvation Association, 7 o c a t i o n a l Education Association, and the T h i r d Party.  223. p o l i c y f o r the n a t i o n , and, i n the same month, i t adopted as f i n a l r e s o l u t i o n s the Program f o r Peaceful N a t i o n a l Reconstruction. I n the f i r s t chapter of the Program, " P o l i t i c a l Problems", a three l e v e l government o r g a n i z a t i o n was maintained and the powers of the three l e v e l s were defined.  I t reads i n part as f o l l o w s :  "The powers of the c e n t r a l and l o c a l governments should be regulated on the basis of t h e p r i n c i p l e of "a f a i r d i s t r i b u t i o n of power ("Sun Yat-sen-s'Balanced Power'"). The l o c a l governments may take such measures as a r e adapted t o the s p e c i a l circumstances of the l o c a l i t i e s concerned,but the r e g u l a t i o n s issued by the p r o v i n c i a l and d i s t r i c t governments must not contravene the laws and decrees of the Central Government" 1  The s i x t h chapter of the same Program, Economics and Finance, reads i n part as f o l l o w s : "Central government finance and l o c a l finance should be sharply d i f f e r e n t i a t e d " . 2  I t i s evident that the P o l i t i c a l Consultation Conference considered the p o s i t i o n of the provinces as of l i t t l e importance, o r , a t l e a s t i t t r e a t e d provinces merely as an agency of the Central Government so t h a t the f i n ances between the Central and l o c a l should be s h a r p l y " d i f f e r e n t i a t e d " while the p r o v i n c i a l finance was t a c i t l y ignored. A) The Act of 1946 I n June 1946, one month a f t e r the C e n t r a l Government had r e turned from Chungking t o Nanking, the Fourth N a t i o n a l F i n a n c i a l Conference was h e l d .  The c h i e f task of the Conference was t o restore the f i n -  ance on the p r o v i n c i a l l e v e l .  I n adherence t o both Sun Yat-sen's Fund-  amentals of N a t i o n a l Reconstruction and the Program f o r Peaceful N a t i o n a l T~, China Handbook, p. 748. 2. I b i d . , p.750  221*.  Reconstruction, p r o v i n c i a l finance was indeed restored by the F i n a n c i a l Conference of 194-6, but the p r o v i n c i a l f i n a n c i a l power was g r e a t l y reduced as compared w i t h the s i t u a t i o n e x i s t i n g In pre-War years. The three e a r l i e r N a t i o n a l F i n a n c i a l Conferences had been c a l l e d by the M i n i s t r y of Finance alone and other economic a f f a i r s besides government finance were a l s o s t u d i e d ; but the Fourth Conference was c a l l e d by both the M i n i s t r y of Finance and the M i n i s t r y of Food, because the Cent r a l Government was attempting t o r e t a i n 30 per cent of the farm t a x i n kind. The Resolutions of the Fourth Conference, known l a t e r i n the same month as the " F i n a n c i a l C o l l e c t i n g and Disbursing System A c t " , was put i n t o e f f e c t i n J u l y 1946.  The Act of 1946  contained fourteen chap-  t e r s and three appendices, the content of which were as f o l l o w s : 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14)  General p r o v i s i o n s Taxation Government monopoly and monopoly s a l e s S p e c i a l assessments Fines and compensations A d m i n i s t r a t i v e fees Trusteeship Sales of p u b l i c p r o p e r t i e s P r o f i t from public p r o p e r t i e s and e n t e r p r i s e s , and Donations Tax-exemption of government a c t i v i t i e s Subsidies Loans and borrowings Expenditures Annex Appendix No. 1:  a) b) c) d)  General Revenue C l a s s i f i c a t i o n  Central Government P r o v i n c i a l Government S p e c i a l M u n i c i p a l Government Hsien or P r o v i n c i a l M u n i c i p a l Government  220. Appendix No.2: Expenditure C l a s s i f i c a t i o n el) b) c) d)  Central Government P r o v i n c i a l Government Special Municipal Government Hsien or P r o v i n c i a l Municipal  Government  Appendix No. 3: Taxation C l a s s i f i c a t i o n a) b) c) d)  Central Government P r o v i n c i a l Government Special Municipal Government Hsien or P r o v i n c i a l Municipal Government  Except for the f i r s t chapter of the Act of 1946, the following materials are not arranged i n accordance with the above contents, but are devoted exclusively to the f i e l d s of p r o v i n c i a l and Hsien finances. Five a r t i c l e s were contained i n the f i r s t chapter of the Act of 1946; the l a s t two stated that: The Executive Yuan, the L e g i s l a t i v e Yuan, and the Super-v i s i o n Yuan of the Central Government s h a l l be charged t o supervise d i r e c t l y the p r o v i n c i a l and the Special Municipal F i n a n c i a l C o l l e c t i n g and Disbursing. A f t e r the l o c a l self-government has been completed i n the province, or i n the Special Municipality, i t s F i n a n c i a l C o l l e c t i n g and Disbursing s h a l l be supervised d i r e c t l y by the'^ublic-opinion-organizationi n the province or the Special Municipality concerned and i n d i r e c t l y by the Executive Yuan, the L e g i s l a t i v e Yuan, and the Supervision Yuan of the Central Government* 1  Provinces s h a l l be charged to supervise d i r e c t l y the Hsien or p r o v i n c i a l municipal F i n a n c i a l C o l l e c t i n g and Disbursing. After l o c a l self-government has been perfected i n the Hsien or i n the p r o v i n c i a l municipality, i t s F i n a n c i a l C o l l e c t i n g and Disbursing s h a l l be supervised d i r e c t l y by the Hsien or p r o v i n c i a l municipal public-opinion-organization i n the Hsien or p r o v i n c i a l municipali t y concerned and i n d i r e c t l y by the province concerned.  1.  Financial Records, July, 1946. Pp 123-29.  226. B) P r o v i n c i a l Finances The p r o v i n c i a l finances had been restored by the F i n a n c i a l Conference of 194-6. The p r o v i n c i a l F i n a n c i a l Collecting and Disbursing powers was  l i s t e d as follows:  Provincial Revenues From: 1. 2. 3. 4* 5« 6. 7. 8. 9. 10. 11. 12. 13.  Taxation S p e c i a l assessments Fines and compensations Administrative fees Trusteeship Provincial properties Sales of provincial properties P r o v i n c i a l enterprises Subsidy from the Central Government Withdrawals of p r o v i n c i a l investment Donations loans and borrowings Other sources in accordance with law  Provincial Expenditures 1. 2. 3. 4* 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.  For:  Provincial l e g i s l a t i o n Administration Education Construction and other economic purposes Public health R e l i e f and other s o c i a l purposes P o l i c e protection Reclamation and Settlement Expenses Financial administration Debt services Pension f o r r e t i r e d o f f i c i a l s or compensation to the o f f i c i a l s ' dependents. Repairing cost for government properties and other miscellaneous l o s s Trusteeship Subsidies to the subordinate governments Provincial investment and the maintainence of the p r o v i n c i a l enterprises Others i n accordance with law Reserve fund.  227^. Provincial  Taxation:  Business t a x — the business tax s h a l l be l e v i e d by the province; 50 par cent of the revenue s h a l l be a l l o t t e d to the Hsien, or p r o v i n c i a l municipality. Land tax — the land tax s h a l l be l e v i e d by the Hsien; 20 per cent of i t s revenue s h a l l be enjoyed by the province which i n t u r n s h a l l u t i l i z e part of i t i n subsidies to the poorer Hsien or p r o v i n c i a l m u n i c i p a l i t i e s . The provinces were granted by the Act of 1946  the levying power  of business tax only, 50 per cent of which should be a l l o t t e d to the Hsien. The provinces could enjoy 20 per cent of the land tax which now was l e v i e d by the Hsien, but they were required to use part of i t f o r subsidies to the poorer Hsien.  Undoubtedly, then, the nation's tax structure as  f i n e d by the Act of 194-6 was  de-  divided between the Central and Hsien govern-  ment, with the provinces standing between them merely as intermediaries. The provinces did have other important sources than taxation, such as public properties, enterprises, borrowing and subsidies from the Central Government.  But, p r o v i n c i a l enterprises had been well developed  only i n several r i c h e r provinces, recently returned from the hands of the enemy.  In these provinces, the public enterprises were l a r g e l y destroyed  by the end of the War,  so there was  l i t t l e y i e l d from t h i s source.  The revenue from public property had not been important to most provinces before provinces now  the War,  administered  but now  i t became more s i g n i f i c a n t because the  a part of those properties seized or constructed  by the enemy, plus the properties of owners who There was  had died i n the  one a r t i c l e only i n the Act of 1946  War.  which provided  means for the Central Government to subsidize the provinces and f o r the provinces to subsidize the Hsien.  A r t i c l e 34 said:  228. "The higher l e v e l of government may f i n a n c i a l l y subs i d i z e i t s lower l e v e l of government t o provide a b a l anced development of education, commerce, construction, public health, care of aged and orphans, and r e l i e f , i n the j u r i s d i c t i o n concerned. The subsidies, except those defined by law f o r speci a l projects, s h a l l be s t r i c t l y u t i l i z e d f o r the said purposes." By way  of comment, i t must be remembered that since the F i n -  a n c i a l Conference of 1928,  a general central subsidy system had been es-  tablished of the p r o v i n c i a l governments through budgetary c o n t r o l s . At present, as recommended by the F i n a n c i a l Conference of 1946, c i a l finances were to be supervised d i r e c t l y by the  the provin-  "public-opinion-or-  ganization" and i n d i r e c t l y by the Central Government.  But, the super-  v i s i o n power of the Central Government was made more stringent than the "public-opinion-organization":  provinces were not granted large tax  levying powers and t h e i r other revenue sources were s i m i l a r l y l i m i t e d ; thus, the exercise of the supervision power of the ganization" was  "public-opinion-or-  l i m i t e d to the administration of the meagre revenues l e f t  to the provinces.  Neither did A r t i c l e 34 state that "the provinces  shall  ask"the Central Government subsidies f o r a balanced development of education, etc."; but rather that the higher l e v e l of government might subs i d i z e the lower l e v e l of government. It seems to the writer that the p r i n c i p l e behind t h i s kind of f i n a n c i a l c o n t r o l can only be that the Central Government was  attempting  to reconstruct t h i s s t r i c k e n nation, not on a p r o v i n c i a l basis, but on a national s c a l e . Borrowings had played a dominant role i n the p r o v i n c i a l f i n ances i n the years p r i o r to 1941*  I t can be said that the Central  229-. Government had t a c i t l y permitted the provinces to do so since i t had authority to regulate p r o v i n c i a l budgets.  At present, since the prov-  i n c i a l governments had few revenue sources, t h e i r power to borrow was limited.  Thus, the Central Government did not trouble to prevent the  future provincial borrowings, except foreign loans.  A r t i c l e 35 stated  that: "Each l e v e l of government s h a l l not issue domestic or foreign loans with maturity longer than one year unless i t has obtained the power through l e g i s l a t i v e procedures. The province, Special Municipality, Hsien and provinc i a l municipality s h a l l not negotiate foreign loans without the permission of the Central Government. Puhlic-opinion-organizations of the province, Special Municipality, Hsien and p r o v i n c i a l municipality may sepa r a t e l y l e g i s l a t e regulations to l i m i t borrowing powers of the governments concerned." The provincial governments which had been the most powerful governing unit of the country during the four score years p r i o r to now  1941»  became thectependents of the c e n t r a l authority. For the f i r s t time  and by f i n a n c i a l means, the nation r e a l i z e d the Balanced Power of Sun Yat-sen, which i s hostile to great power i n the provinces. C) Hsien Finances The Hsien revenue sources other than taxation were set f o r t h i n the same way as those of the provinces, stated In preceding pages and thus not discussed i n what follows. The Hsien tax sources defined by the Act of 1946 (a)  read as follows:  "The taxes levied and enjoyed by the Hsien: 1) Improvement tax 2) Butchering tax 3) Business l i c e n s e tax U) Use tax 5) Feast and amusement tax 6) T i t l e deeds tax  236. (b)  The t a x l e v i e d by the Hsien but shared w i t h the Central Government and the provinces: Land t a x - the land t a x was to be l e v i e d by the Hsien; 50 per cent of i t was t o go t o Hsien, 30 per cent t o the Central Government, and 20 per cent to the provinces.  (c)  The t a x l e v i e d by the other l e v e l s of government and p a r t l y granted t o the Hsien:  1)  Business t a x - the business t a x was to be l e v i e d by the provinces and 50 per cent of i t was t o go t o Hsien;  2)  Succession d u t i e s - the succession d u t i e s were t o be l e v i e d by the Central Government and 30 per cent of i t was to go t o H s i e n . n  The other revenue sources were the " S p e c i a l Taxation" and the rents from new housing p r o j e c t s . I n the Appendix No. 1 , i t was stated t h a t the Hsien, ( or provi n c i a l m u n i c i p a l i t y ) could impose l e v i e s , the "Special Taxation" other than the e x i s t i n g t a x e s , i f i t s plan had been passed by the p u b l i c - o p i n i o n - o r g a n i z a t i o n , approved by the p r o v i n c i a l government, and reported t o t h e C e n t r a l Government f o r reference. No f u r t h e r statement regarding the " S p e c i a l Taxation" was made i n the same Act.  " S p e c i a l Taxation" was  a name commonly given to a form of s u r t a x . For instance, because the great extent of d e s t r u c t i o n and because of the l a c k of adequate c a p i t a l t o undertake housing r e c o n s t r u c t i o n , the housing problem was extremely c r i t i c a l throughout the country, p a r t i c u l a r l y i n the once-enemy-occupied lands.  The Central Government had promulgated r e g u l a t i o n s t o c o n t r o l  the housing rents i n order t o protect the tenants. The improvement t a x was l e v i e d according to the r e n t a l v a l u e , so the government revenue from t h i s source was new f i x e d i n a time when general p r i c e s went up s t e a d i l y .  231. The l o c a l governments, therefore, exercised t h e i r levying power of "Special Taxation", an a d d i t i o n a l levy on the improvements.  1  The common name of the "Special Taxation" was the "Hsien Construction Special Taxation", which was probably imposed on the same tax objects as the improvement and the business license tax f o r these two tax rates were too i n e l a s t i c to provide the needed revenue of the Hsien. New "housing projects" had appeared  in t h e l a t e r war years i n  Free China; the Central Government encouraged Hsien to b u i l d new houses i n expectation of future rent r e c e i p t s .  T h i s plan was o r i g i n a l l y spon-  sored and supervised by the Hsien governments and carried out by v i l l a g e s and towns.  Because the Act of 194-6 had proposed t h a t v i l l a g e and town  finances be incorporated into Hsien budgets, the rent from the "housing projects" would now go to the Hsien treasury. The Act of 1946 cancelled the central stamp tax-grant and the income tax from property lease and s e l l i n g to the Hsien, but i n i t s stead, i t a l l o t t e d the entire former p r o v i n c i a l t i t l e deeds taxes to the Hsien. The Hsien expenditures were s i m i l a r to those of the provinces and are thus not reproduced here.  The only differences between the prov-  ince and the Hsien r e s p o n s i b i l i t i e s were: 1) Tl  Expenditure f o r reclamation and settlement was t o be assumed by the p r o v i n c i a l governments, not by Hsien; and,  The w r i t e r r e c a l l s that because of the s c a r c i t y of b u i l d i n g s and because of rent-controls, there prevailed "black r e n t " and the "Tin Fee". The new tenants paid the "Tin Fee" to the owner in a lump sum which was computed on the basis of amortization of the "black rents", by law i l l e g a l ; and then paid the c o n t r o l l e d rents to the owner monthly. The house owner d i d not claim the "Tin Fee" from the permanent tenants who had occupied the buildings before the rentregulations were promulgated, but customarily, these tenants paid the owner the " i l l e g a l black rents". In a l l cases, the improvement tax was not paid by the owner, but by the tenants.  232 . :  2)  The Hsien was to subsidize v i l l a g e and town finances, not provinces. The  essential difference between the wartime and peace time  Hsien r e s p o n s i b i l i t i e s was militia  that the former included one more function,  training. One a r t i c l e regarding  commodity t a x seems to the w r i t e r to  present c o n f l i c t i n g ideas: A r t i c l e 1 1 ) The l o c a l (or p r o v i n c i a l ) government s h a l l not, without f a i l , levy any commodity taxes, which belong to the Central Government, i n order to prevent free c i r c u l a t i o n of goods throughout the country. In order to provide funds f o r the maintainance and improvements of the land water communications, each l e v e l of government may charge a use fee on those vehicles and boats which use the communicat i o n within i t s j u r i s d i c t i o n . The f i r s t part of t h i s A r t i c l e was to prevent a possible r e v i v a l of the L i k i n l e v i e s , but the second c o n f l i c t s with i t in that i t does not d i s t i n g u i s h vehicles and boats f o r personal use from those used for transportation.  Supposing the "use fee" i s one of the costs of trans-  portation enterprises, i t would i n the long run probably be shifted consumers through higher commodity p r i c e s . type levy would have become l e g a l .  In other words, a new  to  Likin-  233.  Chapter X l l l F i n a n c i a l Aspects i n the Constitution of  1946  In May of 1936, the Central Government announced a Draft Constitution i n accordance with Sun Yet-sen's tenets. between China and Japan begun i n July 1937,  Had not the War  t h i s Draft Constitution would  have been revised and f i n a l l y adopted by the National Assembly, which was supposed to convene i n November 1937* Ten years l a t e r , when the War had ended, on November 12,1946, the  postponed Constituent National Assembly was held and attended by the  o r i g i n a l representatives f o r the purpose of ending the period of Koumintang P o l i t i c a l Tutelage, and to usher i n a period of constitutionalism. The chief immediate  task of t h i s Assembly was to prepare the Constitution  of the Republic of China, which had been accomplished by 25 December of the  same year.  The most outstanding c h a r a c t e r i s t i c s of t h i s Constitution  can be seen i n the Preamble, that t h i s basic law was made i n accordance with the "teachings bequeathed by Sun Yat-sen i n founding the Republic of China".  Thereby, the d i v i s i o n of powers among the three l e v e l s of govern-  ment set f o r t h In the Constitution of 1946 were motivated by the theory of Balanced Power i n approaching Sanminchuyi. A r t i c l e s 108 to 111 of the Constitution set f o r t h the powers of the three l e v e l s of government.  Among these the Central Government  had the greatest power and Hsien governments were considered to be the f i n a l governing units f o r performance of governmental services, while the provinces were merely connecting machines through which most of the  ~23h. p r o v i n c i a l r e s p o n s i b i l i t i e s could be channeled t o the Hsien f o r execution. These A r t i c l e s read i n d e t a i l s , as f o l l o w s :  1  A r t i c l e 108. The f o l l o w i n g matters s h a l l be l e g i s l a t e d upon and executed by the Central Government or s h a l l be r e f e r r e d to the provinces or Hsien f o r execution: 1) General r u l e s governing p r o v i n c i a l and Hsien self-government. 2) D i v i s i o n of a d m i n i s t r a t i v e areas. 3) F o r e s t r y , mining and commerce. 4) The  educational system.  5) Systems of banks and exchanges. 6) Shipping and c o a s t a l f i s h e r i e s . 7) P u b l i c u t i l i t i e s . fi) Cooperative e n t e r p r i s e s . 9) Water and land communication, and transportation i n v o l v i n g two or more provinces. 10) Water conservancy, waterways, a g r i c u l t u r e and animal husbandry i n v o l v i n g two or more provinces. 11) O f f i c i a l grading, appointments, supervision and protection of o f f i c i a l s i n the Central and l o c a l Governments . 12) Land law. 13) Labor law and other s o c i a l l e g i s l a t i o n . 14) Eminent domain. 15) Census-taking and.compilation of s t a t i s t i c s of the n a t i o n a l population. 16) Immigration and land reclamation. 17) The p o l i c e system. 18) P u b l i c h e a l t h . 19) R e l i e f , pensions, and unemployment assistance. 20) P r o t e c t i o n and preservation of ancient books, h i s t o r i c a l r e l i c s , and h i s t o r i c a l landmarks p e r t a i n ing to culture.  x  With respect t o the various items enumerated i n the preceding paragraph, the province may enact separate laws and r e g u l a t i o n s , provided they are not i n c o n f l i c t w i t h the n a t i o n a l laws.  1.  A l l a r t i c l e s of the C o n s t i t u t i o n are c i t e d from the t e x t of "The C o n s t i t u t i o n of the Republic of China, i n Chinese and E n g l i s h " , ComnBrcial Press.  235 A r t i c l e 1 0 9 . The following matters s h a l l be l e g i s l a t e d upon and executed by the province or s h a l l be referred to the Hsien f o r execution: 1) P r o v i n c i a l education, public health, industries and communications. 2) The management and disposal of provincial properties. 3) P r o v i n c i a l municipal administration. 4) P r o v i n c i a l l y operated enterprises. 5) P r o v i n c i a l cooperative enterprises. 6} P r o v i n c i a l a g r i c u l t u r e and f o r e s t r y , water conservancy, f i s h e r y and animal husbandry, and public works. 7) P r o v i n c i a l finance and provincial revenues. 8) P r o v i n c i a l debts. 9) P r o v i n c i a l banks. 10) Enforcement of the provincial police administration. 11) P r o v i n c i a l charitable and public welfare enterprises. 12) )Other matters delegated i n accordance with the national laws. In the case of any of t h e various items enumerated i n the preceding paragraph involves'two or more provinces, i t may, unless otherwise provided by law, be undertaken j o i n t l y by the provinces concerned. When a province, i n undertaking the handling of any of the items i n the f i r s t paragraph, finds i t s funds i n s u f f i c i e n t , i t may, by resolution of the l e g i s l a t i v e Yuan, be aided by the National Treasury. A r t i c l e 110. The following matters s h a l l be l e g i s l a t e d upon and executed by the Hsien: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11)  Hsien education, public health, industries sand communications. The management and disposal of Hsien properties. Hsien operated-;**- enterprises. Hsien cooperative enterprises Hsien agriculture and forestry, water conservancy, f i s h e r y and animal husbandry, and public works. Hsien finance and Hsien revenues. Hsien debts. Hsien banks. Administration of Hsien police and defense. Hsien charitable and public welfare enterprises. Other matters delegated i n accordance with the national laws and the p r o v i n c i a l self-government law.  In case any of the various items enumerated i n the preceding paragraph involves two or more Hsien, i t may, unless otherwise provided by law, be undertaken j o i n t l y by the Hsien concerned.  236,. A r t i c l e 111. Apart from the matters enumerated i n A r t i c l e s 107,10B,109 and 110, when an unenumerated matter a r i s e s , i t s h a l l f a l l within the j u r i s d i c t i o n of the Central Government i f i t i s of national nature, of the province i f i t i s of p r o v i n c i a l nature, and of the Hsien i f i t i s of Hsien nature. In case of dispute, the matter s h a l l be s e t t l e d by the L e g i s l a t i v e Yuan. The Constitution of 1946 did not provide adequate means f o r d i v i d i n g the nation's revenue sources among the three levels of government, but only, the r e s p o n s i b i l i t i e s . The most controversial t o p i c i n the Constitution was that of education.  In some A r t i c l e s education seemed t o be one of the responsi-  b i l i t i e s of the Central Government: A r t i o l e 162. A l l public and private educational and c u l t u r a l i n s t i t u t i o n s i n the country s h a l l , i n accordance with law, be subject to the supervision of the s t a t e . A r t i c l e 160. A l l children of school age from s i x t o twelve s h a l l receive primary education, without payment of t u i t i o n f e e s . Those who are poor s h a l l be supplied with books by the Government. Citizens who have passed school age but have not received primary education s h a l l a l l receive supplementary education without payment of t u i t i o n fees, and s h a l l also be supplied with books by the Government. But, i n A r t i c l e s 109 and 110, education was considered t o be one of the provincial and Hsien functions. A r t i c l e 163 again expressed a strong sentiment that education was hot a c e n t r a l r e s p o n s i b i l i t y . I t said: A r t i c l e 163* The state s h a l l l a y emphasis on a balanced development of education i n various areas, and s h a l l promote s o c i a l education i n order to r a i s e the c u l t u r a l standard of the c i t i z e n s i n general; educational and c u l t u r a l expenses f o r distant border regions and poor and unproductive regions s h a l l be subsidized by the National Treasury. Important educational and c u l t u r a l ent e r p r i s e s of these regions may be undertaken or subsidized by the Central Government.  237Therefore, i t is. not d i f f i c u l t to surmise that the Central Government was d i r e c t l y responsible f o r educational services only i n the "distant border regions and poor and unproductive regions".  In other words, i n -  the areas other than those "regions" the educational services were t o be p r o v i n c i a l and Hsien. I f education should be a central function, then the cost of i t should be assumed by the Central Government; i f not, the Central Government should not " l e g i s l a t e upon" and " r e f e r " i t to the p r o v i n c i a l and Hsien governments f o r execution. ambiguity i n the Constitution.  But the matter i s l e f t i n a state of  One more A r t i c l e concerning education  contained an evident p i t f a l l - A r t i c l e  164:  A r t i e l e 164. Expenses f o r education, science and culture s h a l l not be less than 15 per cent of the t o t a l amount of the budget estimate i n the case of the Central Government, not less than 25 per cent of the t o t a l amount of the budget estimate i n the case of the province, and not l e s s than 35 per cent of the t o t a l amount of the budget estimate in the case of the municipality or the Hsien. These proportions are f a r too i n e l a s t i c to be practicable, since, part i c u l a r l y i n post-War China, i f the governments attempted to undertake a large-scale, reconstruction such as extensive emergency dyke-work i n a given period, they would be forced to increase the expenditures on education simultaneously i n order to maintain the f r a c t i o n s expressed i n the Constitution.  In other words, A r t i c l e 164 attempted to l i m i t a l l  government expenditures, including those f o r m i l i t a r y purposes, on the basis of these "proportions". In s p i t e of the f a c t that each government service might be much more urgent at any one time, and not important at another, (and t h i s Is p a r t i c u l a r l y true as f a r as national reconstruction  238..  and r e l i e f are concerned).  The t o t a l government expenditures  could  be e a s i l y increased i n case of necessity through domestic borrowings or loans from abroad, however, the entire educational program could not change smoothly.  A r t i c l e 164,  and the s p i r i t expressed  therefore, was  by no means s a t i s f a c t o r y  i n the Constitution could hardly be sustained.  When the Constituent National Assembly was meeting, Representative Tsiao Nai-chuan during the second reading of A r t i c l e 164  pro-  posed that the "proportions" should be based on the " t o t a l ordinary government expenditure" not on the " t o t a l amount of the budget estimate". However, t h i s move was  voted-down.  The same A r t i c l e (164)  1  continued:  Educational and c u l t u r a l foundations established i n accordance with law and t h e i r (funds and) properties s h a l l be protected. 2  This part seems also unnecessary f o r i t would promote the r e v i v a l of the old "appropriation funds system"-which had existed from the middle of the nineteenth century, p a r t i c u l a r l y during the decade of r a d i c a l provi n c i a l i s m p r i o r to 1928,  i n the absence of a s t r i c t budget system.  the "appropriation funds system", each government function was  Under  exclus-  i v e l y financed by a d e f i n i t e appropriated source and the governments could not f r e e l y adjust t o t a l expenditures to t o t a l revenues, so that a chaotic f i n a n c i a l s i t u a t i o n obtained. The subsidy p o l i c y stated i n the Constitution was s i m i l a r to that i n the F i n a n c i a l Act of 194-6, and w i l l not be reproduced here. In Chapter X l l l of the Constitution, Basic P o l i c y , an a r t i c l e T~. 2. 3.  Ma Da-ying, p.15. See the Chinese t e x t . Cf., Ma Da-ying, Pp I4-5.  239. s p e c i f i c a l l y forbade the r e v i v a l of L i k i n , thus expressing the aversion to the Representatives, who  themselves had suffered  from t h i s sort of  taxation twenty years ago. A r t i c l e 148 s t a t i n g thats Within the t e r r i t o r i a l boundaries of the Republic of China, a l l goods s h a l l be permitted to c i r c u l a t e f r e e l y . The Constituent National Assembly was a f t e r the passing of the Act of 1946. ernment finances in the Constitution Act of 1946  But, the a r t i c l e s concerning govwere e s s e n t i a l l y the same as the  and no further National Financial  revise the A c t .  convened three months  Conference was c a l l e d to  240.  Chapter XIV Enforcement of the Act of  1946  Introduction Several months before the Constituent National Assembly was held, the c o n f l i c t s between the N a t i o n a l i s t s and the Communists became more and mora severe The N a t i o n a l i s t s attempted to d i r e c t the Communist troops under power given them by the "Program f o r Peaceful National Reconstruct i o n " of the P o l i t i c a l Consultation Conference, but without  success. The  Communists refused to j o i n the Constituent National Assembly because the N a t i o n a l i s t s would neither r e l i n q u i s h the veto power i n the Assembly about t o convene, nor would they accept the Communists' proposal that the majority of the Assembly should be elected on a d i f f e r e n t basis than that of the delegates who were appointed ten years ago, when the, when the Communist power was  on the d e c l i n e .  In November 1946,  the Assembly was  held and attended by the  o r i g i n a l representatives and delegates from the Kuomintang, the non-part i s a n s , and two  small p o l i t i c a l p a r t i e s . The Communists and two  other  minority p o l i t i c a l parties refused totake t h e i r seats i n the Assembly. This Assembly, therefore, not only showed the complete breakdown of the "peace t a l k s " between the N a t i o n a l i s t s and the Communists through " p o l i t i c a l means", but a l s o showed that China was again entering into a time of great warfare, a c i v i l war on a scale hardly smaller than that of the l a s t international one.  241. While the p o l i t i c a l s i t u a t i o n worsened as time went on, the Central Government could not balance i t s budgets and was forced to u t i l i z e a Fapi i n f l a t i o n t o defray the ta?emendous war expenditures. Under such ciroumstances, the p r o v i n c i a l and Hsien finances were h o p e l e s s l y weakened, and the C e n t r a l Government had t o assume the major costs of the provinces and the H s i e n . This a c t i o n i n t u r n increased s u b s t a n t i a l l y the degree of the ruinous F a p i i n f l a t i o n .  I n a word, the post-War p r o v i n c i a l  and Hsien finances were destroyed by both the p o l i t i c a l tragedy and the monetary c r i s i s . A)  R e h a b i l i t a t i o n i n P r o v i n c i a l and Hsien Finances Kiangsu i s one of the most prosperous provinces of China.  The  conditions of a g r i c u l t u r e , education, i n d u s t r y and commerce i n general were b e t t e r than those i n any other province before the War.  This Prov-  ince i n wartime was e n t i r e l y occupied by the Japanese u n t i l V-J Day. From then on the Province was put under m i l i t a r y a d m i n i s t r a t i o n , u n t i l the beginning of 1946, when the P r o v i n c i a l and Hsien governments were rehabilitated.  The f o l l o w i n g m a t e r i a l s are arranged t o d i s p l a y a l l finances  i n the once enemy occupied provinces, during the t r a n s i t i o n period from wartime f i n a n c i n g t o the enforcement  of the Act of  1946.  The paragraphs below are adapted from "The F i n a n c i a l R e h a b i l i t a t i o n and the Enforcement of the Act of 1946  i n Kiangsu", by Mr. Cheh  Tung who was at that time the head of the Department of Finance of the Kiangsu Government.  2U2. P r o v i n c i a l Finances Chen Tung described the task of f i n a n c i a l r e h a b i l i t a t i o n i n Kiangsu as d i f f i c u l t "to f i n d as the end of a mass of s i l k thread". From August to December 1945» t h i s Province was under part i a l m i l i t a r y administration, and the cost of the R e h a b i l i t a t i o n of the P r o v i n c i a l Government was assumed by the Central Treasury, because the wartime f i n a n c i a l scheme was s t i l l i n e f f e c t and the P r o v i n c i a l Government ( as i n other provinces) had not yet been authorized to levy taxes, while the Central Government i t s e l f d i d not c o l l e c t any tax revenue from t h i s Province during these months. The f i r s t post-War budget of the Province was drawn up f o r 1946.  A l l the revenues of the Province were d i r e c t l y assigned from the  Central Government. However, these funds were estimated by no means accurate, because the Kiangsu Government d i d not yet know what the actual needs would be, p a r t i c u l a r l y Bince a "confused phase" existed i n a considerable part of Northern Kiangsu, where Communist g u e r i l l a troops were stationed. For the sake of convenience, the following Table compares the p r o v i n c i a l expenditures f o r 1936 with those f o r 1946  i n Kiangsu, by  which a rough idea of the post-War p r o v i n c i a l finances may be obtained.  243.  TABLE XXXXV1 Individual Expenses as a Percentage of the Total Expenditures of the Kiangsu Government i n 1936 and 1946  1  Expenditures f o r Administration Judical administration x Police protection F i n a n c i a l Administration Education Construction Debts Cost of Living Allowances t o government employees Others Total T o t a l amount (yuan) x  1936  1946  9.73 10.39 13.19 4.51 20.53 19.81 14.33  3.42 22.12 0.26 7*04 1.45  7.52  62.82 2.81  100.00  100.00  27,939,763  6,001,424,000  The cost f o r j u d i c i a l administration had been assumed by the Central Government since 1942. The most s i g n i f i c a n t expenditure i n the post-War p r o v i n c i a l  and Hsien finances was the "cost of l i v i n g allowances" which had o r i g i n ated i n the l a t e War years. The "cost of l i v i n g allowances" were paid to the government employees, including the teachers of the public schools, because of the steady r i s e i n p r i c e s .  This expenditure was l a t e r ex-  tended t o the poorer high school and college students f o r t h e i r board and room.  1. Cheh Tung, Pp 31-33.  •2liU. Students i n China are probably more p o l i t i c a l l y conscious and enjoy a unique position compared with any other country.  Tradition-  a l l y , the student-class has played one of the most c h a r a c t e r i s t i c p o l i t i c a l roles i n Chinese h i s t o r y , p a r t i c u l a r l y in the Republican era. This class has made a great p o l i t i c a l contribution to the nation, but, as long as they are s t i l l in the i n s t i t u t e s they are not s o c i a l l y productive and thereby, are not taxpayers of the state. The governments had l e s s apprehension i n asking the taxpayer f o r an increase i n t h e i r expenditures i f the funds were t o be spent on education or to support the non-producer-students, because the taxpayers t r a d i t i o n a l l y believed that the students should not work as labourers but should be f i n a n c i a l l y supported by the public • The "cost of l i v i n g allowances and police protection alone amounted to 85 per cent of the t o t a l expenditure of the Kiangsu Government i n  1946. Hsien Finances By September 1945» the Hsien governments had gradually recov-  ered i n Kiangsu.  However, the Hsien governments had no money available  f o r t h e i r expenditures because they were not to impose any tax u n t i l  1946.  The Provincial Government thus i n November of the same year, promulgated the "Rule of Temporary Borrowings" f o r the Hsien governments.  I t was not  u n t i l February 1946 that t h i s Rule was abolished. The borrowings were carried out between the Hsien governments and the l o c a l chambers of commerce,banks, and wealthy c i t i z e n s .  During  these four months, t o t a l debt was 1,634,446,076 yuan - 30,000,000 yuan  •245. per Hsien on the average.  1  The funds f o r the repayment of these debts were provided by the P r o v i n c i a l Government which i n turn asked f o r Central Government subs i d i e s i n advance at the beginning of 1946. In 1946, the Hsien governments i n Kiangsu drew up t h e i r For a better understanding, Table XXXX711  budgets.  sums up the comparison between  the budgets of 1936 and 1946, though minor taxes and expenditures are not stated i n d e t a i l .  The budget of 1946 does not include the f i n a n c i a l a f f -  a i r s of those Hsien where Communist troops were stationed. It can be seen i n Table XXXX711 that before the War, the Hsien governments had heavily depended on the surtax on land while revenue from the public properties was of l i t t l e importance. ••autonomy taxes  ,,  But, at present the Hsien  were the greatest revenue; and receipts from public prop-  e r t i e s came next because the Hsien governments administered those propert i e s , the owners of which had died i n the war. Among Hsien expenditures, that f o r education was the greatest before the war, but now i t was of l i t t l e importance, because the cost f o r police protection, subsidiary s a l a r i e s and the emergency reserve fund t o t a l l e d 82 per cent of the t o t a l i n the Hsien budgets; moreover, the public schools had begun to c o l l e c t t u i t i o n , which was not stated i n the budgets.  1. Cf., Cheh Tung, Pp 35-8.  O  246  TABLE XXXXV11 Revenues and Expenditures as a Percentage of the T o t a l i n the Hsien Budgets of 1936 and 1946  Revenue from Hsien autonomy taxes Farm land t a x Public properties Donations Subsidies from the P r o v i n c i a l Government Others Total  1  1936 9*7 x 73«9 0.5  1946 3&«7 22.4 xx 26.8 4»3  5*2 10.7  0.9 6.9  100.0  100.0  11.5 32.5 20.4 8.0  6.5 2.6 15»5 1.9 53*8  Expenditure f o r Administration Education P o l i c e protection Construction Subsidiary s a l a r i e s Reserve for emergency purposes Others  27.6 100.0  x  12.8 6.9 100.0  Including Hsien t i t l e deeds tax ,butchering tax, and Hsien tax on only.  xx Including other revenue grants from the Central Government.  1.  Cf., Cheh Tung, Pp 35-#»  sur-  214.7. B)  Enforcement  of the Act of  1946  P r o v i n c i a l Finances From July 1946  on, the Act was enforced i n each Province.  The provincial revenue sources were l a r g e l y reduced, i n comparison with the pre-War s i t u a t i o n .  Because of the continuous Fapi i n f l a t i o n and  the p o l i t i c a l c r i s i s , the p r o v i n c i a l governments as a whole could no longer r e s t r i c t t h e i r expenditures, e s p e c i a l l y so f a r as the s a l a r i e s were concerned.  The following  subsidiary  selected materials w i l l  illus-  t r a t e the post-War p r o v i n c i a l f i n a n c i a l d i f f i c u l t i e s . The p o l i t i c a l s i t u a t i o n i n Kiangsu in 1946 was worse than that i n the previous year.  Only 31 out of 63 Hsien i n t h i s Province were  under the P r o v i n c i a l Government's control; 17 were i n a confused administration, Communists.  1  the other 15 Hsien were e n t i r e l y i n the hands of the  In other words, the Kiangsu Government had l o s t one h a l f  of i t s t o t a l revenue sources even i f i t s t i l l had the same f i n a n c i a l power as befor® the  War.  One estimate made by the Kiangsu Government i n regard to the enforcement of the Act of 1946,  shows the c r i t i c a l f i n a n c i a l d i f f i c u l t i e s  i n the l a t t e r h a l f of the f i s c a l year of 1946, which reads as follows:  1. I b i d . , p. 42.  zkB.  Kiangsu P r o v i n c i a l F i n a n c i a l Estimates f o r July to December of 1946  1  Unit: yuan Revenue from: 20% of the land t a x 50% of the business t a x  9,372,553,160 1.317.242.568 10,689,795,728  T o t a l Revenue Expenditure f o r : A l l p r o v i n c i a l expenditures other than the subsidiary salaries Subsidiary salaries Supplemental expenditures f o r January to June 1946  656,584,257 8,215,060,000  4i806,208.82O  T o t a l expenditure  13.677,853,077  Expected required subsidies from the Central Government  2,988,057,351  The Anhwei Government had o r i g i n a l l y made budgetary estimates for the entire f i s c a l year of 1946 t o t a l l i n g 5,130 m i l l i o n yuan. However, t h i s Government, l i k e other p r o v i n c i a l governments, could not cont r o l the cost of the subsidiary salaries which already t o t a l l e d , from January to May 1946 only, 3,000 m i l l i o n yuan. A f t e r the Anhwei Government had introduced the Act of 1946, i t required a subsidy o f 6,500 yuan from the Central Government because i t s t o t a l revenue was lacking that amount•  1. I b i d . , Pp 42-3  '249. Hsien Finances After the Hsien government had enforced the Act of 194-6, t h e i r revenues increased considerably, because the Hsien revenue share of the land tax was increased to 50 per cent of the t o t a l land tax (before June 1946,  the Hsien governments were a l l o t t e d 15 t o 25 per cent  of the land tax from the Central Government) •  The Central Government  o r i g i n a l l y a l l o t t e d 15 t o 20 per cent of the business tax t o the Hsien, now,  the Hsien could have 50 per cent of this tax from the provinces.  Previously, the Hsien t i t l e deeds tax was 25 per cent of the t o t a l cent r a l r a t e , at present, the entire t i t l e deeds tax went to the Hsien only. The other former revenue grants, except that of the succession duties from the Central Government were cancelled under the new Act, but these sources had l e s s significance i n Hsien finance. In case of Kiangsu, i t was estimated that the Hsien t o t a l revenue i n July t o December 1946 was 460 per cent of the actual revenues received during January to June of the same year.  Therefore, Hsien  governments could more e a s i l y meet t h e i r expenditures.  1  In Chekiang, the P r o v i n c i a l Government called a P r o v i n c i a l F i n a n c i a l Conference to solve the administration problems i n enforcing the new Act.  The resolutions suggested means of lessening the f i n a n c i a l  burden of the P r o v i n c i a l Government and the poorer Hsien.  I t was  pro-  posed that 30 per cent of the main Hsien tax-sources, such as the land tax and the business tax, be handled by the P r o v i n c i a l Government to subsidize the poorer Hsien. The most s i g n i f i c a n t part i n the resolutions was that dealing  250/  with education.  I t was  recommended that the funds f o r the lower grade  schools should be p a r t l y provided by the Hsien governments and p a r t l y provided by the " D i s t r i b u t i o n " method i n a l l v i l l a g e s and towns.  The  people's assemblies were to administer the " D i s t r i b u t i o n " method and the Hsien governments were t o be the supervisors.  1  Conclusion A strong Hsien f i n a n c i a l system had been o r i g i n a l l y recommended by Sun Yat-sen e a r l y i n 1924,  but i t had not been r e a l i z e d u n t i l  when the New Hsien System was put into e f f e c t . ence of 1946  1940  At the F i n a n c i a l Confer-  the powers and the r e s p o n s i b i l i t i e s of the three l e v e l s of  government once more considered, and the Constitutent National Assembly s e t t l e d a l l the controversies concerning the f i n a n c i a l powers of each l e v e l government and provided a f i n a l clause according to which the provinces could no longer control the nation's finances to any important  ex»  tent • It i s unfortunate that when the theory of Balanced Power was put into practice f o r the f i r s t time a f t e r heated debates i n the past twenty years, the p o l i t i c a l c r i s i s and the monetary f a i l u r e divorced t h i s theory from r e a l i t y : the o r i g i n a l purpose, n a t i o n a l reconstruction, was no longer the primary goal. The Act of 1946 when the N a t i o n a l i s t s , who  was  s t i l l i n effect i n 1947,  1948  and  1949  had dominated China f o r more than twenty years  were f a s t losing out, and the Communists were on the way to the complete domination of the State.  There were minor changes made by the Nation-  a l i s t s during these eventful years, but they w i l l not be discussed i n t h i s Thesis.  Selected References CHAPTERS Y l l . X l l l and XIV English: Text of the Constitution of the Republic of China, translated by Hsieng-chih Ho', Shanghai, Commercial Press, September 1947» f i r s t e d i t i o n ; November 1947» second edition. Periodicals in Chinese: Financial Records, Shanghai, F i n a n c i a l Review, J u l y 194°. F i n a n c i a l Records, Shanghai, F i n a n c i a l Review, October 1946. Ma Da-ying, Comments on A r t i c l e 164 of the Constitution of 1946, Shanghai, F i n a n c i a l Review, October. 1946. Tung, Cheh, Financial Rehabilitation and Enforcement of the Act of 1946 In Kiangsu, Shanghai, F i n a n c i a l Review, October 1946. P e r i o d i c a l s i n English: China Handbook, 1937-1945.  C O N C L U S I O N  253'.  Chapter XV - Conclusion In t h i s concluding chapter some s t r i k i n g features of the evolution of Chinese p r o v i n c i a l and Hsien f i n a n c i a l systems and t h e i r r e lationships with the Central Governments w i l l be summarized.  The  foll-  owing paragraphs are arranged f o r the purpose of s t r e s s i n g the trends of change from 1 9 1 2 to 1 9 4 6 • A f t e r the Opium War,  western culture for the f i r s t time so  greatly influenced the o l d nation, that i t played one of the most  import-  ant r o l e s i n her recent history; the Ch'ing Government sent i t s o f f i c i a l s to European countries to investigate t h e i r government systems; and also sent students to Europe, p a r t i c u l a r l y to England and France.  While west-  ern practices were being applied, strong p r o v i n c i a l governments and a national revolution were making headway against the a b s o l u t i s t Ch'ing Government.  The  influence of western culture, the r i s e of r a d i c a l prov-  i n c i a l i s m , the reluctance of the Ch'ing Government t o adopt a c o n s t i t u t i o n , the successive f a i l u r e s of the nation to deal with foreign a f f a i r s , the speedy growth of n a t i o n a l revolutionary f e e l i n g , and the lack of a sound taxation basis for the state together produced a p e c u l i a r environment which not only led to the ultimate downfall of the Ch'ing Government, but determined the circumstances  against which the Republican leaders had to  struggle. A) The Fluctuations in the F i n a n c i a l Powers of the Three Levels of Government For thousands of years, China had experienced a single government f i n a n c i a l system i n which only the c e n t r a l governments had power to  2&.  administer the f i n a n c i a l a f f a i r s of the state; the p r o v i n c i a l and l o c a l governments were merely agencies, c o l l e c t i n g and disbursing the central revenues.  The emperors were not unlike conquerors in the eyes of the  p r o v i n c i a l and l o c a l governments.  The f i n a n c i a l t r a d i t i o n of the past was  based upon a slogan, "Pu Tien Tze Shia, Mo Pee Whang Tou", or " A l l land beneath the sky belongs to the throne". From the middle of the nineteenth century, however, t h i s powerf u l monarchy i n China had gradually dwindled with the growth of importance of the p r o v i n c i a l governments i n both p o l i t i c a l and f i n a n c i a l f i e l d s . The year 1912 witnessed the ultimate downfall of the Chinese  empire.  Confronting the Republic the problems of f i n a n c i a l development were l a r g e l y a matter of p o l i t i c a l c o n f l i c t .  Following the death of Yuan  Shin E a i , the country was ruled by a number of warlords who were termed by Sun Yat-sen i n 1924 the "small emperors", or we might say, the small conquerors.  The f i n a n c i a l administration was, as a matter of course, put  under a different government control, the p r o v i n c i a l governments now ing supreme.  be-  This trend changed i n 1928 when the N a t i o n a l i s t s accom-  plished the u n i f i c a t i o n of the country.  The years 1928  to 1934 were a  period of settlement that followed the struggles between the central and provincial a u t h o r i t i e s .  These two l e v e l s of government now undertook t o -  gether the r e s p o n s i b i l i t y f o r the nation's finances, and a "bi«government f i n a n c i a l system" resulted. Not u n t i l 1934» did the nation develop a "tri-government  fin-  ancial system" i n which the Hsien governments'joined the Central and p r o v i n c i a l governments to take care of f i n a n c i a l a f f a i r s .  This develop-  ment, i n the writer's i n t e r p r e t a t i o n , was the f r u i t of the impact of the  255. c o n f l i c t i n g f i n a n c i a l powers of the Central and p r o v i n c i a l governments. I t waa  expected to y i e l d a permanently peaceful settlement.  This i n t e r -  pretation i s confirmed by the Resolution of the F i n a n c i a l Conference of 1 9 4 6 which r e s t o r e d few p r o v i n c i a l f i n a n c i a l powers from the wartime poli c y , and by the Constitution of 1 9 4 6 which favoured the Hsien rather than the provinces, allowing the former greater power to levy taxes. The eventful and p a i n f u l years that followed 1 9 3 4 s t i l l progress i n the nation's finances as a whole.  saw  P a r t i c u l a r l y , a sound l o c a l  f i n a n c i a l system set up during the Eight Years War  i s admirable.  progresses would have continued i f peace had followed.  Such  So f a r as the  p r o v i n c i a l finances were concerned, the attitude of the N a t i o n a l i s t s was more or less adversely prejudiced. B) P o l i t i c a l and F i n a n c i a l Trends Before 1 9 3 4 The f i n a n c i a l developments of the Republic up to 1 9 3 4 were l a r g e l y a matter of readjustment of the p o l i t i c a l and f i n a n c i a l trends which had evolved since  I864  under the Ch'ing Government.  From I864 to  1 9 1 2 , there had appeared two great tendencies, p o l i t i c a l and f i n a n c i a l , which created considerable f i n a n c i a l embarrassment f o r the  Republic.  The p o l i t i c a l tendency was the d e c e n t r a l i z a t i o n i n m i l i t a r y administration.  The Ch'ing Government ordered the provinces to t r a i n  troops for the state , p a r t i c u l a r l y a f t e r the War with Japan i n  1894*  new This  m i l i t a r y t r a i n i n g , i n l a t e r years, not reduced the power of the Central Government i n the f i e l d s of p o l i t i c s and finances, but also i n i t i a t e d that most undesirable system i n Chinese m i l i t a r y administration by which the troops were i n fact oampletely  commanded by t h e i r own o f f i c e r s , i n -  stead of acting under order of the Central Governments.  This trend was  206. one of the basic f a c t o r s that brought about the overthrow of the Ch'ing Government i n  1911.  When China entered the Republican era, Sun Yat-sen was no longe r the de facto leader of the country: Yuan Shih-kai, the most capable and powerful m i l i t a r y leader i n the late Ch'ing period, became the President of the New Republic. Nevertheless, Yuan himself experienced the same d i f f i c u l t i e s of the Ch'ing Emperor i n t h a t , by 1916,  he was already  incapable of d i r e c t i n g h i s troops to cope with the r e v o l t s *  With the  downfall of Yuan Shih-kai, the Northern M i l i t a r y Group, Yuan's handiwork, s p l i t into several f a c t i o n s , and a period of warlordlsm then appeared in the decade following  1917.  In t h i s decade, the p r o v i n c i a l finances were released from Yuan's extremely c e n t r a l i z e d f i n a n c i a l system.  The provinces under a  number of warlords monopolized a l l the revenues raised i n t h e i r d i s t r i c t s f o r t h e i r own purposes.  As a r e s u l t of this r a d i c a l change i n f i n a n c i a l  administration, the central and l o c a l finances were hard pressed.  During  the same decade, though several central governing bodies came and went, none of them was powerful enough to enact a practicable f i n a n c i a l system f o r the c e n t r a l , p r o v i n c i a l , and l o c a l governments.  In short, during t h i s  decade, m i l i t a r y power was law and t o t a l l y governed a l l the a f f a i r s of the state.  F i n a n c i a l administration was no exception.  Because the i n t e r e s t s and opinions of the various war-lords were never reconciled, c i v i l wars followed. Almost a l l of the revenues were devoted by the warlords to m i l i t a r y uses.  The f i n a n c i a l power of the  provinces was independent indeed, but the other l e v e l s of government f i n ances was p r a c t i c a l l y destroyed.  Under such an environment, to r e a l i z e a  257. reasonable f i n a n c i a l system f o r the state was  impossible*  Bearing i n mind the abuses of warlordism, i n 1924,  Sun  Yat-sen  drew up a "Fundamentals of National Reconstruction" which became the organic law of the National Government i n the same year i n Canton.  In t h i s  project, Sun Yat-sen recommended the p r i n c i p l e of Balanced Power f o r dividing the r i g h t s of the various l e v e l s of government i n the N a t i o n a l i s t China which was expected to come.  According t o the theory of Balanced  Power the position of the provinces was t a c i t l y considered to be an i n termediary between the Central and Hsien governments. the basic p r i n c i p l e of the F i n a n c i a l Conference  This proposal was  of 1934,  which worked out  the Demarcation of the Provincial-Hsien Taxation System.  The p r o v i n c i a l  governments, not only were Borbidden by the F i n a n c i a l Conference  of  1928  to administer the m i l i t a r y a f f a i r s , but also were directed by the Financ i a l Conference  of 1934  to t r a n s f e r a considerable portion of t h e i r annual  income to the Hsien governments.  The year of 1934  not only witnessed the  end of the prolonged p r o v i n c i a l struggles against the central authorities a f t e r several decades, but a l s o saw the beginning of the attempts of the N a t i o n a l i s t s to r e a l i z e the Balance Power theory. The other or f i n a n c i a l tendency which developed p r i o r to was the o v e r a l l expansion of governmental o b l i g a t i o n s .  1912  In the late Ch'ing  period, the p r o v i n c i a l governments were required to supply a more e f f e c t ive police service to replace the o l d ; and to provide new public educat i o n a l f a c i l i t i e s to supplement private i n s t i t u t e s which were concerned only with Chinese l i t e r a r y works.  The other major expansion i n provin-  c i a l obligations was the m i l i t a r y program which has been described i n the preceding pages.  One must remember that when these new obligations were  208'. r e f e r r e d t o the provinces, there were no funds f o r such a c t i v i t i e s provided by the Ch'ing Government. The p r o v i n c i a l governments, therefore", developed surtaxes on the c e n t r a l l e v i e s , such as those on farm land and salt.  The L i k i n l e v i e s were a l s o e s s e n t i a l f o r these purposes.  Further-  more, they r a i s e d the assessment of the o l d l e v i e s or imposed new l e v i e s , such as the imposts on merchants, t r a n s p o r t a t i o n f a c i l i t i e s , improvements, and t i t l e deeds. There were no systematic planning of these expanded obl i g a t i o n s and revenue c o l l e c t i o n s .  As a r e s u l t , the p r o v i n c i a l f i n a n c i a l  system developed confusedly and the t a x burden on the people was never considered as a whole.  S t i l l , the t a x sources w i d e l y explored, p a r t i c u -  l a r l y during the decade of warlordism a f t e r the Republic had come i n t o being. The F i n a n c i a l Conference of 1928 f i r s t e f f e c t i v e l y r e d i s t r i b u t e d the t a x sources and o b l i g a t i o n s between the C e n t r a l and p r o v i n c i a l governments. The F i n a n c i a l Conference of 1934, further d i s t r i b u t e d the nation's tax  sources t o the C e n t r a l Government, provinces, and Hsien i n accordance  w i t h the theory of Balanced Power. The Hsien t a x sources were wider than those of the provinces. The o b l i g a t i o n s of both the provinces and Hsien were s i m i l a r l y described. From 1934 on, the custom developed that the Hsien governments provided elementary schools while the provinces would provide h i g h schools and c o l l e g e s .  The Hsien governments were t o look  a f t e r public works, communications, and public h e a l t h i n the areas w i t h i n t h e i r respective j u r i s d i c t i o n , w h i l e the provinces were responsible f o r the inter-Hsien a f f a i r s and works. During the decade of warlordism, the p r o v i n c i a l a u t h o r i t i e s merged the Hsien finances to strengthen t h e i r own p o s i t i o n s .  But a f t e r  259. 1928, and p a r t i c u l a r l y a f t e r 1934, there was no p o s s i b i l i t y of annexing the finances of the Hsien.  This was because the provinces surrendered  t h e i r m i l i t a r y power to the Central Government and t h e i r budgetary c i t s were paid off by the central treasury.  defi-  Consequently, f i n a n c i a l co-  operation emerged among the Central, p r o v i n c i a l , and Hsien governments for the f i r s t time. After 1928, the Central Government controlled the p r o v i n c i a l budgetary procedure.  P a r a l l e l with t h i s , a general subsidy system was  established i n order to s t a b i l i z e the provincial and Hsien finances. The adjustments  i n revenue sources and f i n a n c i a l obligations of the provinces  succeeded.  Apart from the pros and cons of the budgetary control and a  general subsidy system, the p r o v i n c i a l and Hsien finances did move i n the d i r e c t i o n of greater s t a b i l i t y and wider resources a f t e r the N a t i o n a l i s t s came into power. C) Trends in Provincial Financial Power From 1912 to 1926, except f o r the r i s e of p r o v i n c i a l d i c t a t o r ships over the nation's finances immediately following the collapse of Yuan's centralization,-nothing worthy of discussion occurred.  China i s  not completely averse t o provincialism, however, i t s l a c k of democratic s p i r i t v i r t u a l l y nourished the growth of warlordism.  The warlords r a r e l y  provided services to the people, but were preoccupied i n the use of force. As a r e s u l t , no plans were made f o r revenue c o l l e c t i o n and public welfare, even m i l i t a r y budgets were chaotic. 1926 to 1928 was a period of struggle between strong p r o v i n c i a l government and the newly founded National Government. was f i n a l l y u n i f i e d by the N a t i o n a l i s t s .  I n 1928, the nation  They granted r e l a t i v e l y g r e a t  260. f i n a n c i a l power to the provinces, as proposed in t h e i r F i n a n c i a l Conference of 1928.  Because of t h e i r f e a r of a possible r e v i v a l of warlordism,  they set up a Financial Control Department subordinate to the Chairman of the Central Government, which was to supervise the p r o v i n c i a l budgetary procedures.  The provinces themselves could no longer exercise f r e e l y  t h e i r f i n a n c i a l power. From 1942  on, p r o v i n c i a l finances were incorporated into the  central finances. This ended i n 1946  when another F i n a n c i a l Conference  was c a l l e d , which restored a few provincial f i n a n c i a l powers.  In the  same year, the new Constitution, which regarded the provinces as mere dependents of the Central Government, was adopted.  The provinces, which  had been the most powerful governing bodies of the state from I864 to 1928,  when they had lost free f i n a n c i a l power, now,  i n 1946, were stripped  power and the last vestiges of t h e i r authority. D) Trends in Hsien F i n a n c i a l Development In the years following 1928,  the Hsien finances were s t i l l  ected by the provinces, though the l o c a l independence was  dir-  particularly  emphasized in the Fundamentals of National Reconstruction. The Hsien governments were t a c i t l y permitted to impose the Chuan l e v i e s and surtaxes on p r o v i n c i a l levies i n the f i v e years a f t e r 1928.  By 1937» the Hsien Chuan levies and other surtaxes t o t a l l e d up t o  90 per cent of the aggregate Hsien income. A f t e r the outbreak of the War, the most Hsien resorted to the "Distribution" method i n order to meet t h e i r extraordinary expenditures. Not u n t i l 1940 when the New Hsien System was introduced d i d they develop t h e i r finances on an adequate basis, levying new taxes of  261. greater s i g n i f i c a n c e .  This wartime Hsien f i n a n c i a l scheme was continued  i n the post-War years, and i n 1946, both the F i n a n c i a l Act and the Cons t i t u t i o n confirmed the independent position of Hsien finances.  In other  words, the f i n a n c i a l p o l i c y of the N a t i o n a l i s t s was t o divorce the Hsien finances from the p r o v i n c i a l scheme and to place the p r o v i n c i a l scheme under the control of the Central Government. E)  The Role of the "Unsuccessful" Financial Conference of 1934 The Financial Conference  of 1934 was the most s t r i k i n g step  on the road to detailed planning of finances by the N a t i o n a l i s t s . While there had been numerous preceding changes i n the Central-Provincial divi s i o n of powers, t h i s Conference  reversed a l l Chinese f i n a n c i a l t r a d i t i o n  by authorizing the Hsien governments to levy important property taxes, such as the land t a x and the improvement tax. Further s t i l l , i t proposed "revenue-transfers" among the three l e v e l s of government, i n order t o secure f i n a n c i a l cooperation.  Though l i t t l e  of t h i s plan was c a r r i e d out,  i t s finding seemed to be the climax of the reconsideration of the powers of the three l e v e l s of government.  When, f i n a l l y , the F i n a n c i a l Confer-  ence of 1946 was c a l l e d to reconstruct a peacetime system from the wartime framework, t h i s new outlook was accepted i n f u l l .  And, the "un-  successful" Conference of 1934 made i t s impression at l a s t . Conclusion In the f i n a n c i a l h i s t o r y of the Republic, one governmental expenditure has been outstandingly important throughout the entire development of the nation's finances.  In the case of the Central Government, i t  was m i l i t a r y expenditures; i n the case of provinces and Hsien, the cost of p o l i c e protection. Taking the r e l a t i v e l y stable s i t u a t i o n from 1928 t o  262. to 1937» police protection i n some cases absorbed as much as 50 per cent of the t o t a l provincial and Hsien revenues.  A f t e r 1946, however, the  greatest expenditure in the p r o v i n c i a l and Hsien budgets became the cost of l i v i n g allowances.  This new burden plus the old cost of police pro-  tection together required more than 80 per cent of the t o t a l p r o v i n c i a l and Hsien spendable funds. Before the l a s t Sino-Japanese War, a general subsidy system was set up to a s s i s t provinces and Hsien governments in l o c a l reconstruction a f t e r the c i v i l war against the warlords.  But, subsidies from the Central  Government a f t e r the War had ended, had to'be almost e n t i r e l y devoted to the ever increasing cost of l i v i n g allowances and other governmental services were neglected. Before 1937» the provinces and Hsien usually s t a b i l i z e d t h e i r finances, balanced t h e i r budgets, and performed t h e i r r e s p o n s i b i l i t i e s . A f t e r 1946, however, the finances of these two l e v e l s of government became chaotic i n the extreme.  This was inevitable because of p o l i t i c a l  c r i s i s and destructive i n f l a t i o n . In the whole chain of f i n a n c i a l programs one important Nationa l i s t s ' platform had not been accomplished by the end of t h e i r domination. This was the readjustment of the levying methods of p r o v i n c i a l and H3ien taxes, such as the farm t a x .  Some proposals had been made i n t h i s f i e l d  before the ascendancy of the Communists.  But, at present, these adjust-  ments are s t i l l awaiting a s a t i s f a c t o r y solution which w i l l put a systematic and understandable burden on the various classes of taxpayer. Thus, we see that the Chinese Republic, by a series of breaks  263. with financial three levels  of  tradition,  has succeeded  government; a t  i n r e d i v i d i n g the  t h e moment o f  success,  powers of  however,  a c c o m p l i s h m e n t h a d become a m e r e d i g r e s s i o n , f o r c i v i l w a r a n d have d e s t r o y e d the  structure.  ..  END..  her  this inflation  264. B I B L I O B R A P H Y Chinese Ben Yu-sing, Hsien Finance, Chungking, Commercial Press, February 1945, i ' i r s t e d i t i o n ; Shanghai, Commercial Press, November 1945, Shanghai-first e d i t i o n ; A p r i l 1948, Shanghai-second edition. Cheng Nien-chung, L o c a l Self-Government, Chungking, Commercial Press, A p r i l 1942, i ' i r s t e d i t i o n ; duly x9U4,fourth e d i t i o n ; Shang- ' hai,Commercial Press, September 1945, Shanghai-first e d i t i o n ; J u l y 19h7, Shanghai-second e d i t i o n . Chia Teh-huei, F i n a n c i a l H i s t o r y of the Republic of China,Chungk i n g , Commercial Jrress, November iy4±, i ' i r s t e d i t i o n ; Shanghai, Commercial Press, August 19U6, S h a n g h a i - f i r s t e d i t i o n ; J u l y 1947, Shanghai-second e d i t i o n . Lo Yu-tung, The H i s t o r y of I d k i n i n China, Department of S o c i a l Science,. Academift U i n i c a , Nono.series No.6, Shanghai, Commercial Press. Yen Wen-chin, Wartime Bonds i n China, Chungking, F i n a n c i a l Review, December xyUj..  English Cheng Shaw-kwan, The System of Taxation i n China i n the Tsing Dynasty, 16UU-19H, New York, Columbia U n i v e r s i t y , Longmans, Green & Go.;agents, London, P.S.King & Son, 1916. Hawtrey, H.C,The Gold Standard i n Theory and P r a c t i c e , Longmans, Green & Go.,Ltd.,London, New l o r k , Toronto, C a l c u t t a , Bombajr, Madras, 1927. Ho F r a n k l i n L., R u r a l Economic Reconstruction i n China, a papep presented t o the S i x t h conference oi' the I n s t i t u t e of P a c i f i c R e l a t i o n s , C a l i f o r n i a , 1936. L i Chuan-shih, C e n t r a l and L o c a l Finance i n China, New York, Columbia U n i v e r s i t y , 1^22. Pao Chao-hsieh, The Government of China, 164U-19H, Baltimore, The Johns Hopkins Press,  1925.  Shaw Kinn-wei, Democracy and Finance i n h i n a , New York, o l u m b i a U n i v e r s i t y r r e s s , ±.yzo. ~" * c  c  260. BIBLIOGRAPHY (Continued)  E n g l i s h (Continued) The C o n s t i t u t i o n of the Repu b l i c of China, t r a n s l . Hoh Chih-hsiang, Shanghai, Commercial i T e s s , September, f i r s t e d i t i o n , November 1947, second e d i t i o n .  P e r i o d i c a l s (Chinese) Ben Yu-sing,The C e n t r a l - K i a n g s i F i n a n c i a l Problems i n the Last Ten Years, (Jhuflgking, F i n a n c i a l Keview, A p r i l i y 4 0 . Chang P e h - y i , How t o Maintain the Value o f the Gold Yuan, Shangh a i , F i n a n c i a l Review, August 1948. Chang P e h - y i , Wartime Finance of t h e N a t i o n a l Government, Shangh a i , E i n a n c i a 1 Review, February, iy47T Cheng Cheng-mo, New Land and Land P o l i c y , Shanghai, F i n a n c i a l Review, November IV 4o. Liang,Ping, Operation of the Issue Department of the C e n t r a l Bank of China, Shanghai, u e n t r a l Bank o f China, C e n t r a l tJankiy Monthly, M October 1946. Ma Da-ying, Comments on A r t i c l e I64 of the C o n s t i t u t i o n of 1 9 U 6 , Shanghai, .Financial Review, March, lyhY. Ma. Da-ying, The Problems of t h e Improvement i n L o c a l Finance, Shanghai, F i n a n c i a l Review, October 1 9 4 6 . \ ~" Sun Shan-fu, The Arguments of Tax Rates on Land, Chungking, F i n a n c i a l Review, November 1 9 4 0 . Tung,Cheh, F i n a n c i a l R e h a b i l i t a t i o n and Enforcement o f the Act of 1946 i n ftiangsu, Shanghai, f i n a n c i a l Review, Uctotoer i94Q. Yee Hong-ling, An Outline of L o c a l Finance of Our Country, Chungk i n g , F i n a n c i a l Review, A p r i l 1940. ~ F i n a n c i a l records, F i n a n c i a l  eview, J u l y 19U6.  F i n a n c i a l e c o r d s , F i n a n c i a l Review, October 1946. K  The C o n s t i t u t i o n of the Republic of Qhina, t r a n s l . Hoh Chih-hsiang, " Shanghai, Commercial P r e s s , September, 1947, f i r s t e d i t i o n ; November,1947, second e d i t i o n .  266.  BIBLIOGRAPHY (Continued)  P e r i o d i c a l s ( C h i n e s e ) — Continued Index Number, Shanghai, C e n t r a l Bank Monthly, January  19U8.  P e r i o d i c a l s (English) China Handbook, 1937-19h5, Complied by Chinese M i n i s t r y of Informa. t i o n , r e v i s e d and enlarged w i t h 19h6 supplement, New York, MacMillan Company, 19U7. China Year Book, 1926, T i e n t s i n , T i e n t s i n Press, L t d . China Year Book, 193U, Shanghai, Northern China D a i l y News and Herald, L t d . Chinese Year Book, 1937 i s s u e , Shanghai, Commercial Press. I n t e r n a t i o n a l ^ e a r Book, 1928, New York. Money and Banking, J°36-?, V o l . 1 1 , League of Nations.  

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