"Arts, Faculty of"@en . "Vancouver School of Economics"@en . "DSpace"@en . "UBCV"@en . "Tsai, Elbe"@en . "2012-03-29T21:25:17Z"@en . "1949"@en . "Master of Arts - MA"@en . "University of British Columbia"@en . "An attempt is made in this thesis to describe and analyze the development of municipal and provincial finances in China from 1912 to 1946. The major emphasis is placed upon the financial history of the municipalities. Of these there are five distinct types. The Hsien is by far the most numerous type, and is stressed in accordance with its importance.\r\nIn a period of turbulent and often chaotic political conditions such as China has experienced in the last forty years, it was inevitable that political considerations would have a crucial bearing upon efforts to construct a stable system of municipal finance. Naturally, therefore, a considerable portion of the thesis is taken up with the influence of political events upon municipal and provincial finances.\r\nThe brief period of extreme centralization under Yuan Shih-kai was followed after his death in 1916 by a decade of civil war. In this period provincial war lords tried to concentrate as much power in their grasp as possible. The municipalities were very hard pressed for adequate independent sources of revenue, and the provincial governments showed scant consideration for their needs.\r\nThe Kuomintang party came to power in 1927 after a severe struggle against the provincial war lords. This party remained in power until the present civil war. Partly to aid the municipal governments which urgently needed assistance, and partly to lessen the power of provincial governments, Kuomintang leaders undertook to strengthen the financial position of the municipal governments.\r\nFour national financial conferences were held between 1928 and 1946 with a view to achieving a reasonable division of revenues and expenditures. Among the three levels of government these conferences were held in 1928, 1934, 1941 and 1946. The obstacles to achieving a reasonable solution of the problem were accentuated greatly by the advent of the Sino-Japanese war which began in 1934. The violent inflation which arose during and after this war was a paramount issue at the last two financial Conferences.\r\nGratifying progress was made at these Conferences. Indeed at the conclusion of the 1946 Conference, it seemed that a satisfactory balance of financial power would be achieved for the National, Provincial and Municipal governments.\r\nThe present civil war has obliterated for the time being at least, any prospect for an early and effective solution to the financial problems of China."@en . "https://circle.library.ubc.ca/rest/handle/2429/41881?expand=metadata"@en . "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 thesis to describe and analyze the development of municipal and p r o v i n c i a l finances i n China from 1912 to 1946. The major emphasis i s placed upon the f i n a n c i a l history of the municipalities. Of these there are f i v e d i s t i n c t types. The Hsien i s by far the most numerous type, and i s stressed i n accordance with i t s importance. In a period of 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 inevi t a b l e that 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 to construct a stable system of municipal finance. Naturally, therefore, a considerable portion of the thesis i s taken up with the influence of 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 of extreme ce n t r a l i z a t i o n under Yuan Shih-kai was followed after h is death i n 1916 by a decade of c i v i l war. In t h i s period p r o v i n c i a l war lords t r i e d to concentrate as much power i n t h e i r grasp as possible. The municipalities were very hard pressed for adequate independent sources of revenue, and the pr 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 to 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 lords. This party remained i n power u n t i l the present c i v i l war. P a r t l y to aid the municipal governments which urgently needed assistance, and p a r t l y to lessen the power of p r o v i n c i a l governments, Kuomintang leaders undertook to strengthen the f i n a n c i a l position of the municipal governments. Four national f i n a n c i a l conferences were held between 1 9 2 8 and 1 9 4 6 with a view to achieving a reasonable d i v i s i o n of revenues and expenditures. Among the three l e v e l s of government these conferences were held i n 1 9 2 8 , 1 9 3 4 , 1941 and 1 9 4 6 . The obstacles to achieving a reasonable solution of the problem were accentuated greatly by the advent of the Sino-Japanese war which began i n 1 9 3 4 * The violent i n f l a t i o n which arose during and af t e r t h i s war was a paramount issue at the l a s t two f i n a n c i a l Conferences. Gratifying progress was made at these Conferences. Indeed at the conclusion of the 1 9 4 6 Conference, i t seemed that a sat i s f a c t o r y balance of f i n a n c i a l power would be achieved f o r the National, P r o v i n c i a l and Municipal governments. The present c i v i l war has obliterated for the time being at l e a s t , any prospect for an early and eff e c t i v e solution to the f i n a n c i a l problems of China. i . Preface An attempt has been made i n t h i s Thesis to 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 period of Nationalist domination. The chapters are arranged chronologically, s t a r t i n g with 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 with I86I4., at which time a great revolution-ary movement, known i n English as the Taiping Rebellion, was u t t e r l y defeated; \"while that of l o c a l finance i s traced back only to 193k. Long before the Republic came into being i n 1912, 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 naturally led to a series of struggles between the Central and the p r o v i n c i a l authorities following the founding of the Republic. When the Republic was founded following the National Revo-l u t i o n , the m i l i t a r y leaders of the Ch'ing Government quickly seized power. Among the new r u l e r s , the most capable and powerful was Yuan Shih-kai, the l a s t Premier of the Ch'ing Government. With his 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 elected President i n I9I3. i i . In 1915 Yuan Shih-kai proclaimed himself Emperor of China. Just before t h i s proclamation, early i n 191U, he i n s t i t u t e d an extremely centralized 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 central control. 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 with the backing of strong armed forces, disregarded the existence of the Central 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 with complete freedom. Because of the lack of a democratic s p i r i t , the -dictatorship of the p r o v i n c i a l governors brought about warlordism, and continuous c i v i l war resulted. Since I928 the country has been ruled by the National Government v\u00C2\u00ABhich came into power after two years of m i l i t a r y campaign-ing against the warlords. Attempts were made by the Nationalists to 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 to provide means for eliminating the p r o v i n c i a l radicalism and f o r establishing 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 to be introduced. On the eve of the introduction of Balanced Power i n July, 1937, the Eight Years War between China and Japan broke out. This f i n a n c i a l project was consequently postponed. From 1937 to 1?1|5 China was faced with the most perilous foreign threat i n her history. Because of the unexpected outbreak of i i i . h o s t i l i t i e s , and because from the outset the nation was encumbered with 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 chaotically. In the f i r s t years of the war, the country was not only confronted with a series of defeats but also met with extraordinary d i f f i c u l t i e s i n wartime financing. The Financial 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 into a national scheme, i n order to 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 Central and Hsien f i n a n c i a l powers were now greater than those of the provinces: the p r i n c i p l e of Balanced Power was actually being experienced f o r the f i r s t time. However, the \u00E2\u0080\u00A2 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 Nationalists and the - Communists and because of the c r i t i c a l i n f l a t i o n . During the period of the Nationalist domination, 1928 to 19U9, there were four National Financial Conferences c a l l e d to 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 of the Nationalists were not f u l l y accomplished before the Communist domination i n 19h9\u00C2\u00BB 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 to 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 dictatorship, 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 period of warlordism, the nation's finances were directed by provin-c i a l d ictators. After the Nationalists came into power i n 1928, the F i r s t National Financial Conference provided a \"bi-government f i n a n c i a l system\", a system i n which both the Central and p r o v i n c i a l governments were to administer the nation's finances. The Fin a n c i a l Conference of 193U went further, and a \"tri-government f i n a n c i a l system\" was put into force i n accordance w i t h the p r i n c i p l e of Balanced Power: the Hsien governments joined the Central 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 tate . The Fin 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\" to another \"bi-government f i n a n c i a l system\" i n v/hich the nation's finances were directed by the Central and l o c a l governments only. At the Financial 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 act u a l l y realized f o r the f i r s t time. At present, the wr i t e r does not claim to know what w i l l be the attitude of the future Communist Government i n the handling of i t s public finances. But a f i n a n c i a l system such as existed under the war-lords and of which the state had b i t t e r experience from 1917 to 1926, w i l l not l i k e l y reappear; nor i s i t l i k e l y that Yuan's extremely centra-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 administration, 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 Special Municipality, Shih Cheng Chin, p r o v i n c i a l municipality, Hsien, and Sheh Chin Chu. In 1937, there were only s i x Special 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 municipalities, forty-two Sheh Chih Chu, while there were one thousand, nine hundred and forty-seven Hsien i n the twenty-eight 1 provinces. These figures included those i n the Four Eastern Provinces, known i n English as Manchuria, occupied by the Japanese at that time. Though these f i v e types of 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 greatly. Both the Special Municipality 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, or the Cabinet, of the Central Government. These municipal governments had p o l i t i c a l power and obligations s i m i l a r to those of the p r o v i n c i a l govern-ments, and were authorized by the Financial Conference of 1928 to impose taxes w i t h i n t h e i r boundaries, except f o r central l e v i e s . The p r o v i n c i a l governments were not to exercise 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 . Actually, these Municipal Governments enjoyed greater power to levy taxes than the provinces because the former combined the characteristics 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 also defined at that 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 Special Municipal and Shing Cheng Chiu Governments. 1, Chinese Year Book, 1937 issue, Pp 278-9. The Special Mu n i c i p a l i t i e s were: Nanking, Peping, Shanghai, Tientsin, Tsintao, and Siking. The Shing Cheng Chiu was Weihaiwei. The p r o v i n c i a l municipalities were not necessarily q u a l i f i e d according to 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 strategic importance. Other explanations w i l l be given i n Chapter IV, i n f r a . v i The major part of t h i s study i s devoted to discussion 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 four National Financial Conferences w i l l be stressed i n p a r t i c u l a r . The relationships among the Central, p r o v i n c i a l and Hsien governments w i l l be treated as r e l a t i v e l y important topics, while the p r o v i n c i a l and Hsien taxes and expenditures w i l l be given less emphasis. None of the material i n the following chapters refers to the T e r r i t o r i e s of Mongolia or Tibet. Nor w i l l the discussion cover the Four Eastern Provinces during the period from 1930 to 19h$, since they were occupied by the Japanese. The wartime conditions mentioned from 1937 to 19U5 indicate only what happened i n free China, except for the d i s t r i c t around the boundaries of Shensi, Kansu and Ningshia, i/tfiere the Commun-i s t s , under the Central 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' control during the same period 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 Central 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 finances^ 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 University of B r i t i s h Columbia. Professor Angus has been generous i n helping to outline and organize the main topics. Dr. R. M. Clark of the University of B r i t i s h Columbia, as a sponsor, continuously encouraged v i i . me i n the untangling of many a knotty problem. One-half of this Thesis was completed under his d i r e c t i o n during the spring of 1949. My debt to hhn I g r a t e f u l l y acknowledge. I wish also to express my appreciation of the courteous assistance of Mr. A. D. Scott who continuously helped me to complete the rest of t h i s Thesis during the summer months of 1 9 4 9 . Before proceeding with the discussion I would l i k e to r e c a l l that the term \" l o c a l governments\" used i n the following chapters i s applicable to a l l types of l o c a l governments, including the Hsien governments. But the term \"Hsien governments\" does not refer to 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 struggle. F i n a n c i a l l y , as well as p o l i t i c a l l y , the history of the Republic up to the present may be divided i n t o three important phases. The f i r s t phase i s the period of Yuan's d i c t a t o r -ship, the second i s the period of warlordism, and the l a s t i s the period i n which the Kuomintang was supreme. From 1949 on, although i t i s too early to say that the Communists w i l l hold s u f f i c i e n t power to rule the state, the Kuomintang has shown by i t s defeats i n various f i e l d s , that 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 held i n the past. The term \"Nationalist Domination\" used i n t h i s Thesis i s only indicative of the period from 1928 to 1949. v i i i . The l a s t attempt of the Kuomintang Government to solve the existing 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 , did not y i e l d any effective r e s u l t and w i l l not be described i n t h i s Thesis. E. Tsai. The University of B r i t i s h Columbia, August, 19U9. C O N T E N T S Preface i - v i i i A n a l y t i c a l Table of Contents x i i - r v Part I FINANCIAL DEVELOPMENTS FROM 1Q$0 TO 1911 UNDER THE CH'ING DYNASTY AND FINANCIAL REFORMS UP TO 19ll\u00C2\u00B1 IN THE REPUBLICAN ERA Chapter I introduction. Summary-Economic background and tax structure i n the nineteenth century-Constitutional movement-Growth of f i n a n c i a l power of the pro v i n c i a l governors-Conclusion. Chapter I I Financial Reforms up to 191U 19 Summary-Budget of 1911-Cheng's proposal f o r separation of pro-v i n c i a l finance from central- finance-Financial reform of 1913-Conclusion. 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 of 1927 35 Summary-Finances under the warlords-The Temporary Act of 1927-Conclusion. 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 National 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 National F i n a n c i a l Conference-Enforcement of the Fi n a n c i a l Di-v i s i o n Act of 1928-Conclusion. i x CONTENTS (Continued) Chapter V The Second National F i n a n c i a l Conference 79 Summary-Political aspects leading to the Fi n a n c i a l Conference of 193U-Economic forces leading to the Fin a n c i a l Conference of 193U -Resolutions of the Fin a n c i a l Conference of 193U-Failure i n en-forcing the Demarcation Act-Conclusion. Chapter VI Appendix to Chapter IV and V 110 A b o l i t i o n of the Chuan levies-Adjustment of the farm land taxes-P r o v i n c i a l and Hsien finances i n Kiangsi Province,1928-1937. Part 17 WARTIME FINANCING, 1937 to 19U5 Chapter VTI Fina n c i a l Developments Between 1937 and 19U1 P p . 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 central war financing-Developments i n the p r o v i n c i a l and Hsien finances, 1937 to 19Ul-Conclusion. Chapter V I I I The New Hsien System 16U Chapter IX The Third National F i n a n c i a l Conference 173 Summary-Resolutions of the Fin a n c i a l Conference of 19U1-Enforce-ment 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 XI Hsien Autonomy Finance (Continued)... 211; Part V THE ACT OF 19U6 AND THE CONSTITUTION OF 19U6 AND' THEIR PRACTICES Chapter XII The Fourth National F i n a n c i a l Conference 222 Introduction-The Act of 19U6-Provincial finances-Hsien finances. Chapter XI I I F i n a n c i a l Aspects i n the Constitution of 19U6 233 x COrMJTSCContinued) Chapter 21? EnforceBcnt of the Act of 1 9 U 6 . * . . \u00E2\u0080\u00A2 . . . , . . \u00C2\u00BB . . . . . . . . . . . . 2i|Q Introduction-Rehabilitation i n provrincial and Hsien finances-Enf orcQrnent of the Act of 19U6-Conclusion\u00C2\u00BB Chapter 20f Conclusion...\u00C2\u00BB................................\u00C2\u00BB........ 253 The fluctuations i n the f i n a n c i a l poners of the three l e v e l s of COvemsBnt-Political 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 develop-Essnt-The rol\u00C2\u00A9 of the \"unsuccesaful 0 Financial Conference of 193h-Conclusion. I3XD3-XOQ]rlAPIfi- \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 * *--\u00C2\u00BB \u00E2\u0080\u00A2 *..\u00C2\u00BB\u00E2\u0080\u00A2\u00C2\u00BB * \u00E2\u0080\u00A2 \u00C2\u00AB \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 \u00C2\u00BB * \u00E2\u0080\u00A2 o \u00C2\u00AB \u00C2\u00BB \u00E2\u0080\u00A2 * : \u00E2\u0080\u00A2 \u00C2\u00BB \u00E2\u0080\u00A2 \u00C2\u00BB o \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 * \u00C2\u00BB \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 0^ 2^ 1? X l x i i . ANALYTICAL TABLE OF CONTENTS Preface Part I Chapter I - Introduction In the centuries p r i o r to 1912, China was an extremely centralized country i n the f i e l d s of f i n a n c i a l administra-t 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 Rebellion, 1850-1864, witnessed the rapid r i s e of 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 exercising t h e i r f i n a n c i a l power. Since the Republic of China -was founded, the Government hesitated to carry out decentralization or cen 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 of 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 existing 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 Central Government. The l o c a l government finances were independent but they were, given no important t a x sources. The meagre ex 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 did this f i n a n c i a l scheme collapse, as one of the results of the downfall of Yuan. 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 that 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 national unity was weakened. The warlords employed their, f i n a n c i a l means f o r the purpose of c i v i l war rather than f o r meeting t h e i r administrative obligations. The Central Governments were greatly handi-capped 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 direct control of the p r o v i n c i a l authorities i n the f i e l d of finance. Not u n t i l 1927 did the nation's f i n a n c i a l structure become more well defined as the Kuomintang entered upon the War of Unifi c a t i o n , Chapter I I - Financial Reforms up to I 9 l h Chapter I I I - The Temporary Act of 1927 \u00E2\u0080\u00A2r x i i i Part I I I Chapter IV - The F i r s t National Financial Conference In 1928 the Kuomintang came into power af t e r a series 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 state finances began immediately. The f i r s t step towards the Kuomintang's aim was to d i s t r i b u t e the nation's f i n a n c i a l powers and obligations between the Central Government and the provinces. The l o c a l govern-ments were to be dominated by the p r o v i n c i a l authorities. A general subsidy system was well established from the Central Government to the p r o v i n c i a l governments. Chapter V - The Second National Financial Conference According to Sun lat-sen's \"Fundamentals of National Reconstruction\", the provinces were to be regarded as intermediaries between the Central 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 of Balanced Power. The Financial Conference of 1931; was held i n order to 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 distributed among the three l e v e l s of government, namely, the Central, 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 to Chapters IV and V China did succeed i n reforming several important old taxes. This was the greatest achievement of the Kuomintang. A t y p i c a l example of the d i f f i c u l t i e s of 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 administration i s given. The c i v i l war was the most s i g n i f i c a n t factor that caused f i n a n c i a l maladjustments. Part IV Chapter VII - Financial Developments Between 1937 and 191*5 After the outbreak of the Sino-Japanese War, a l l the three l e v e l s of government vere faced with 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 resistance 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 \"Distribution\" method i n order to meet a part of t h e i r extraordinary cost. In 19l|0 and l9bX, the Central Government would have collapsed f i n a n c i a l l y i f i t had not r e l i e d on Fapi issuing. To remedy th i s s i t u a t i o n , the Financial Conference of l ? ! * ! was c a l l e d . xiv. Chapter VIII - The New Hsien System Because the Nationalists were over f e a r f u l of the possible r e v i v a l of warlordism, they referred the m i l i t i a t r a i n i n g to the Hsien instead of to the provinces; and because the Nationalists intended to i n i t i a t e constitutionalism a f t e r the Victory which they expected to come, they promoted the growth of l o c a l self-government. In order to 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 structure was introduced by the New Hsien System, i n which a part of the p r o v i n c i a l tax-sburces was transferred to the Hsien. Chapter IX - The Third National Financial Conference The Conference was held to incorporate the existing p r o v i n c i a l finances into a central scheme i n order to leave wider revenue sources i n the hands of the Central Government f o r the prolonged h o s t i l i t i e s . The nation's finances were now divided between the Central Government and the Hsien. From 1942 on, a l l the p r o v i n c i a l taxes were levi e d by the Central Government, including the land tax which -was to be le v i e d i n kind. Chapters X and XI - Hsien Autonomy Finance The Financial Conference of 19ijl also proposed the Hsien Autonomy Finance which was put into effect i n 19i|2. The characteristics of the Hsien Autonomy Finance were p r a c t i c a l l y the same as those of the New Hsien System. The s t r i k i n g features of Hsien wartime financing were: ( l ) The Hsien depended heavily upon one excise tax, the butchering tax; (2) The Hsien farm land 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 to 19hl standard, and the Central Government after i t had taken over the entire administration of land taxes reduced the Hsien surtax rate by two-thirds; (3)The Central subsidies to Hsien were i n -creased each year mainly through unconditional revenue grants. But these sources yielded stable revenue only to the r i c h e r Hsien. And, (k) The Revenue from Hsien properties, the minor income source before the War, became important after the administrative readjustment. Part V Chapter X I I - The Fourth N a t i o n a l F i n a n c i a l Conference This 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 the Hsien f i n a n c i a l powers were again f u r t h e r strengthened. The c h a r a c t e r i s t i c s o f the Demarcation Act proposed by the F i n a n c i a l Conference of 1 9 3 4 were f u l l y adopted i n the Act of 1 9 ^ 6 and the theory of Balanced Power recommended by Sun Yat-sen more than twenty years previous was r e a l i z e d . 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 o f 19i|.6 The C o n s t i t u t i o n of 19^6 was drawn up i n accordance w i t h Sun Y a t - s e n 1 s t e n e t s and the p o s i t i o n o f the province was t r e a t e d as dependent or agency of 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 the f i n a n c i a l power among the three l e v e l s of 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 sources. The o b l i g a t i o n o f education of the three l e v e l s of government was vaguely def i n e d . Chapter XIV - The Enforcement of the Act of 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 rendered i t tremendously d i f f i c u l t t o enact the Act of I9I4.6. The gre a t e s t cost was the c o s t - o f - l i v i n g allowances t o the 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 than 80 per cent of the t o t a l p r o v i n c i a l and Hsien expenditures. Chapter XV - Conclusion The Chinese Republic, by a s e r i e s of breaks 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 of the three l e v e l s of government. At the moment o f success, 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 destroyed the s t r u c t u r e . PART I Fin a n c i a l Developments from 1850 to 1911 under the Ch'ing Dynasty a n d Financial Reforms up to 19Hi i n the Republican Era PART I Chapter I - Introduction Summary China has been an a g r i c u l t u r a l country where a clan system e x i s t s . 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 central authorities, the emperors of the dynasties. The Opium War (1840-1*2) marks the beginning of recent Chinese 1 . h i s t o r y , f o r following t h i s occurrence China exerted i t s e l f to become a modern nation. Accordingly, modern public finance i n the ce 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 gradually developed. As China lacked a foundation f o r modern economy before the middle of the nineteenth century, such as large business organizations and large scale i n d u s t r i a l production, tax 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 divided 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 Constitution Movement, by which the p r o v i n c i a l governments obtained the^levyi^^p^wer of/taxes. These two tendencies l e d to a peculiar f i n a n c i a l system, never experienced before i n China. 1. Cf., L i Jan-nung, Vol. 1, p. 12 2. A. Economic Background and Tax Structure in 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 history. Agricultural 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) ~7 been no significant changes i n the methods of production. The national economy, therefore, depended heavily upon the natural productivity of the land. When the population increased to a point at which the demand for food exceeded the land productivity, rebellion or revolution nec-essarily resulted. This i s the periodical \" 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 prior 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 this Table, we may understand that the national income per capita would be sharply reduced by the rapid 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 1 and Arable Land, 1721-1841 Year Population Arable Land ( i n acres)* 1721 113,965,233 171*1 11*3,101,559 17U9 177,495,039 123,574,916 1766 1792 307,1*67,279 1801 297,501,508 131,920,850 1812 1821 355,51iO,258 1823 122,918,816 181*1 1*13,1*57,311 * Approximately calculated from Mou, the Chinese acreage. 2 The farm land tax and the p o l l tax were the e a r l i e s t taxes i n China. Prior to 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 successful means of flood control, recorded h i s t o r i c a l l y , was set up at 3 the Yellow River. After 1723, there was another reform i n which the h p o l l tax was incorporated into the farm land tax, and thereafter no separate p o l l tax has been levi e d i n China. 1. L i Jan-nung, Vol. I. Pp 57-8. The census i s not very r e l i a b l e because i t was estimated according to the p o l l tax r o l l . 2. The p o l l tax, i n many cases, included services (instead of material or money taxation) of the taxpayers. Speaking i n general, the p o l l tax was imposed on the persons who engaged i n farming. 3. Chia Teh-huei, Vol. I I . p. 579. 4. Ibid., p. 580. A surtax on farm land was f i r s t l e v i e d at the beginning of 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 to provide properly the expendi-1 tures f o r education and police protection and so on\". A s a l t tax was collected during the period of San Tai (2205 -2U7 B.C.). I t was not an important source of government revenue u n t i l 119 B.C. when the Government of the Han Dynasty d i r e c t l y operated the s a l t industry f o r revenue purposes. In the following dynasties the s a l t industry was occasionally operated under private controls while the governments obtained revenues through heavy s a l t tax. During the Sui Dynasty (589-617 A.D. ), the sa l t tax was not imposed. After 713 A.D., the r e - c o l l e c t i o n of the salt tax was resumed under the Tang Dynasty. Since then and u n t i l the present time, the s a l t tax has been one of the 2 most important revenues to the central governing bodies. In the nineteenth century, the revenue from custom duties, besides the farm land and s a l t taxes, had also become important to 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 to the p r o v i n c i a l and l o c a l finances as compared with the former two taxes which became important p o l i t i c a l issues, p a r t i c u l a r l y when the Republic of China came in t o existance. Since 619 A.D., the tax on brokers, known i n Chinese as the Ya Tieh, has been levi e d under the Tang Dynasty, and by 16UU A.D. a tax on pawnshops was imposed under the Ch'ing Dynasty. These two taxes.were comparable to the present license tax and business tax. 1. Ibid., p. 582. 2. I b i d . , Vol. I, p. 90, \"At the end (1347-67) of the Yuan Dynasty, the s a l t tax had.been so heavily imposed that i t d i r e c t l y caused the s a l t smuggling rebellions which hastened a revolution that eventually over-whelmed the Dynasty.\" 5. Taxes had long been imposed on r e t a i l e r s of cotton fabrics and on various other kinds of business including transportation. They were imposed not f o r revenue purposes but f o r \"an intention to discourage 1 commercial a c t i v i t i e s and to encourage farming\". These kinds of taxa-t i o n were abolished by the Ch'ing Government af t e r l6lxk. In the l a t t e r years of the nineteenth century, these taxes were reimposed i n order to finance modern educational f a c i l i t i e s instead of the old, and to meet 2 the expenditures incurred from the increased m i l i t a r y t r a i n i n g . Shortly a f t e r 1614;, a tax on houses was started and i t was 3 abolished by 1795. This tax was reimposed i n order to 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 transfers of t i t l e deeds f i r s t appeared during the T'sin Dynasty, 265-W.9 A.D. After the turn of the twentieth century, the revenue from t h i s tax was used to 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 several other l e v i e s i n the l a t e Ch'ing period, among which the L i k i n levy, a complex excise tax, was the most important both to the central and p r o v i n c i a l finances. The development of the L i k i n levy w i l l be discussed i n Section C of t h i s chapter. 1. Cf., Chia Teh-huei, Vol. I I , p. 60h. 2. I b i d . , Pp 605-6. 3 . Ibid. h. Yee Hong-lin, p. 108. 6. U n t i l the l a t t e r part of the nineteenth century, a l l the revenue sources belonged to the Central 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 re s u l t of the successive wars with foreign, powers, the Taiping Rebellion (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 countries, the old taxation system was no longer adequate because the important forms of taxation remained unchanged up 2 to the l a t e nineteenth century. B. Constitutional Movement In 1874, the Empress Dowager Tze Shi proclaimed her nephew Kuang Chu as the lawful successor of the Ch'ing Dynasty, on the death of the young Emperor Tong Tze. The boy Emperor Kuang Chu was only four years o ld at that time, and the Empress Dowager dealt with a l l the matters of the state as Regent, as she had previously done f o r her son Tong Tze, u n t i l 1887 when she herself 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 followers presented to 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, Vol. I , p. 3: P r i o r to 1850 the Ch'ing Government had annual revenue surplus, as i s shown i n the following table: Year Surplus i n taels Year Surplus i n tae l s 1709 50,000,000 1722 8,000,000 1723-35 60,000,000 c i t . 1736-8 2^,000,000 c i t . 1781 70,000,000 1789 60,000,000 1811; 12,000,000 1850 8,000,000 1 s i l v e r t a e l i s equal to 1.3 ounces of s i l v e r . 2. Cheng Shao-Kwan. p. 45. 3. Japan adopted a constitutional monarchy i n that same year. 7. But, there was no response from the Government. Aft e r the war with Japan i n Korea, l&9h- , Kong You-wei again presented proposals leading to a con s t i t u t i o n a l monarchy. In the same year, 1897, Kong organized a party named Chan Hsueh Huei and established a newspaper i n the c a p i t a l , , Peking. F i n a l l y , i n 1898, the Emperor appointed Kong as an advisor. In I898, the Emperor, Kong You-wei, and the reformers under-took 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 Central Govern-ment. In addition, plans were made to study and reform the organization of p r o v i n c i a l government. This, however, caused a tremendous reaction from the old high o f f i c i a l s and the royal clansmen who had been d i s -charged, or who feared to lose t h e i r o f f i c e s . Moreover, the Emperor did not hold the m i l i t a r y power f i r m l y enough at that time, so, the Empress Dowager, who had r e t i r e d ten years previous was consequently able to return to power. The party Chan Hsueh Huei was then purged, Kong You-wei made his escape abroad, and the Emperor l o s t his freedom even i n his 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 with foreign powers, p a r t i c u l a r l y with Japan, the growth of the revolutionary feelings against e x i s t i n g conditions spread through-out the countryj and, the Ch'ing Government by 1906 was forced to announce that i t was preparing to adopt representative government and a new cons t i -t u t i o n . A program of 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. \"The f i s c a l reforms provided i n t h i s program were as follows: i n the second year of prepara-t i o n , the provinces were to work out tentative 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 taxation was to be adopted; i n the fourth year, reformed methods of public accounting were to be introduced and a national budgetary system was to be inaugurated; and i n the f i f t h year, a new system of national taxation was to be promulgated.\" One of the most s t r i k i n g features of t h i s program was that the pro v i n c i a l finance was to be separated l e g a l l y from the central finance. Meanwhile, a new p o l i t i c a l ethics was to be established: \"the rules of self-government were proclaimed by the Ch'ing Government f o r province and Hsien. A p r o v i n c i a l council was to be set up i n each p r o v i n c i a l government. A Financial Committee to reorganize the f i s c a l system of the state was created, subordinate to the Department of Finance of the Ch'ing Government. The branch o f f i c e s of the Committee were set up i n each 2 pr 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. This, however, did not interrupt the program of f i n a n c i a l reform. In the following year, the Financial Committee was duly established; and the entire program was already w e l l on the way. These reforms, however, were not completed i n time to prevent the spreading revolution, f o r i n October of 1911 the revolution-ary armies had already succeeded i n c o n t r o l l i n g China south of 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 interrupted. 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 universally by t h i s time. 1. Shaw Kinn-wei, p. ISO 2. Yee Hong-lin, p. 107. 9. C. Growth of Financial Power of the Provincial Governors Before further discussion, the w r i t e r f e e l s that i t i s advisable f i r s t to r e f e r b r i e f l y to the system of government i n the nineteenth century. The Emperor was supreme. The members of the Council of the State were the advisors to the Emperor. The Central Government was organized into d i f f e r e n t departments with one spe c i a l department, the Censorate, over and above the other departments. S i x of the departments, so f a r as administration was concerned, were w e l l developed: m i l i t a r y , 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 public works departments. Sub-ordinated to the Department of Finance were fourteen Boards whose chief function was to audit regular revenues from d i s t r i c t s under t h e i r j u r i s -d i c t i o n . Governors of provinces were appointed by the Emperor to super-vise t h e i r subordinate governing bodies. Provinces were further divided up into smaller administrative u n i t s , each known as a Hsien (or Fu), which was supervised by a magistrate. One of the major functions of the Hsien during the Ch'i ng period 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 disburse-ments i n the Hsien were to be d i r e c t l y controlled or regulated by the pro-v i n c i a l governments, except the money raised through subscriptions from 1 the people f o r public welfare. Most of the cost f o r public 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 old family or clan system also rendered ce r t a i n s o c i a l services, such as the care f o r the aged and orphans and the pro-v i s i o n of some educational f a c i l i t i e s f o r the clansmen. Charities were 1. Cf., Chia Teh-huei, Vol. I I , p. 61*0, 10. usually provided by walthy people, Buddhist temples, and other private organizations. Moreover, i t had become an unwritten law that the Hsien governments could raise money from the people f o r performing certain 1 services, i f the consent of the people was_ obtained; and a c t u a l l y , the Hsien governments usually resorted to t h i s method when t h e i r funds were inadequate. As most of the cost of administration was assumed by the Imperial Treasury, and, as there was no constitution to 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 Central Government was to determine the appropriation of i t s revenue to the provinces which i n turn apportioned the a l l o t t e d funds among the Hsien governments. Communication over the vast 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 central banking system, the custom developed f o r the revenues to be delivered to 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 part of the contribution which was to be delivered, i f the permission of the Central Government was. obtained. ^ This practice was maintained as long as the Imperial power remained stable. L i k i n and Pr o v i n c i a l Finances Since 1825, rebellions, floods, droughts on top of the Opium War greatly 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 Govern-ment. ^ To worsen t h i s s i t u a t i o n , a great revolution \u00E2\u0080\u0094 known i n English 1. Ibid., p. 565. 2. Lo Yu-tung, Vol. I, Pp 139-142. 11. as the Taiping Rebellion \u00E2\u0080\u0094 broke out i n 1850 i n Kwangsi. Sixteen of the rich e r provinces were d i r e c t l y effected. 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 Rebellion. When the Rebellion broke out i n 18\u00C2\u00A30, the Imperial 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 to 30 m i l l ion t a e l s , and by June 1853, the funds of the Treasury f a s t dwindled to 1 227,000 ta e l s . The state of the Imperial finance, at that time, was described by a report from the Department of Finance to the Throne, which stated that the revenue from the p r i n c i p a l sources \u00E2\u0080\u0094 the custom duties, the s a l t tax, and the farm land tax \u00E2\u0080\u0094 was so inadequate that 2 i t could be said to be a l i t t l e better 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 collected i n Kiangsu Province where the result seemed quite promising. This tax i n 1854, therefore, was o f f i c i a l l y made a regular revenue source of the Imperial Treasury. The rate was f i r s t f i x e d at 1.2 per cent of the prices of various necessities. Later, i t was l e v i e d either at 1 per cent on paper, t e x t i l e s , china, medicine, s i l k , f u r , sugar, etc. ad valorem or on food, 3 o i l , meat, f a b r i c , tobacco, l i q u o r , etc. ad valorem. Later i n the same year, t h i s tax was extended to a l l provinces including those which had 1. Ibid., Pp 9-10. 2. I b i d . , p. 9. 3. Ibid., Pp 17-18. 12. 1 not been effected by the Rebellion. The L i k i n could, therefore, be said to be a national levy as from 1854. This tax, at the beginning, could be divided.into 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 at the market where the transaction was made. This tax was i n the next stage extended to the firms dealing i n food, l i q u o r and o i l and also to 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 receipts with several f l a t rates which varied according to the c l a s s i f i c a t i o n s . The Central Government permitted dealers on whom the tax was le v i e d i n the f i r s t instance, to ra i s e the prices to compensate f o r the cost of -2 L i k i n . As there was no uniform rule governing the imposition of L i k i n among the provinces, extreme confusion arose: i n f a c t , t h i s central levy 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 prov-ince to another, or even within one province. Soon a f t e r the Taiping Rebellion was crushed, there were a series of proposals f o r the a b o l i t i o n of the L i k i n . Some ministers and governors, however, \"suggested\" that i t would be better t o r e t a i n t h i s \"temporary\" imposition 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 of huge funds f o r 1. I b i d . , Pp 18-19. 2 . Cf., Ibid., p. 2 3 . 1 3 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 tax became a constant levy of the 1 -Government. Previously, the y i e l d from t h i s tax was so l e l y used f o r m i l i t a r y purposes; however, i t became one of the important revenue sources f o r both the Ch'ing and p r o v i n c i a l governments who, after 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 to, on the average, 2 one-third of the t o t a l revenues of 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 Collected by Provinces (Amount i n t a e l s ) Tear Tea Imported Medicine Medicine Mfd i n . China Salt Other Commodities Total 1869 1870 1871 1872 1873 281,229 255,1*54 280,606 30k,364 285,%7 559 ,970 543,438 484 ,052 479,363 1^ 93,253 62,981 61,330 54 , 271 52,702 55,836 215 ,575 238,151 9 0 , 6 2 9 162,150 147,368 12,301,087 13,234,491 13,237,264 13,089,543 13,659,483 13,420,842 14,332,684 14,256,822 14,088,122 14,641,797 1888 I889 1890 1891 1892 246,370 205 ,971 183,215 1 7 8 , 6 3 0 170,246 495,725 954,053 758,278 823 ,566 671,968 625,609 632,997 688,369 483 ,177 90,ozo 88,424 90,120 87,503 .84,170 12,143,009 11,857,650 11,923,125 11,901,384 12,242,104 13,600,733 13,739,095 13,643,107 1 3 , 5 8 1 , 0 4 2 13,641,665 1904 1905 1906 1907 1908 2,752 3,968 2,287 551,259 622,997 176,269 89,309 78,233 84,896 8 5 , 7 7 1 302 ,865 15,962,709 15,246,949 16,026 ,818 16,623,199 17,457,322 16,606,02y 15,952,137 16,290,270 16,708,890 17,760,187 % 0, or, .87-2.3 0, or .01-6.9 0, or . 1 9 - 5 . 1 . 4 5 - 1 . 8 86.3-99.5 100. 1. Lo Yu-tung, Vol. I, p. I38. 2. Pao Chao-Hsieh, p. 213\u00E2\u0080\u00A2 By 1885, the t o t a l revenue to 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 to 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 of the L i k i n 1 Collected i n Kiangsu Province (Unit - 000 t a e l s of s i l v e r ) Year Central Functions Prov.Functions Total 1 - j \u00E2\u0080\u00A2 3 4 5 6 7 8 9 1 2 3 1869 1870 ho 100 10 8 88 100 392 415 652 530 1284 11+62 112 182 10 2 , 5 8 9 2 , 7 9 5 1881 1882 239 2 6 8 10 70 3 4 30 30 30 4 6 7 5 6 2 & 256 268 1000 902 197 1 6 0 2,1+01 2,330 1899 1900 99 99 15 21+ 13 8 8 130 2247 128 139 80 70 462 663 97 50 80 1,006 3,U32 1907 1908 6 5 6 5 19 20 2433 21+21 ho ho 121 120 80 80 132 138 422 371 195 170 130 3 3 7 3,6kO 3 , 7 6 1 Aver- 221 45 66 9 575 24 294 126 261 754 151 58 2,584* age : : % 8.5 1.7 2.2 .4 22.4 .9 H.4 4.9 102 29.2 5.9 2.3 I C Q * Average per year, approximately calculated. Explanation of Table I I I : The Central Government appropriations f o r : 1) the Department of Financej 2) the national administration expenditurej 3) the expenses of the Imperial Household (including the expenditure f o r maintenance of the Royal S i l k Factories); 1+) the railway construction; 5) the repayments (including i n t e r e s t charges) of the domestic and foreign debts; 6) the Central Government's subsidy funds to poorer provinces; 7 ) the indemnities to foreign powers; 8) the naval and coastal defence; 9) the inland navy ( p a r t i c u l a r l y f o r the Yangtze River). 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 administrative expenditure; 3) Remainder, reserve, miscellaneous appropriations, unidentified expenditure, etc. 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 larger proportion of the L i k i n was devoted to the expenditures of the p r o v i n c i a l administration. The s i g n i f i c a n t feature of t h i s increasing 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 re s u l t of two major causes, namely, the more independent p r o v i n c i a l administra-t i o n of m i l i t a r y a f f a i r s , and the tendency on the part of the Ch'ing Government to s h i f t an increasing portion 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 with 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, referred t h i s new obligation to the p r o v i n c i a l governments, without pro-viding an additional 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 to 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 additional cost. Though -the Ch'ing Government did not explain whether t h i s obligation of p r o v i n c i a l governments was a national 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 actually dealt with education on a p r o v i n c i a l basis. There was neither interference from the Ch'ing Govern-ment with 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 addition, the pro-v i n c i a l governments were required to improve the police system because the old one was too incompetent. This additional obligation was referred 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+ to 1911, may be divided into two periods by the Chino-16. to the provinces also without additional funds. These two examples i l l u s t r a t e the fact that when a government was obliged to perform more services, i t s needs f o r revenues also 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 to 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 early Ch'ing period, the taxes imposed on the transfers of t i t l e deeds was l e v i e d at a rate of 0.3 per cent. Steadily, the rates were raised by i n d i v i d u a l provinces. For instance, i n Hupeh, the rate was once f i x e d at 9 per cent of the s e l l i n g price of r e a l estate, and i n Hunan, 6 per cent was l e v i e d on the face value of mortgages. Since the precedents were established by the two provinces, the Ch'ing Government l a t e r i n 1911 ordered the provinces, through an Imperial decree, to adopt the uniform rates of 9 and 6 per cent on r e a l estate 1 and mortgages respectively. No further increase i n rates was allowed. This decree was highly s i g n i f i c a n t i n that the Ch'ing Govern-ment did 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 after the rates were greatly advanced; the provinces had f i r s t l e v i e d the taxes and determined the rates independently. In Continued from previous page... Japanese War, 1894-95, ... Then we pass to the l a t t e r period, I89U-I9II, which i s abnormal i n the sense that the government of the Tsing Dynasty would have become bankrupt before the Revolution of 1911 were i t not f o r foreign loans.\" 2. Lo Yu-tung, Vol. I I , p. 502. The appropriation from L i k i n alone f o r education was 70,000 taels i n 1906, 16,015 t a e l s i n 1907, and 20,hl9 taels i n 1908. 1. Chia Teh-huei, Vol. 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 exercising more control over t h e i r own finances. This precedent was l a t e r repeated i n connection with other taxes. After the war with the Eight A l l i e d Powers i n 1900, the Ch'ing Government ordered the provinces to contribute funds to pay f o r part of 1 the resultant indemnity. The housing tax was reimposed, now, i n 1901 by the provinces. \"The l o c a l leaders, the p r o v i n c i a l governors, however, did not always send a l l th e i r tax contribution to the Central Government, but often unlawfully used some or a l l of i t f o r l o c a l needs; because the power of the Central 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 levy belonging to hoth the Central and p r o v i n c i a l governments, but the levying power was l e f t i n the hands of provinces which were i n turn to d e l i v e r the c o l l e c t i o n to 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 functions, and intercepting the central revenues. 1. Yee Hong-lin, p. 107. 2. Ibid., p. 108. 18. After 1850, the Ch'ing Government ordered the p r o v i n c i a l gover-nors to organize m i l i t i a as the old army had proved too incompetent to cope with the Rebellion. The r i s e of p r o v i n c i a l armies enhanced the power of the governors to d i r e c t l y supervise and even to intercept central revenue i n l a t e r years. Despite the repeated decrees from the Ch'ing Goveramsnt, the provinces did not submit punctually 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 \"deficient 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 turn must depend e n t i r e l y upon the a i d furnished by the richer p r o v i n c i a l govern-ments there i s a concealment of revenue which arises from the fact that the governors of the r i c h e r provinces are unwilling to share t h e i r revenues with the Department of Finance. Such concealment i s possible because the Department i s ignorant of the l o c a l conditions. Therefore, the Department's powers of appropriation and supervision are merely 1 nominal.\" The tendency f o r decentralization i n m i l i t a r y administration had appeared before the promulgation of the con s t i t u t i o n a l program i n 1906 when the National Revolution was about to break out. In a l l cases, the f i n a n c i a l power of the governors was greatly strengthened by m i l i t a r y forces, 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 controlled by provinces, just as the l a t t e r had been previously conducted by the Ch'ing Government. Thus, the years from 186k to 1911 could be considered as a period of struggle be-tween 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 state. 1. Cheng Shao-kwan, Pp 106-7. Chapter I I - Financial Reforms up to 19L4 19. 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 of 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 pos 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. Writing i n 1912, Mr. S. K. Cheng said, \"the ( f i n a n c i a l ) administration i s decentralized, because the governors within t h e i r respective provinces are almost i n -1 dependent i n the exercise of t h e i r powers.\" Moreover, the Ch'ing Govern-ment lacked sincere intent concerning the d e s i r a b i l i t y of a con s t i t u t i o n a l form. This attitude eventually hastened the explosion of the Revolution of 1911 and the ultimate downfall of the Dynasty which had ruled the nation since l6iih. Looking c l o s e l y at the whole f i n a n c i a l program, one thing i s worthy of mention, at lea s t i n the sense of l e g i s l a t i o n , and that i s that the Hsien governments were to 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 into the central finances while a separate fund i n i t was to be assigned to the Hsien f o r t h e i r needs. In other words, the Ch'ing Government endeavored to control the provinces on the one hand, and to bring about better 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, that of the Republic of China. But, the Republic inherited 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 to the nation's finances. In 191U> the Central Government of the new Republic enforced a f i n a n c i a l measure, akin to that expressed i n the Budget of 1911, which enabled the Central Govern-ment to control the provinces i n finances and granted f i n a n c i a l independ-ence to the Hsien. President Yuan Shih-kai, i n 1915, took a further step to incorporate the Hsien finances into the central finances. This extremely centralized f i n a n c i a l administration f i n a l l y collapsed i n 1916 on Yuan Shih's death, a f t e r which a period of c i v i l war ensued and the nation's finances were thrown into disorganization. A. Budget of 1911 In I906, the Ch'ing Government decided that a program of preparation f o r adopting a constitution should be undertaken. I t was further decided that such a program was to be set up i n 190? and a constitution 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 follows: i n the second preparatory year, 1908, the working out of a tentative budget by the provinces; i n the t h i r d year, 1909, the revi 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 tentative 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 fourth year, 1910, the f i n a l choice of a method of public accounting, the formulation -1. Cheng Shao-kwan, p. I4.7. \u00E2\u0080\u00A221. of a n a t i o n a l budget, the f o r m u l a t i o n o f a f i n a l scheme of l o c a l t a x a t i o n , and the determination of the 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 the f i f t h year, 1\u00C2\u00B011, the promulgation o f the laws of n a t i o n a l t a x a t i o n . In January 1909, a Committee f o r r e o r g a n i z i n g the f i n a n c i a l a f f a i r s of the s t a t e was. s e t up, subordinate t o the Department o f Finance. Twelve branch o f f i c e s of the Committee were e s t a b l i s h e d i n each governor's o r governor-general's o f f i c e . The power of the branch 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 \" regarding the f i n a n c i a l reform from the pr o v i n c e s . Many r e p o r t s and recommendations were presented from a l l p rovinces t o the Committee. \"The views s e t f o r t h i n these r e p o r t s can r e a d i l y be guessed. They were almost without 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 please the Throne. None 1 of these r e p o r t s dated t o suggest t h a t the l a n d t a x should be l o c a l . \" I n f a c t , the revenues belonging t o the I m p e r i a l Treasury were s t i l l l a r g e l y i n the hands of the pr o v i n c e s . The governors o n l y pre-tended t o agree t h a t a l l the taxes be l e f t i n the hands of the Ch'ing Government. Furthermore, \"the f i n a l d e c i s i o n on the in c r e a s e o r reduc-t i o n of c e r t a i n items o f government expenditure as s p e c i f i e d i n the so-c a l l e d n a t i o n a l budget r e s t e d not w i t h the c e n t r a l government as should be the case, but w i t h the 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 these c o u l d o n l y arouse d i s s a t i s f a c t i o n among the people and l e a d the 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 to the recom-mendations of the Fin 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 of 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 of t h i s budget was interfered with by the Revolution of 1911, i t furnishes us with some information concerning the f i s c a l condi-tions of the Ch'ing Government on the eve of the Republic. The balance sheet at that time read as follows: 1 Public Revenues f o r 1911 Land Tax Ordinary 1+6,312,355.022 taels ( c i t . ) Incidental 1,936,656.1+21 \" \" 1+8,101,31+6.273 taels Maritime Customs. Salt taxes Regular Customs Duties Ordinary 6,990,81+5.925 \" Incidental 8,52l+.Ol+l \" 26,163,81+2.177 Miscellaneous taxes L i k i n Levies Public Industries 1+3,187,907.099 1+6,600,899.753 Incidental Contributions Internal Debt Miscellaneous Incomes 5,652,333.117 3,560,000.000 35.21+1+.750.650 Total 296,962,722.022 tae l s 1. Cheng Shao-kwan, Pp 1+3-1+. 23. Public Expenditures f o r 1911 Foreign intercourse 3,5WJ-\u00C2\u00BB732,977 t a e l s Police administration 4,227,563.742 Public ceremonies 0 792,127.940 Financial administration 28,130,434.754 Palace and Imperial household 6,144,877.170 The Council of the State and other departments (the Central Government) 6,348,826.170 P r o v i n c i a l administration 19,822,730.489 National Assembly ( l ) 786,666.666 Public debt redemption and interest 56,413,576.498 Public industries 5,600,435.211 Public education 3,375,474.756 Army and i t s supplies 126,743,333.389 Navy and i t s supplies 10,503,202.765 Administration of j u s t i c e 7,716,016.765 Administration of agriculture, industry and commerce 2,040,003.373 Public works 4,515,271.832 Administration of railways and telegraphs 55,141,906.832 Government of dependencies 1,705.103.877 Total national expenditures 338,652,295.073 t a e l s Local expenditures 37,703,362.170 Grand Total 376,703,362.170 t a e l s ( l ) This budget was submitted by the Department of Finance to the National Assembly which was created i n 1910. I t represented the actual needs of the governments rather than the f i n a l appropria-tions. \"The f i n a l budget passed by the Assembly was: t o t a l revenue amounted to 301,910,000 taels while the t o t a l expenditures amounted to more than 298,440,000 t a e l s . Cf., Chia Teh-huei, Vol. 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 with the r e s p o n s i b i l i t y f o r taking 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 administration 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 said to be one of the achievements i n finances during 2 4 . the l a t e Ch'ing period. The budget d e f i c i t , equivalent to one t h i r d of the t o t a l revenue, was in d i c a t i v e of 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 the Revolution. Enforcement of this budget was' interrupted by the Revolution which broke out on 10 October, 1911; and i t was inevitable that the new Republic would na t u r a l l y be confronted with 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 Govern-ment had experienced. B. Cheng's Proposal f o r Separation of Provincial Finance from Central Finance With the sudden explosion of the National Revolution, the evolutionary constitutional 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, of the Provisional Government, proclaimed at Nanking the formation of the Republic. In the following month, Yuan Shih-hai who was the l a s t Premier of the Ch'ing Empire forced the boy Emperor, Hsuen Tung, to abdicate and to announce the termination of the Ch'ing Dynasty. In the same month, Yuan Shih-k a i succeeded Sun Yat-sen to the presidency of the Provisional Government af 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 Govern-ment to a newly founded Republican Provisional Government necessarily-brought about discussion of 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 solution. Looking beyond the immediate conditions and having regard to 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 lack of a proper d i v i s i o n of r e s p o n s i b i l i t i e s and revenues between the Central 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 control of the p r o v i n c i a l governors of the ri 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 with annual revenue surplus were r e -quired to hand the funds i n to the Treasury. The l a t t e r provinces, however, t r i e d i n every possible way to avoid meeting t h i s obligation. In short, co-operation and mutual confidence were lacking 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 of central 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 to the Central Government. Governor Cheng proposed that such expenditures as those of the int e r e s t charges on the foreign 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 administration should be central, and those of the i n d u s t r i a l , educational, and c i v i l administra-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 duties, the sa l t tax, and the other i n d i r e c t taxes should be central, and that those from the land tax and other di 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 strongly supported by many famous Chinese reformers and scholars, most of 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. Financial Reform of 1913 In 1912 and 1913, China was i n a state of disorganization, an inevitable 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 de-ce n t r a l i z a t i o n , the p r o v i n c i a l treasuries were i n most cases empty and 1 therefore unable to remit money to the central government.\" The state 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 handi-caps, and the proposal recommended by Governor Cheng prompted Yuan Shih-k a i to undertake a f i n a n c i a l reform. According to the budget of 1911 and the Proposal suggested by Governor Cheng, the central revenue (from custom duties, the salt tax, L i k i n l e v i e s , etc.) would be conservatively estimated at 150 m i l l i o n t a e l s , and the central expenditure (for army and navy, national administrations, etc.) 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 land and public industries, etc.) would be 150 m i l l i o n t a e l s , and the expenditures (for education, industry, c i v i l administration, etc.) would be 150 m i l l i o n t a e l s . At that moment, however, a considerable portion 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 Shih-kai, but by the p r o v i n c i a l revolutionary leaders, the supporters of l o c a l s e l f -government and decentralization i n finance. Cheng's Proposal and Yuan's ambition were not the same thing, decentralization versus c e n t r a l i z a t i o n . Learning from the collapse of the Ch'ing Empire, Yuan Shih-kai, i t s l a s t Premier, attempted to unify the country by force with foreign loans on the one hand, and t r i e d to concentrate the nation's f i n a n c i a l strength i n his hands on the other to further his own desire to become a d i c t a t o r i a l emperor of the nation. 1. Shaw Kinn-wei, p. 153. 27. In the winter of 1912, a special Committee of Investigation \"was appointed\" by the Ministry of Finance to \"consider and investigate\" 1 Cheng's Proposal. 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 following points: 1. Expanding the power of the Central Government. The f i r s t step of t h i s Report was to transfer the power from the p r o v i n c i a l government to the Central Government. The d e f i n i -t i o n of the words \"national\" and \" l o c a l \" was as follows: \"the term ' l o c a l authorities' should mean the authorities of the s elf-governing l o c a l i t i e s alone, and should not include the l o c a l agencies of the central or national administration. Thus the expenses incurred 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 exclusively 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 central or national 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 national and l o c a l authorities . The terms \"national\" and \" l o c a l \" having been defined, the r e s p o n s i b i l i t i e s were di s t r i b u t e d . The Report then worked out a \" d i s t r i b u t i o n \" which enabled the Central Government to control a l l the governmental functions, even those of the \" l o c a l governments\". 1. L i Chuan-shih, p. 73. 2. Ibid. 28. The recommendation reads as follows: \"Those things which are beyond the power of the l o c a l administration, such as foreign a f f a i r s , national defence, administration of j u s t i c e , etc., should belong to the national administration; and such things as p 5 l i c e , education, communication, agriculture and commerce, etc., should p a r t l y belong to the national administration and p a r t l y to the l o c a l administration.\" 3 . Large supervision power of the Central Government. Abuses i n f i n a n c i a l administration during the l a t e Ch'ing Dynasty were ]a rgely due to the method of delivery of revenues, and the fact that the governors exercised t h e i r f i n a n c i a l power independently. In order to avoid these abuses, the Report recommended that, \"a National Revenue Board should be created with as many branches i n the provinces as necessary to take charge of the national revenues a f i n a n c i a l commissioner (appointed by the Ministry of Finance) should be created i n each province to take charge of the general and specified national 2 revenues and to 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 after i t had elected Yuan Shih-kai the f i r s t President of the Republic, was dissolved by Yuan. As a r e s u l t , i n July, 1913, the Kuomintang united a few revolutionary governors and undertook a m i l i t a r y campaign against Yuan known as the 1. Ibid., p. 74. 2. Ibid. 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 to Yuan's powerful troops i n each province. Also, the laws of the l o c a l self-government were outrightly abolished. Due to the absense of the Parliament, the \"revenue separate b i l l \" was revised by the Ministry of Finance alone and i t was put into 1 effect by Yuan's decree i n 1914. The B i l l of 1914 read as follows: I. Sources of Revenue (a) The National Revenues: 1) The land tax; 2.5 The s a l t tax; 3) The custom duties; 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 tax; 7) The license fees and taxes; 8) The tobacco tax; 9) The wine tax; 10) The tea tax; 11) The sugar tax; 12) The f i s h e r y tax. (b) Hsien (or l o c a l ) Revenues: 1) The land surtax; 2) The trade tax; 3) The l i v e s t o c k tax; 4) The r i c e and cereal Chuan; 5) The opium Chuan; 6) The o i l and sauce Chuan; 7) The vessel Chuan; 8) The miscellaneous commodity Chuan; 9) The business shop Chuan; 10) The r e n t a l Chuan; 11) The theatre Chuan; 12) The carriage Chuan; 13) The p r o s t i t u t i o n license Chuan; 14) The restaurant Chuan; 15>) The tea house Chuan; 16) The meat Chuan; 17) The f i s h Chuan; 18) The butehering Chuan; 19) The carriage-bearer license Chuan; 20) Miscellaneous Chuan. 1. I b i d . , Pp 76-9. 30. I I . Separation of the possible future revenues: (a) For National Purposes: 1) F i s c a l stamp taxj 2) The recording tax; The succession duty; The income tax; 5 ) The production tax; 6) The business tax; 7) The note-issue tax. 2 (b) For Hsien (or l o c a l ) Purposes: 1) Special taxes or l e v i e s \u00E2\u0080\u00A2 i . The house tax, or habitation tax; i i . The business tax on those businesses Kshich are free from the national business tax; i i i . The consumption tax on those commodities which are free from the national consumption tax; i v . The admission charges to market places; v. The personal property tax; v i . The servant tax. 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 to the power of the Hsien i n order to protect the central sources of revenue. The l i m i t a t i o n s were: (a) The Ministry of Finance may p r o h i b i t any l o c a l tax when i t i n t e r -feres with the national taxes or i s regarded as u n p o l i t i c a l by the Ministry. (b) The maximum rates of the surtaxes: On the land tax, at most 30 per cent of the central levy; On the future business tax, at most 20 per cent of the central levy; 3 ) On the future income tax, at most 15 per cent of the central levy. I] (c) I f occasion demands any increase of the rates of the surtaxes over and above the maximum rates, the l o c a l governing body concerned must f i r s t secure permission from the Ministry f o r the increase of the rate. 1 1. I b i d . 3 1 . By the B i l l of 1914 the p r o v i n c i a l finance was incorporated into the national finance. Thus, there were only two l e v e l s of finances, the national and the Hsien (or l o c a l ) . A l l the important revenue sources were a l l o t t e d to the Central 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 to, or f o r \" ; as a noun, i t means a forced levy. The custom developed that the Chuan l e v i e s , i n many cases, were named according to the taxpayers or the objects of 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 af t e r the purposes, such as the police protection Chuan, public health Chuan. The methods of taxation and the amounts collected of the Chuan d i f f e r r e d from one place to another and varied from time to time. In common, the Chuan were imposed on the firms according to t h e i r c a p i t a l value or gross receipts; on buildings, according to appraised value, number of rooms, or rent a l receipts; and i n most cases, the Chuan were le v i e d per head and per family. In short, the Chuan was a forced levy \u00E2\u0080\u0094 the amounts and the purposes, the taxpayers and the tax-objects were decided and chosen by the levying authorities. 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. This fund amounted to 3 7 m i l l i o n t a e l s . Whether t h i s fund was adequate f o r a l l the Hsien or not i s questionable because i t was interrupted i n the f i r s t year i t was put into practice. But, the B i l l of 1914 provided only one proper revenue to the Hsien. This was the land surtax with a maximum rate of 32. 30 per cent of the central levy. 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 land, the Chuan was the major revenue source of the Hsien. This practice i n Hsien finance inv i t e d many abuses. The annual y i e l d of the Chuan l e v i e s could hardly be estimated; the overlapping burdens of the taxpayers were ignored. Moreover, i t formed a bad custom that whenever the Hsien governments needed funds, they could l e g a l l y resort to t h i s sort of financing. Furthermore, the functions of the Hsien were f a r beyond t h e i r a b i l i t y to carry, such as police protection, education, communication, agriculture and commerce. On the other hand, i n 191k, the Central 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 to bear part of them, because the Government could barely 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 greatest. As a result, the present f i n a n c i a l system had to be changed or adjusted i n order to overcome 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 . In 1915, the meagre ex i s t i n g sources of revenue of the Hsien were incorporated i n t o the national 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 his f i n a n c i a l project had been accomplished, Yuan Shih-kai 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 national, p r o v i n c i a l or l o c a l , were consolidated so that the dictator's grip on the whole nation and people 2 might be tightened and strengthened.\" -jhis would-be Emperor was only 1. Cf. Chia Teh-huei, Vol. I I , p. 582. 2. L i Chuan-shih, p. 8k. i n power f o r one hundred days and abdicated i n 1916 because strong factions 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 19H when the Ch'ing Government pro-vided a separate fund f o r them. Though t h i s f i n a n c i a l adjustment was interrupted by the Revolution, the importance of separation of Hsien finance from the other levels of finances was realized f o r the f i r s t time. Following the emergence of the new Republic, a polic y of 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, therefore, had to 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 of income of the Hsien. However, p a r t l y because of the b e l i e f i n an extreme ce 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 of 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 central 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 Central Government. But, this adjustment i n finance d i d not provide means of solution 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 II Chinese Chia Teh-huei, Financial History of the Republic of China, Chungking, the Commercial P r e s s . F i r s t edition, November, 1941j Shanghai, the Commercial Press, Shanghai, f i r s t edition, August, 1946; Shanghai-second edition, 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 edition -August, 194? j second edition - January, 1948. Lo Yu-tung, The History of Likin i n China, Department of Social Sciences, Academia Cinica 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\u00C2\u00BB 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, Financial Review; April, 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 to 1926 and The Temporary Act of 1927 of the Kuomintang 35 PART I I Chapter I I I - The Temporary Act of 1 9 2 7 Summary With the downfall of Yuan Shih-kai and his subsequent death i n 1 9 1 6 , China entered into a new phase of her history, a decade of warlordism. At the beginning, the m i l i t a r y leaders i n Northern China, formerly headed by Yuan Shih-kai, s p l i t i n t o several factions, 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 state of f i n a n c i a l a f f a i r s of the new Republic was so chaotic that no r e a l statements or budgets were presented by the warlords. Moreover, the instable p o l i t i c a l conditions brought about two Central Governments, namely the Peking and the M i l i t a r y Governments. The former was formed by a group of northern warlords each of whom had hi 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 practicable f i n a n c i a l system f o r the country within t h e i r respective provinces,' nor did they receive t h e i r revenues from the rest of the provinces who, pretending n e u t r a l i t y between the two Governments, were under the control of the warlords other than those of the North and South. A l l f i n a n c i a l matters were considered under the m i l i t a r y strength. Such practices lasted u n t i l 1 9 2 7 when the Nationalists were about to be supreme and a Temporary Act was outlined to separate the p r o v i n c i a l finances from the central finances. 3 6 . A. Finances under the Warlords. In January 1916, Yuan Shih-kai had to abdicate his emperor-ship because of the spreading of the armed opposition. But, Yuan him-s e l f s t i l l retained h i s po 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 of the same year. The Vice-President, L i Yuan-hong, succeeded to the presidency. However, he could not. command Yuan's troops and a decade of warlordism ensued. Shortly 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 period. ? Meanwhile, General Tuan formed a cabinet; and the old Parliament, dissolved by Yuan i n 1913, reconvened i n Peking. The exi 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 of 191U, was to be studied by the Parliament. This Parliament, however, was again dissolved i n 1917 by Premier Tuan C h i - j u i because he would not l e t his power be curbed by the law-makers, and no attempts to form a new Parliament followed. Due to the absence of the Parliament, the Peking Government s t i l l enforced the B i l l of 191k. Nevertheless a p o l i t i c a l and m i l i t a r y decentralization had quickly emerged as soon as Yuan Shih-kai died, and so the B i l l of 191k was never realized. The nation's finances were therefore dominated by the war-lords, with no regard to 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 his troops out of Peking. The r e s u l t was that General Chang-hsuen restored the abdicated Emperor to the throne and 37. announced the return of the Ch'ing Dynasty. This attempt to return the monarchy was soon crushed when ex-Premier Tuan came back to Peking with his troops. The chaotic s i t u a t i o n i n Peking l e d to a new develop-ment i n Canton. When the old Parliament had been dissolved i n 1917, the Kuomintang members of the Parliament assembled i n Canton. This assembly set 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 to control even the Southern War-lords who pretended to support Sun Yat-sen. Thus, the M i l i t a r y Govern-ment actually performed no governmental functions at that time. In I918 i n Peking, a new Parliament was held and a new President of the Peking Government, Hsu Shih-chang, was elected. When there was no cooperation found among the Northern Warlords, they s p l i t i n t o several factions. The Peking Government was now repeating the history of the l a t e Ch'ing Government, and, i n fa c t China was ruled by a number of m i l i t a r y governors. C i v i l wars, large and small, followed one a f t e r another without interruption. On the eve of the Revolution, there at lea s t existed a f i n a n c i a l system even though i t was unsatisfactory. During the dark days under Yuan's dictatorship, there was an extremely centralized f i s c a l p o l i c y even though i t did 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 chaotic finances f o r there was no proper l e g i s l a t i o n to deal with the finance of the state. 38. Writing i n 1922, Dr. L i Chuan-shih, a w e l l known Chinese professor of economics, sa i d , \"To be sure, (according to the B i l l of 19U+) a d i s t i n c t i o n has been made between the national 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 installments and quotas due the central government f o r t h e i r own requirements. Attempts have been made to appoint o f f i c i a l s d i r e c t from Peking to c o l l e c t the national revenues i n the provinces, but without success. The m i l i t a r y governors usually issue no budget, and the annual receipts and expenditures i n the provinces are open to no inspection of the central government. Taxes and imposts are collected as usual and new charges often made, but there i s no account of 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 to pay the so l d i e r s , and worthless paper money has been issued by them i n abundant quantity. In a word, the m i l i t a r y governors are a law to themselves.\" 1 Because of t h i s uncertain p o l i t i c a l s i t u a t i o n , some prov-inces, professing n e u t r a l i t y among the c i v i l wars or between the Peking and M i l i t a r y Governments, proclaimed p r o v i n c i a l constitutions. \"In 1919, Hunan and Chekiang Provinces f i r s t proclaimed p r o v i n c i a l constitutions, i n which i t nas stated that: 'The Pr o v i n c i a l Government, hereafter, s h a l l impose taxation as determined by the Pr o v i n c i a l 2 (People's) Council'\". But, one thing should not be ignored \u00E2\u0080\u0094 that, at that time^the p r o v i n c i a l governments were put under the control of the -warlords and the people's councils were created by the warlords instead of by the people. In short, the p r o v i n c i a l constitution was a means through which a l l the revenues of the state 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 within 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, that 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 (after 1912). Since the death of Yuan Shih-kai, each province collected the s a l t tax f o r l o c a l purposes following the 1 precedent -which was set by Kwangtung i n 1917. Szechwan retained the s a l t tax and i t s surtax, formerly paid 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 constitution too. From the provinces which had adopted p r o v i n c i a l constitutions and those which pretended n e u t r a l i t y , there was neither revenue c o n t r i -buted to 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 constitution i n the same year, i n which a new d i v i s i o n i n taxation was l a i d down; the nation's finances were to be 1. In 1917, the Kuomintang founded the M i l i t a r y Government at Canton, the c a p i t a l of Kwangtung. The warlords pretending to support the M i l i t a r y Government intercepted a l l the revenues, including those from customs duties, of the Peking Government. 2. Yee Hong-lin, p. 108. 3. L i Chuan-shih, p. 88. 4. Cf., Chia Teh-huei, Vol. I , Pp 21-2. divided into two l e v e l s , the national and the p r o v i n c i a l , which read as follows: I. Taxes and Levies (a) National taxes: i . The custom duties; i i . The s a l t tax; i i i . The f i s c a l stamp tax; i v . The tobacco and l i q u o r tax; v. Other excise taxes; v i . The tax or taxes better f i t t e d to national administra-t i o n ; and the tax or taxes better l e v i e d at a uniform rate on a national basis. (b) P r o v i n c i a l taxes: i . The farm land 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 . Foreign a f f a i r s ; i i . National defence; i i i . J u dical administration; i v . Reform of the system of measure, weight and capacity; v. Monetary system and national banking; v i . Post, telegraph, railway, highway, and a e r i a l naviga-t i o n ; v i i . Reorganization of national and p r o v i n c i a l finance; v i i i . Government monopoly enterprises; i x . Inter-province water works; x. Development of barren land; x i . Mining administration; x i i . Other matters defined by law. 1. Yee Hong-lin, p. 108. i l l . (b) P r o v i n c i a l expenditures f o r : i . Education; i i . Industry and communication; i i i . P r o v i n cial water works and other works; i v . Administration of p r o v i n c i a l properties; v. P r o v i n c i a l f i n a n c i a l expenses; v i . P r o v i n c i a l debts; v i i . Public welfare; v i i i . Expenses of the subordinate (Hsien) governments; i x . 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 Constitution of 1923 could be said to be the best yet. The Financial Reform of 1911 ignored the d i v i s i o n of govern-ment functions and revenues between the central and p r o v i n c i a l finances, and no f a i r results would have followed even i f the operation of the Budget of 1911 had not been interrupted by the Revolution. Yuan's B i l l of I9I4 ignored Hsien a b i l i t y and allocated a heavy burden of expenditure to Hsien governments without adequate revenue sources, which l e d to the impracticable B i l l of 1911| and the incorporation of the Hsien finances into the national finances. But, Tsiao-qung's constitution r e a l i z e d the p o s i t i o n of the provinces and granted the power to them i n order to 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 into 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, existed i n name only.\" 1. Yee Hong-lin, P 107 42. B. The Temporary Act of 1927. In 1917, the Kuomintang members of the old 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 fact l i m i t e d to the C i t y of Canton, outside of 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 of the M i l i t a r y Government were so heavy that i t also existed i n name only. After 1920, however, two great influences made themselves f e l t at home as we l l as abroad. The domestic influence was the New Literature Movement, or Pai Hua, as i t was c a l l e d , which provided means to the student from f i f t e e n years of age up, to 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 of the revolution i n Russia, which influenced 2 Sun Yat-sen i n deciding to adopt d i r e c t action against the warlords. During the years from 1919 to 1923, the Kuomintang had secured the support and sympathy of most students, workers, and mer-3 chants. Moreover, the Chinese Communist Party was created i n 1920, and, i n 1923, through reforming the old Kuomintang, a progressive Kuomintang 1. The Three People's Pri n c i p l e s was the guiding p r i n c i p l e of the Kuomintang, \"The Pri n c i p l e of Nationalism i s directed toward securing the l i b e r a t i o n of the Chinese nation and the equality of a l l r a c i a l groups w i t h i n the nation. The P r i n c i p l e of People's Rights aims at the people's r e a l i z a t i o n of t h e i r direct p o l i t i c a l rights i n addition to t h e i r i n d i r e c t r i g h t s . The Pr i n c i p l e of People's Livelihood aims at the equalization of 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 of the birthday anniversary of Sun Yat-sen. C i t . , China Handbook, p;37. 2. Cf., L i Jan-nung, Vol. 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 to a f f i l i a t e with 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 platform of the Kuomintang was stated i n the Decalration of t h i s Congress. 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 Declaration can be summarized under two points. P o l i t i c a l l y , i t aimed at 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 also at the en-forcing of a period of P o l i t i c a l Tutelage i n which the Kuomintang was to direct the governing bodies of the state, before a formal constitu-t i o n would be adopted. Economically, i t aimed at a sound Hsien financ-i a l system to meet the needs of the people, wherein the L i k i n l e v i e s were to be made national, and then abolished; the tenant farmers were to be protected from paying exorbitant rents, and most of the govern-ment revenues and obligations were to be d i s t r i b u t e d between the central and Hsien governing bodies. In 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 established. The President of the Academy was Chiang Kai-shek who had recently returned from Russia where he had investigated the Soviet Government system and the Red Army. Hereafter, the Kuomintang trained i t s own army, which successfully crushed the Southern Warlords by 1926 and subsequently became the mainstay of the m i l i t a r y force that c a r r i e d on wars with the Northern Warlords, and, i n recent years, with Japan and with the Communists. 4 4 . From l y l 9 to 192k, the Kuomintang had gradually 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 force. On the other hand, the warlords i n the rest of the country carried on c i v i l wars among them-selves, and the Peking Government existed i n name as usual. 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 following year. Because the Kuomintang had gradually 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 to come to Peking i n order to discuss the future system of government and a national assembly. Tuan and Sun, however, could never reconcile t h e i r opinions on a future national assembly. Tuan and his followers suggested that the future assembly should have the majority of the delegates drawn from present m i l i t a r y leaders and p r o v i n c i a l authorities because Tuan, at that time, was s t i l l able to command a number of m i l i t a r y p r o v i n c i a l governorsj while Sun and his Party proposed that the majority 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 associations, educational organiza-tio n s , farm associations, 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 organizations. In 1925, Tuan C h i - j u i , ignoring Sun Yat-sen's proposal, held a conference to further his own views; and, therefore, the Kuomintang reacted by issuing a c i r c u l a r telegram vehemently objecting to t h i s conference. In the same year, Sun Yat-sen died i n Peking. And, a f t e r Sun's death, the Kuomintang reformed i t s e x i s t i n g M i l i t a r y Government and then established the National Government i n Canton. But t h i s caused l i t t l e attention from Peking, and Tuan s t i l l would not make any concession regarding his p o l i t i c a l views. In May 1926, the Kuomintang headed by Chiang Kai-shek, therefore started a large scale m i l i t a r y campaign against the Northern Warlords to unify the country. In one province a f t e r another, i n 1926 and 1927, the strength of the warlords was successively destroyed by Chiang Kai-shek. In October, 1926, the Second National Congress of the Kuomintang convened. The Resolutions of t h i s Congress, insofar as government finance was concerned (Hsien finance was considered under 1 the provinces) read as follows: A. A l l a f f a i r s r e l a t i n g to the province were to be dealt with 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 to more than two provinces or to the whole country were to be dealt with by the National Govern-ment; C. The finances of both the National and the p r o v i n c i a l govern-ments were to be d i s t i n c t l y defined; D. After being defined, finance concerning the province would be controlled by the p r o v i n c i a l government, while finance con-cerning the country would be controlled by the National Government; E. Establishment of uniform control of finance of the country; F. A b o l i t i o n of L i k i n under the control of the National Govern-ment; G. A uniform land 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 Minister 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 central finance according to the above decisions. This Act was soon put into effect i n the provinces where the Nationalist's had control. The a r t i c l e s r e l a t i n g to the p r o v i n c i a l finance were as follows: I. P r o v i n c i a l Taxation: a. The farm land tax; b. The t i t l e deeds taxj c. The broker taxj d. The commerce tax; e. The shipping tax; f. The housing tax; g. The butchering tax; h. The f i s h i n g tax. I I . P r o v i n c i a l Expenditures f o r : 1 a. The Kuomintang; b. Legislation and l o c a l self-government; c. Provincial and Hsien administration; d. P r o v i n c i a l police protection; e. Provincial farming and i n d u s t r i a l administration; f. P r o v i n c i a l public works; g. Provincial health services; h. P r o v i n c i a l r e l i e f ; i . P r o v i n cial 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 functions of a \" l o c a l government\". 47. This Act was not drawn up i n accordance with 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 rather than a p r o v i n c i a l one. Instead, i t was planned to make easy the War of Uni 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 rulers of the state although they had just surrend-ered t h e i r m i l i t a r y administration to the Nationalists. This Act also deciaed that the provinces would be granted a part of some new taxes i n future, such as the business, land value, personal property and trademark taxes. Conclusion The years from 1917 to 1926 composed a r e g r e t f u l chapter i n the history of the Republic. Due to the lack of a democratic s p i r i t , the r a d i c a l provincialism backed by p r o v i n c i a l armies s p l i t the nation's unity into several factions, and the p r o v i n c i a l governors carried c i v i l wars throughout the country, which contributed to serious disorder i n the nation's finances. The stage from 1926 to 1928 was a period of the struggle of the r a d i c a l provincialism against the extreme national-ism of the Kuomintang, and a great War of Unification followed. At any rate, a practicable f i n a n c i a l system could never be effect i v e under such c r i t i c a l p o l i t i c a l c r ises. The Temporary Act of 1927 was no exception. 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 possible f o r the war torn areas to 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 revolt 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 rather than a sound lo\u00C2\u00A3al f i n a n c i a l system. This was because the Nationalists 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 addition to the m i l i t a r y administration, f o r the prov-inces had become the most powerful rulers of the state since 186k, 49. Selected References CHAPTERS I I I and IV Chinese Chia Teh-huei, Financial History of the Republic of China. Shanghai- second e d i t i o n , 1947. English L i Chuan-shih, Central and Local Finance i n China,New York, Columbia University, 1922. Periodicals (Chinese) Yee Hong-lin, An Outline of Local Finance of our Country. Financial Review, A p r i l , 1945. Periodicals (English) China Handbook, 1937 - 1945; China Year Book, 1928; Tientsin, the Tientsin Press, Ltd. China Year Book, 1931; Shanghai, the North China Daily News & Herald, Ltd. International Year Book f o r 1928. Selected References Chajpter I I I Chinese Chia Teh-huei, F i n a n c i a l History of the Republic of China, Shanghai- secondttion, 19U7. L i Jan-nung, Chinese P o l i t i c a l History i n the Last One Hundred Years, Shanghai- second e d i t i o n , 19U8. English L i Chuan-shih, Central and Local Finance i n China, New York, Columbia University, 1922. Periodicals (Chinese) Yee Hong-lin, An Outline of Local Finance of Our Country, Financial Review, A p r i l , 1$h$. Periodicals (English) China Handbook, 1937-19U5. China Year Book, 1928j Tientsin, the Tiertein Press, Ltd. PART H I The F i r s t National Financial Conference i n 1928 a n d The Second National Financial Conference i n 1934 i n 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 to establish a democratic p o l i t i c a l system through negotiation with the warlords. These attempts f a i l e d . Due l a r g e l y to the success of the Russian Revolution, Sun Yat-sen and h i s followers were convinced that i t was both necessary and desirable to give up cooperation with the warlords. In 1 9 2 1 ; the Kuomintang undertook two remarkable projects, namely, the convening of the F i r s t National Congress of Kuomintang and the establish-ment of the Whampo M i l i t a r y Academy. Two periods were foreseen i n a future c o n s t i t u t i o n a l govern-ment system as proposed by t h i s Congress. They were the Period of M i l i t a r y Administration which was the period of the war of 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 period of teaching the people to prepare f o r a constitutional government. One year a f t e r the death of Sun Yat-sen, i n May of 1926, the great War of Un 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 to Nanking, and of the Northern Warlords, only-Chang Tstt-lin was able to r e s i s t Chiang Kai-shek. In the following year, Chang TaiJ-lin sent a cease-fire order, paving the path f o r peace. Chang Tstt-lin gave up the struggle against the National Government and 52. 1 shortly after vras murdered by the Japanese. As a r e s u l t of t h i s incident, the Three Northeastern 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 ) , joined the National Government i n the winter of 1928. A u n i f i e d China had f i n a l l y emerged. Before the unfication 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 Financial Conference i n order to preserve a s t a b i l i z e d condition i n finance f o r the immediate needs i n the post-war period. Plans were thus made that allowed the Hsien finance to be put under the control of each p r o v i n c i a l govern-ment. One of the Resolutions of t h i s Conference, l a t e r known as the Financial Division Act of 1928, governed the f i n a n c i a l a f f a i r s of both the Central 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 pr o v i n c i a l governors to the National Government, the Division Act of 1928 was gradually carried out without interruption. As there was no pr o v i n c i a l obligation with regard to the army defined under the Division Act, the m i l i t a r y expenditure which had been a highly controversial matter since l8f>0, was f o r the f i r s t time successfully s e t t l e d by being brought under the d i r e c t control of the National Government. This en-abled the funds of the p r o v i n c i a l governments to be spent f o r non-m i l i t a r y purposes, and hereafter a stable f i n a n c i a l system i n the provinces was made possible f o r the f i r s t time since the Republic was founded. 1. The New International Year Book for 1928, p. 167, \"Previously he (Chang T s i o - l i n ) had been a mere t o o l of the Japanese Foreign Office, 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 of ultimately.breaking completely A. Kuomintang and i t s System of Government. 5 3 . Before proceeding to discuss changes i n the f i n a n c i a l system, i t i s advisable to 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 Administration came the Period of P o l i t i c a l Tutelage and from 1928 on, China was ruled by the National Government. As constituted since the u n i f i c a t i o n of the country under the Kuomintang, the National Government was the crea-t i o n of, and therefore subordinate to, the Kuomintang. The National Government derived i t s mandate from the Central Executive Committee and the Central Supervisory Committee elected by the National Congress of the Kuomintang. For the purposes of p o l i t i c a l administration, the authority of the Kuomintang was exercised by the Central P o l i t i c a l Council, which formulated government p o l i c i e s to be executed by the National Government. In order to es t a b l i s h the Republic of China on the basis of the Constitution of Five Powers, Sun Yat-sen 1s proposal regarding the system of central government, the National Government was organized i n t o f i v e Yuans: the Executive Yuan, the Le 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 to the Organic Law of the National Government pro-mulgated i n October, 1928, \"there s h a l l be a President (the chairman of the Government), and from twelve to sixteen State Councillors of the National Government. The Presidents and Vice-Presidents of the f i v e Continued from previous page .... with 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 Councillors of the National Government.\" So f a r as general administration was concerned, the Executive Yuan was the highest executive organ and had di r e c t super-v 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 Mi n i s t r i e s and Commissions of the Executive Yuan were: The Ministry of Int e r i o r ; The Ministry of Foreign A f f a i r s ; The Ministry of M i l i t a r y A f f a i r s ; The Ministry of Communications; The M i n i s t r y of Education; the Ministry of Industry; The Ministry of Railways; the Ministry of Finance; And other Commissions. 1 The administration of each province, known as the p r o v i n c i a l government was composed of from seven to nine members appointed by the National Government. One of them was designated as the Chairman, or the governor. The executive organization included a Secretariat and Note: 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. 1. The Commissions were set up f o r special purposes not a f f e c t i n g the administration of 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 Com-mission. 5 5 the following main Departments: The Department of C i v i l A f f a i r s ; The Department of Finance; The Department of Education; The Department of Reconstruction or public works; The Department of Agriculture, Industry, and Commerce; The Department of Public Health; The Department of So c i a l A f f a i r s ; And 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 to 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 Special Municipal Govern-1 ments. The Provinces were divided into about 2000 Hsien. To each 2 Hsien was appointed a Magistrate. The administrative organizations of each Hsien Government were mainly c l a s s i f i e d into several Bureaus: The Bureau of Finance; The Bureau of Police; The Bureau of Reconstruction and public works; The Bureau of Education; The Bureau of C i v i l A f f a i r s ; And other Committees. A l l Hsien were divided i n t o three classes according to 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 of 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 Municipality 1. There were only s i x Special Municipal Governments before 1^37, namely, the Municipal Governments of Nanking, Peping (.the former name was Peking), Shanghai, Tientsin, Tsingtao, and Siking. 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 Central Government. under the di 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 organization of the Provincial Municipal Government was, i n general, akin to that of the other Hsien governments. The f i n a n c i a l power of 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 or c i t i e s . The delegates of each d i s t r i c t , elected by the people, formed a Hsien Assembly. The power of t h i s Assembly was to discuss and to approve the budget of the Hsien govern-ment, and to consider suggestions regarding\u00E2\u0080\u00A2the improvement of the Hsien, and other matters referred to i t by the Magistrate. To sum up, the system of government under the National Govern-ment was designed as follows: The System of Government under the National Government The Congress of the Kuomintang The Central Executive Committee of the Kuomintang The National Government The Leg i s l a -t i v e Yuan The Judi- The Execu-c i a l Yuan tive-Yuan The Con-t r o l Yuan The\"Examina-t i o n Yuan The P r o v i n c i a l Government The Special Muni-c i p a l Government The Hsien People's Council or The Pr o v i n c i a l Municipal People's Council The Pr o v i n c i a l Muni-c i p a l Government The Hsien Government 1. There were sixteen P r o v i n c i a l Municipal Governments before 1937 57 The chief 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 National, the Special Municipal and the Provincial AGovernments w i l l not be treated as an important topic. B. The F i r s t National Financial Conference A chaotic f i n a n c i a l system had been b i t t e r l y experienced -ten by t h i s nation f o r eight years. When u n i f i c a t i o n was, through a series of p a i n f u l m i l i t a r y campaigns, at the point of being r e a l i z e d , the F i r s t National Financial Conference convened at Nanking i n July., 1^28. For the purpose of t h i s Conference the Minister of Finance, T. V.Soong, explained, \"The f i r s t and most important matter of t h i s Conference i s to deal with 'unification' i n finance. The premise of our discussion 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 'unified 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 neither based on the concept of warlordism, nor federalism, but on the basis of nationalism. At t h i s Conference, there were three important Resolutions worked out. They were put into effect i n 1929. The f i r s t Resolution which defined a budgetary procedure concerning the Central and provin-c i a l governments, can be summarized as follows: (a) After t h i s Conference has divided the government revenues and obligations 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 financ-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 Ministry of Finance of the Executive Yuan should submit the central and p r o v i n c i a l budgets to the National Govern-ment f o r promulgation and enforcement. (c) Once every three months both the Ministry of Finance and the p r o v i n c i a l authorities should report i n d e t a i l on the actual workings of t h e i r respective revenues and expenditures to the Central 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 follows: (a) A l l a f f a i r s r e l a t i n g to the procedure, s t a f f members and admin-i s t r a t i o n of the central 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 Ministry of Finance should ensure that a l l the central rev-enue be remitted d i r e c t to the Central Treasury without being detained. (c) Receipts, disbursements, deposits, and auditing of the govern-ments' finance should be s t r i c t l y under the control of the Ministry of Finance. The t h i r d Resolution was the demarcation between the central and the p r o v i n c i a l finances, known i n l a t e r years as the Financial Division Act of 1?28. This Financial D i v i s i o n Act dealt with 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 Central and provin-c i a l governments to levy taxes i s determined by t h i s Conference as follows: (a) The Central revenues and receipts from: The s a l t tax; The custom duties; The tobacco and l i q u o r taxes; The cigarette 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 receipts from Government operating enterprises; Other revenues and receipts defined by law. 59. (b) The P r o v i n c i a l revenues and receipts from: The farm land tax; The t i t l e deeds tax; The broker tax; The pawnshop, tax; The butchery tax; The inland f i s h i n g tax; The ship, boat, and vehicle duties; The house duty; Other revenues and receipts defined by law. Several additional taxes were recommended by t h i s Conference with the expectation that they would be actually l e v i e d within a few years. A r t i c l e 3 defined that: The power to levy the additional 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 follows: (a) The Central taxes: The income tax; The succession duty; The special excise tax; The 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 receipts and disbursements of the Provincial:Municipal and Hsien Governments s h a l l be regulated by each respective Provin-c 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 land be improved. After the land taxation was reformed, the p r o v i n c i a l governments were to share the new land taxes instead of the old l e v i e s . 60 f i n a n c i a l statements of i t s subordinate governments to the Ministry of Finance (of the Executive Yuan) f o r approval or revi s i o n . A r t i c l e s h, 6, 7 and 10 dealt with the possible problems a r i s i n g out of the execution of the Financial D i v i s i o n . These A r t i c l e s can be summarized i n the following points: The province, having introduced the Financial D i v i s i o n , s h a l l not levy or impose any new tax without permission from the Central Government. The province s h a l l not c o l l e c t the old taxes which are i n con-f l i c t w ith those under the Financial D i v i s i o n . The province s h a l l be prohibited from c o l l e c t i n g the old tax or taxes which are not stated i n the Financial 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 Financial D i v i -sion s h a l l be subsidized by the Central Government. Before t h i s Conference was held, the levying 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 of the Kuomintang, the Idkin was to be abolished. A r t i c l e 8 thus stated that: 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 within s i x months aft e r the Financial 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 also decided that the Central Government was f i r s t to t ake over the administration 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 Financial Division dealt with the govern-ment obligations. The p r o v i n c i a l obligations and expenditures were de-fined as follows: 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 ; J u r i s d i c t i o n ; The cost of the Financial Department of the P r o v i n c i a l Government; R e l i e f and pensions; Provincial and l o c a l administration; Police protection; Education; Local agriculture, mining, industry and commerce; Local public enterprises; Public works; Public health; Provincial 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 akin to those i n the temporary Act of 1927. The differences between these two f i n a n c i a l measures can be summarized as follows: (a) The f i s h i n g tax \u00E2\u0080\u0094 the Temporary Act of 1927 defined that a f i s h i n g tax belonged to 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 defined that the maritime f i s h i n g tax belonged to the Central Government and the inland f i s h i n g tax belonged to the p r o v i n c i a l governments. (b) The income tax \u00E2\u0080\u0094 the Act of 1927 d i d not specify that the pro-v i n c i a l governments could share the income tax i n the future, while the Financial Division defined that the p r o v i n c i a l govern-ments would enjoy an income surtax. 6 2 . (c) The p r o v i n c i a l defence \u00E2\u0080\u0094 the Act of 1927 defined the p r o v i n c i a l defence as one of the functions of the p r o v i n c i a l governments, while the Financial Divis i o n did not e n t i t l e the p r o v i n c i a l governments to carry this function. The Division Act of 1928 was to be i n effect i n 1 9 2 9 . In the preceding chapters, i t has been pointed out that the m i l i t a r y leaders were one of the factors causing a chaotic administration i n finance, A M i l i t a r y Reorganization Conference was then held i n January 1929 i n order to make the enforcement of the Division Act e f f e c t i v e . At t h i s Conference some measures were proposed. They can be summarized as (a) A l l central taxes s h a l l be collected only by the agents of the Ministry of Finance of the Executive Yuan. The m i l i t a r y and l o c a l authorities s h a l l be s t r i c t l y forbidden to r e t a i n any portion, or impose surtaxes, on any pretext whatsoever. (b) The Ministry of Finance s h a l l have undivided control over the appointment of f i n a n c i a l o f f i c e r s and the administrative p o l i c y i n the f i e l d of central finances. (c) Only the Central 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 of the old p r o v i n c i a l reserve army being organized fo r p olice services s h a l l be paid out of the p r o v i n c i a l revenues. 1. Cf., The China Year Book. 1931. The North China Daily News and Herald L t d . , Shanghai, p. 3 3 b . 1 follows 6 3 C. Enforcement of the Financial Division 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 Division Act was supposed to commence from July 1929 to June 1930. In a c t u a l i t y , however, the war torn provinces were unable to -work out the i r budgets; some provinces did not issue t h e i r f i n a n c i a l statements; and i n some cases the provin-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 to 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 gradually and f u l l y carried 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 Un i f i c a t i o n to peace were described i n the T.V.Soong's 3 Report. Part of the Report stated that, \"To understand the (central f i n a n c i a l ) s i t u a t i o n we must remember that: ( l ) at the beginning of the f i s c a l year (July, 1929 - June, 1930), and during a considerable part of the twelve months, although the (National) Government had to undertake the r e s p o n s i b i l i t i e s of the entire country, i t had at i t s actual disposal 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 to bear three major m i l i t a r y campaigns to prevent i n t e r n a l disruption ( the Communist Revolts).\" 1. Cf., Chia Teh-huei, Vol. I . , p. 25. 2. Cf., T.V.Soong's Eeport submitted to the Fourth Central 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 Pr o v i n c i a l Government published a statement of i t s expenditures f o r the f i s c a l year of 1929 (July, 1929 June, 1930), and an estimated budget f o r the next f i s c a l year. The statement and the budget read as follows: Estimated Statement of the Expenditures of the 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 200,000 yuan 1.0$ Administration expenses 6,500,000 yuan 32.5$ J u d i c i a l expenses 1,500,000 yuan 7.5$ Financial administration 1,500,000 yuan 7.5$ Education & Culture 500,000 yuan 2.$% Agriculture and Mining 2,200,000 yuan 11.0$ Construction 4,000,000 yuan 20.0$ Land reorganization 1,500,000 yuan 7.5$ P r o v i n c i a l debts 2,000,000 yuan 10.0$ Contingency fund 100.000 yuan 0.5$ Total 20,000,000 yuan 100.0$ Kiangsu Pr o v i n c i a l Budget fo r the 1930's F i s c a l Year Revenues and Receipts from: Land tax 7,222,719 yuan 30.1$ Inland f i s h i n g dues 20,482 0.1 Shipping dues 30,079 0.2 Business tax 4,000,000 16.5 Special appropriations f o r education from the Central Government 4,596,552 18.8 Receipts from Enterprises 82,746 0 .3 Construction loan pro-ceeds 4,000,000 16.5 Subsidies from the Central Government 3,600,000 I4.I4. Other receipts 76\u00C2\u00A3,51J4 ' 3.1 Total ' 24,319,122 100.9$ 1. Source: The China Year Book, 1931, p. 344. 65. Kiangsu Provincial Budget Continued. Expenditures f o r Party expenses Administration J u d i c i a l administration Police protection Education Agriculture and mining Public health Construction Subsidies to the sub-ordinate governments Contingency fund 54,'i20 k,942,544 276,000 yuan 3,469,653 1.1* 14.2 10.3 1827 22.7 3.5 0.2 20.3 82k,371 1,011,794 3.U 4.1 T Total 24,319,122 ( c i t . ) 98.8* For securing further improvement of nation-wide supervision the National Government i n November 1930 set up a Financial Control Department. This Department tra.s d i r e c t l y subordinated to the Chairman, or the President, of the National Government, and, was to audit both the .\u00E2\u0080\u00A2 central and p r o v i n c i a l finances before the l a t t e r were passed at the Legislative Yuan. With t h i s special power i t was hoped that the new Department would carry out i t s function more e f f e c t i v e l y . And, i n e f f e c t , by the establishment 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 finance, because the new Department was i n charge of preparing a l l central and p r o v i n c i a l preliminary budgets. figures to 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 following Tables. 1. Calculated from the sum 2k,3l9,122 yuan. In the following year, this Department collected and published 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) Pro v i n c i a l Governments Total Revenue i n T93O-1931 Total Expend-i t u r e i n \"I93I l930~ Increase {+) or Decrease (-) i n Revenue i n -a* 2. Amount Percentage Anhwei Chahar Chekiang Ch'inghai Fukien Honan Hopei Hunan Hupei Jenol Kiangsu # Kwangsi Kwangtung Kweichow Ninghsia Shangtuung Shansi Shensi Sinkiang Yunan 15,856 2,348 25,195 1,976 27,510 I?!849 23,600 1,714 26,176 13,744 I, 105 24,575 II, 350 13,995 3,205 3,125 16,170 2,270 21,675 H i , 480 15,565 10,713 13,024 1,603 24,319 21,883 37548 15,856 2,348 25,195 1,045 30,839 17,849 33,223 I7,12U 28,007 2,359 26,176 11,016 k m 3,125 2U,575 10,832 20,781 8,947 5,431 16,170 2,066 21,009 14,680 15,764 17,015 23,764 2,197 24,319 19,442 8,402 584 78 3,521 3,164 17,659 6,410 10 576 111 1,757 0.03 0.01 16.24 21.85 81.20 0.07 0.07 \u00E2\u0080\u00A2 2,692 12.30 342 0.09 # The revenue and expenditure of the Kiangsu Pr o v i n c i a l Government for 1930's f i s c a l year are c i t e d from Pp 66-7, supra. Details of 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. TABLE V 67. ITEM! The Budgets of Seven Selected P r o v i n c i a l Governments July,193l - June,1932 (1) (Unit: OOP yuan) PROVINCES Per-Revenues and Shan- Kiang- Chec- Honan Hopei Hunan Jehol Total cent-Receipts tung su kiang age Land 14958 11926 9391 8156 1+867 2374 5io 52182 35.7 T i t l e Deeds 1010 680 1677 1197 36O 73 4997 3-4 House 184 184 0.1 Ship 235 70 305 0.2 Pawnshop 6' 5 11 Wholesale 349 650 300 4051 160 6 .,5516 3-7 General Business I898 36OO 4755 600 2000 1400 14075 9.6 Butchery 270 650 200 921 314 49 2404 1.6 Administration 1908 380 700 1132 146 13 3469 2.4 J u d i c i a l U69 186 655 0.5 Properties 70 210 ty 846 50 1210 0.9 Enterprises 3682 88 1996 522 6288 4.4 Credits and Loans 3000 4000 6000 3000 10000 7.0 Subsidies 123u 2064 1800 17013 3567 120 30564 20.9 Others 3139 1782 394 1005 5499 943 13996 9.6 D e f i c i t 64? Total 21+575 26176 25195 17849 33223 17124 1711+ 145865 100.0 Expenditures F a r t y 948 Administration 3990 Police Pro-tec t i o n 3817 Health Education 309I Financial 2150 Administration Industries 827 Reconstruction 2619 Communication Debts 622 Enterprises 1093 J u d i c i a l 2242 Contribution 465 Reserve 2000 Others 192 297 717 U33 3255 2102 2911 2535 4192 5258 2700 795 54 104 5123 2959 1955 3534 1119 1358 741 858 767 567 362 538 5080 889 611 1066 1344 577 264 5592 4927 7587 2611 1641 1+29 130 2063 1094 2862 1302 1354 12220 1106 84 1402 400 31 350 1 725 3674 1748 167 3232 1899 534 100 1561 1240 332 500 1412 73 3385 2.4 889 19356 13.2 721 19231 13.2 148 . 325 0.2 20042 13.7 103 8129 5.6 7 3602 2.3 110 10475 7.2 4 21+16 1.6 200$2 13.7 216 4103 2.8 12328 8.4 4 15677 10.7 84 5576 3.8 1794 1.2 Total 24575 26176 25195 1781+9 33223 18124 2359 146501 100.0 1. Source: The China Year Book, I934, Pp 502-510. 68. The largest revenue of the p r o v i n c i a l governments was the land tax which made up 35.7 per cent of the t o t a l i n the f i s c a l year of 1931. This tax was imposed on the farm land. Some provinces mentioned i n Table V put the revenue from the house tax into the land tax; and the others granted the house tax to the Hsien governments. 2 The business tax 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 license taxes. This tax yielded l k . 9 per cent of the t o t a l revenue i n the f i s c a l year of 1931. The assessment rates on t i t l e deeds tax were not uniformly l e v i e d , varying from 2 to 9 per cent (including the surtaxes of the Hsien governments) among the provinces. This tax provided 31.U' per cent of the t o t a l revenue i n 193l\u00C2\u00BB Among a l l the expenditures, those f o r education and debts were the lar g e s t , both adding up to I3.7 per cent of the t o t a l . The expenditures f o r administration ( i n some provinces, i t included the expenditures f o r public health, etc.) and poli c e protection came next, each accounting f o r 13.2 per cent of the t o t a l . The expenditures f o r 1. Chia Teh-huei, Vol. I I , p. 592,\"lh January, 1927, the Central Execu-t i v e Committee of the Kuomintang decided to adopt a general land tax. This proposal was l a t e r passed by the Leg i s l a t i v e Yuan as the Land Act and the Central Government promulgated this Act i n June I93O.\" Thus, in many provinces, the taxes on improvements, unimproved land were included i n the land tax. 2. In March, 1931, the p r o v i n c i a l governments were to enforce the busi-ness tax according to t h e i r own provisional by-law. The resu l t s of th i s enforcement were to be reported to the Central Government i n order to draw up an o f f i c i a l Business Tax Act. In June, 1931, the Business Tax Act was promulgated by the Central Government. Cf., Chia Teh-huei, Vol. I I , p. 602. 69. i n d u s t r i a l administration, reconstruction, communication, and public enterprises were, i n some cases, incorporated under different headings. These expenditures amounted to 12.3 per cent of 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 introduction of a constitutional system throughout the nation. During t h i s Period, the Central, p r o v i n c i a l , and l o c a l governments were to support the expenses of the Kuomintang. In 1931, the fund contributed by the provinces f o r the Kuomintang was 2.U per cent of t h e i r t o t a l expenditures. Since the enforcement of the Financial D i v i s i o n Act the Central Government l a t e r also adopted two measures i n an e f f o r t t o prevent many of the provinces from suffering d e f i c i t s . I t supervised the p r o v i n c i a l expenditures, requiring i n some instances that expenditures be reduced, and subsidized the p r o v i n c i a l government to meet t h e i r d e f i c i t s . P r i o r to the D i v i s i o n Act, China did not have a proper subsidy system. During the early Ch'ing period, the p r o v i n c i a l governments had no power to levy taxes, but t h e i r cost of government was e n t i r e l y assumed b y t he Central Government; and i n the l a t e Ch'ing period, as the pr o v i n c i a l expenditures were being expanded from time to time, the d e f i c i t s incurred i n the p r o v i n c i a l governments was assumed by the Central Government. Since the Republic came into existence, chaotic 1. See Table IV, p. 67, i n f r a . 70. f i n a n c i a l administration followed, and as a r e s u l t there was no subsidy-system 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 to e f f e c t a proper taxation and disbursement system f o r both the Central 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 practice was d i f f i c u l t to anticipate at the time of the F i r s t F i n a n c i a l Conference. But the Division Act l a i d down a clause specifying that the Central Government was responsible f o r the d e f i c i t incurred i n adopting the said 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 to the Chairman of the National Government, the f i n a l decision of increase or decrease i n p r o v i n c i a l budgetary figures was l e f t i n the hands of the Department. Under such practice, the subsidy system of the National Government could be termed a general subsidy system. A H the subsidies granted from the Central Government to, 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 Financial Control. 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 of 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 tax and from public properties and enterprises were increasing more rapidly than those from the land tax and other revenues. TABLE VI 71. The Budgets of Nineteen Pr o v i n c i a l Governments for the F i s c a l Years of 193\u00C2\u00B0 (D Percentage Range K e v e n u e s a n a Receipts Amount: UUU yuan Range Total Average Land tax 302-14,600 11-2.305 15-48O T i t l e deeds tax House tax 0,or Ship tax 0,or 7-527 Business taxes 330-9,124 Administration fees 1-5,096 P r o v i n c i a l 3-950 Properties 0,or Pr o v i n c i a l Enterprises 0, or ' 28-3,905 Credits & Loans 0, or 800-3,800 Subsidies from the Central Government 122-6,725 Others 68-8,481 101,211 15,209 1,950 1,486 52,634 15,743 4,119 14,973 30,316 54,325 5.14-54.61 0.24- 9.69 o. i t f - 2.49 0.12- 1.95 3.45-36.40 0.05-11.66 o . l l - 4.79 0.45-13.50 3.01-45.73 6.29-3I.67 0.27-46.84 29.27 4.40 0.56 0.43 15.22 4.55 1.19 4.33 9.64 15.71 14.70 Total 345,755 100.00 Expenditures Party # 0,or Administration Police Protection Public Health # 0,or Education Financial Administration Industries 0,or Reconstruction 0,or Communication 0, or Debts 0,or Enterprises 0,or Ju d i c i a l Administration Pensions # 0,or Reserve Others 0,or Subsidies to tiie Local Governments 48-812 330-6,009 81-6,409 13-600 152-5,743 147-4,067 3-4,067 39-6,019 8-2,606 IO-23.280 80-2,840 51-2,932 5-204 87-3,756 16-2,000 3,703 47,081 51,149 2,568 46!731 18,799 9,694 29,853 5,768 58,822 6,024 23,457 812 14,614 4,789 0.44- 4.24 7.14- 30.57 3.42-27.04 0.20- 3.52 7.87-20.59 3.35-13.04 0.12-11.65 1.81-19.87 0.25- 6.19 0.19-53.23 0.29-10.67 2.15- 11.43 0.04- 1.02 0.20-15.32 0.15- 6.82 12-4,113 21,911 0.23-54.06 1.07 13.62 14.79 0.74 13.52 5.44 2.80 8.63 1.67 17.01 1.74 6.78 0.24 4.23 I.38 6.34 Total 345,755 100.00 # In some cases t h i s item was incorporated into the expenditures f o r administration. 1. Source: Chia Teh-huei, Vol. I I , Pp 575-79, 6IO-I3. 72. Table VII 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 of 1936 as compared with those of 1931. This Table also indicates that the p r o v i n c i a l finances were becoming more stable. TABLE VII Increases and Decreases of the Provincial Revenues 1 i n Four Selected Provinces f o r I936 compared with 193I (Amount: 000 yuan) Increase; + Decrease1 -Revenue Total m j v i f e Total % Sources i n Shang- Kaang-- Ohe- Honan Hunan \u00E2\u0080\u00A2 and - 1930 -1931 tung su kaing i n 1936 100 Land 46805 13U0+ 816+ 1080+ 2761* 1468* 5767+ 112.3 T i t l e Deeds 3727 358- 1379+ 400+ 573+ 506+ 4198+ 212.7 House 181; 470+ 0 0 0 93+ 563+ 402.7 Ship 305 0 0 3+ 0 22- 19- 93.7 Business 1496k 1438+ 305- 911+ 1314+ 1817+ 5175+ 134.6 Administrat ion fees # 2793 1221- 1+ 333+ 614+ 78+ 195- 92.6 Properties 364 267* 296+ I76* 93+ 290+ 1522+ 518.2 Enterprises 62888 3107- 1233+ 3544+ 334- 907+ 2243+ 135.7 Loans 10000 0 0 2806- 2400+ 3000- 3406- 65.9 Subsidies 13431 2767+ 657+ 2769* 2913- 202- 3078+ 122.8 Others 12048 24* 2877- 1704- 78- 2575+ 1676- 86.1 Total 110929 1620* 1200+ 5106+ 4430+ 4894+ 17250+ 115.6 # Including the rec e i p t s from the j u d i c a l administration Since the Republic, the p r o v i n c i a l governments often resorted 2 to borrowing when t h e i r ordinary revenue was f e l t to be inadequate. U n t i l 1925, the p r o v i n c i a l net debts of thirt e e n provinces from bonds and loans amounted to about 51,120,000 yuan, 7,367,762 Japanese Yen, and 3 972,164 pounds s t e r l i n g . Most of the proceeds of the loan issues were, 1. Source: Chia Teh-huei, Vol .11, Pp 575-77, and p. 6\u00C2\u00A3 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 or i n d i r e c t l y , used f o r m i l i t a r y expansion of 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 carried 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 figures include the bonds outstanding, the bonds that had not been f u l l y issued, and i n some cases, the bonds that had been paid o f f . TABLE VIII The Pr 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 (Amount; OOP Yuan) P U R P 0 S E S \u00E2\u0080\u00A2 Year Banking^ Reconstruc- R e l i e f Old Enter- Others Total t i o n # Debts prises * 1927 3000 3000 1928 8000 8000 1929 20000 7400 27400 1930 49000 7000 3000 59000 1931 10000 26000 8738 44738 1932 500 4500 3000 6200 14200 1933 1000 1000 2000 1934 4000 20000 6000 30000 1935 2000 24800 60000 2000 88800 1936 30000 3000 33000 1937 900 10000 10900 Total 83OOO 93300 39500 60000 3900 41338 321038 % 25.7 29.1 12.3 18.7 1.3 12.9 100.0 # Includes r e h a b i l i t a t i o n , etc. * The bonds issued 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 of t h i s century most of the p r o v i n c i a l goveijnments issued coins and banknotes through t h e i r respective 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 period of warlordism p r i o r to 1926. As a resul t of thislf some p r o v i n c i a l governments issued bonds. In order to maintain the value of 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 control of . currency. 3. Source: Chia Teh-huei, Vol. 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 Financial D i v i s i o n Act of 1928, the Hsien finance was to be directed 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 into e f f e c t . According to this Law, the Hsien finance was to be directed by the magistrate of the Hsien government. Before the Law was enacted, the custom had developed that the Hsien governments were granted by t h e i r respective p r o v i n c i a l govern-ments, a few sources of p r o v i n c i a l revenue f o r t h e i r functions. 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 finance. After 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 surtax was the most important. Speaking generally, 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* receipts di f f e r e d from one province to another. By the Organic Law, the magistrate and the bureau of finance, which was under his d i r e c t i o n , were enpowered to deal with: 1. Enforcement of the budget passed by the Hsien Assembly; 2. Co l l e c t i o n of the Hsien revenues and receipts; 3 . Disbursement of Hsien revenues and receipts; 4. Hsien debts; and, 5. Management of public properties and enterprises. This Law, however, neither provided new taxes f o r , nor defined the old taxes which should belong to the Hsien governments. But i t authorized the Hsien Governments to c o l l e c t revenues i n a vague sense. 75. The result was that the Hsien government developed a surtax system i n which the major sources of their income were derived 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 land, t i t l e deeds, and business firms. Because the p r o v i n c i a l governments were s t i l l the super-visors to the Hsien governments, the l a t t e r could not exercise 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, therefore, resorted to the undesirable Chuan le v i e s i n order to meet t h e i r obligations which were referred to them from the Hsien people's assemblies. Table IX shows the Hsien budgets i n sixteen provinces f o r the f i s c a l year of 1936. In many cases the p r o v i n c i a l governments granted the entire levying power over the t axes on houses and butchers to the Hsien govern-ments. In some cases they could even enjoy some surtaxes. In others, the p r o v i n c i a l authorities a l l o t t e d annually certain amounts of funds to t h e i r subordinate governing bodies instead of other devices. In 1936 the largest source of Hsien income was the surtax on farm land, on the average, 54.6 per cent of the t o t a l . The various Chuan le 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 receipts\" i n Table IX. On the average they made up 23.4 per cent of the t o t a l . The subsidies from the p r o v i n c i a l governments varied from 1 to 63 per cent among the provinces and on the average amounted to 5 per cent of the t o t a l Hsien income. Among a l l the expenditures, that f o r education was the largest, averaging 28.54 per cent of the t o t a l . Police protection accounted f o r 20.41 per cent and administration 19.43 per cent. Expenditure f o r reserve funds was 6.28 per cent. In that 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 the d e f i c i t s were 338,017 yuan and 2,079,698 yuan respectively. TABLE IX Budgets of the Hsien Governments i n Sixteen Provinces f o r the F i s c a l Year of 193\u00C2\u00B0 \u00E2\u0080\u00A2L 76. Percentage Revenues and Receipts Amount: 000 Xuan Range Total Range 30-22378 28-903 112-3077 4-63 76558 2593 4861 196 ll.3O-87.93 0.33-10.13 1.30-23.29 0.06- 0.77 279^28% 15-1436 2126 3544 7411 0.80-22.01 3.35-38.70 1.01-37.10 2 \u00C2\u00BB 8:&K:f? 27-236U 3-2775 8-3231 \u00E2\u0080\u00A2 6926 18017 14799 1.16-62.90 1.01-46.62 1.01-35.31 Aver T6T 54.60 1.85 3.47 0.12 1.52 2A 5.2 AS 10.55 r Surtaxes on: Land T i t l e Deeds Butchery *a Business #b Other p r o v i n c i a l levies House tax Public properties #c Tuitions and fees from the public schools Administration fees Subsidies from the prov-i n c i a l governments Miscellaneous l e v i e s Other receipts *d Total 140214 100.00 Expenditures Party *e 458-845 Administration 19-4755 Local self-government 479-27\u00C2\u00B00 Police protection 85-6334 Public health 1-543 Financial administration 1-1587 Education 72-9ol4 Industrial administration 20-319 Communication *g 23-481 Construction 4-2422 Relief and Pension 2-1121 Subsidies to the sub-ordinate bodies *h 2-1518 Reserve fund 77-3742 Others 4-1062 1303 27647 8132 29048 1411 4^*5 673 599 6683 3017 3168 8933 6326 2.76-2.79 9.17-49.68 12.48-24.15 5.31-52.19 0Q03- 3.29 0.45-9.34 15.51-64.04 0.59- 2.72 0.64- 3.64 0.79- 8.02 0.28- 4.12 0.24-13.04 0.87-12.39 1.82-16.28 0.92 19.43 5.71 20.41 0.99 *m 0.47 0.42 4.70 2.12 2.23 6.28 4.45 Total 142293 - 100.00 jyauvuMUJa?: Anhwei, Chahar. Chekiang. Ch'inghai. i>Ukien. Honan. Hupei. Kansu. Kiangsu, Kiangsi, Kwangsi, Kwangtung, Ninghsia, Shansi, Shangtung, Shensi, &a. In some cases t h i s item included the business surtaxes. *b. In some cases t h i s item included the butchery surtax. *c. Largely formed by the public farm land. -^ d. In some cases t h i s item included temporary loans, etc. #e. Chekiang and Kiangsu only. * f . Chekiang, Honan, Kiangsi, Kansu and Kwangtung i n c l u s i v e . *g. Jehol, Kwangsi and Kwangtung only. *h. In some cases t h i s item included the expenditures f o r l o c a l self-governments, etc. 1. Source: Chia Teh-huei, Vol. I I , Pp 642-8. 77. The financial a b i l i t y among the Hsien differed greatly from Hsien to Hsien and from province to 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 .Number\"of.Hsien T T ~'\u00E2\u0080\u00A2 \" \" Kiangsu Che Kwang Hwang Fu Shan Kiang Hupeh Ranges kiang tung s i kien s i s i 1,600,000 and above 1,500,000 - 1,600,000 1,400,000 - 1,500,000 1 1 1 1,300,000 -1,200,000 -1,100,000 -1,1+00,000 1,300,000 1,200,000 1,000,000 -900,000 -800,000 -1,100,000 1,000,000 y00,000 3 1 1 1 2 1 700,000 -600,000 -500,000 -800,000 700,000 600,000 1+ 6 5 2 1+ 1 1 1 400,000 -300,000 -200,^ 000 -500,000 1+00,000 300,000 J 9 2 8 9 5 9 2 1+ 8 2 1 1+ 1 1 2 8 2 8 150,000 -100,000 -50,000 -200,000 150,000 100,000 i+ 1 8 13 23 11 20 27 9 19 32 6 17 24 5 11 23 5 20 29 10 22 21 10,000 -5,000 -1,000 -50,000 10,000 5,000 4 17 1 23 8 28 2 ' 19 7 1,000 and less Total Hsien 60 75 95 99 62 71 83 70 1. Ben Tu-sing, p. 31. Number of Hsien \"Ch1 \"Ho C h a -bar Shansi Ningsia TOTAL ivan su An whei nan Shan tung 'ing hai 1 1 1 2 9 2 3 1 10 - 18 1 2U 17 51 15 17 70 36 Ul 22 6 l 2 5 2 U 1 25 80 10 0 0 1 ( c i t . ) U 2 3 5 9 10 15 40 70 87 218 347 265 1 65 $2 111 108 12 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 d i r e c t i o n . The by-product of the Financial D i v i s i o n Act was a general subsidy system which was to play an important role between the Central and p r o v i n c i a l governments. The nation had suffered so much during the decade of the t c i v i l wars p r i o r to 192y that i t seemed desirable to have a general subsidy system with the Central Government having control over the pr o v i n c i a l budgetary proceeds, i n order that the country as a whole could be reha b i l i t a t e d . However, i t was probable that the Central Government feared a possible expansion of p r o v i n c i a l power, since the Central Government i t s e l f had attained power through p a i n f u l c i v i l wars with the p r o v i n c i a l warlords. The \"Organic Law of Hsien Govern-ment\" was consequently planned to 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 Financial Conference i n 1934 was the re s u l t of three major causes. Two of them were p o l i t i c a l , the other, economic. At t h i s Conference, three important Resolutions were passed. The f i r s t Resolution proposed an a b o l i t i o n of various Chuan l e v i e s ; the second, recommended an adjustment i n the e x i s t i n g land tax system; and the t h i r d transferred some p r o v i n c i a l taxes to,the Hsien governments f o r administrative purposes. In the years that followed 193a, the f i r s t two Resolutions were gradually rea l i z e d ; the t h i r d one, however, was never put into e f f e c t . In spite of t h i s , the Second Fi n a n c i a l Conference was extremely s i g n i f i c a n t i n the history of Chinese public finance, because i t was the f i r s t time that the Hsien governments, the major l o c a l governments of the state, had been empowered by statute to levy taxes of considerable magnitude, \u00E2\u0080\u00A2? A. P o l i t i c a l Aspects Leading to the Financial Conference of 193k The f i r s t p o l i t i c a l force leading to the Conference of 193k was the c i v i l war between the National Government and the Chinese Communists. Therefore i t i s advisable to 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 plan of the National Government was brought about through the c o n f l i c t between the two Parties, 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 interests 80. and p r i v i l e g e s outlined i n the unequal t r e a t i e s previously contracted between China and Russia. The r e s u l t was the establishment of a f e e l -ing of friendship between the Chinese and the Russians, p a r t i c u l a r l y 1 on behalf of the Chinese revolutionary leaders. Between 1920 and 1922, the Chinese Communist Party was created. From then on, China had two great parties -which played an extremely important r o l e i n recent Chinese hi s t o r y . In 1922, a special envoy of the Soviet Government, A. Joffe, came to China and met Dr. Sun Yat-sen who, at that time, was only the leader of the Kuomintang Government i n Canton. This Government had not yet been i n t e r n a t i o n a l l y recognized. In January 1923, Sun Yat-sen and Envoy Joffe issued a j o i n t statement, which reads i n part as follows: \"Dr. Sun Yat-sen holds that the Communistic order or even the Soviet system cannot actually be introduced into China, because there do not ex i s t here the conditions f o r the success-f u l establishment of either Communism or Sovietism. This view 1. Cf., L i Jan-nung, Vol . 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 of the Imperial powers i n Peking .... When a Russian Envoy, A.Joffe, came to Peking, there were no representatives of the Chinese Government present; but fourteen people's organizations warmly welcomed Envoy Joffe, and a series of parties.and meetings followed. This was the f i r s t occurrence i n Chinese history of ' c i v i l i a n diplomacy'. This action was not indicative of a desire on the part of the Chinese Ccmmiunists to unite with Russia, because the number of the Communists was extremely small among the fourteen groups. Nor was i t an endeavour by the Kuomintang to unite with Russia, because at that time Joffe had not. as yet met Sun Yat-sen. I t was, however, an in 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 to the Russians. The Warlords i n Peking could not prevent t h i s sort of occurrence because they could not declare i t i l l e g a l ; and, the foreign diplomatic of f i c e s did 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. Joffe, who i s further of the opinion that China's paramount and most pressing problem i s to achieve national u n i f i c a t i o n and a t t a i n f u l l national independence, and regarding t h i s task, he has assured Dr. Sun Yat-sen that China has the warmest sympathy of the Russian people and can count on the support of Russia.\" 1 After the reform of the Kuomintang, i n 1924, an understanding was reached with the Chinese Communists whereby i n d i v i d u a l Chinese Communists were allowed to j o i n the reformed Kuomintang i n order to bolster the revolutionary elements i n the country. Meanwhile, an important member of the Chinese Communist Party, L i Ta-chao, declared: \"In j oining the Kuomintang, coimnunists of the Third International are to obey Kuomintang d i s c i p l i n e and to par t i c i p a t e i n the national revolution. They have not the s l i g h t e s t intention of turning the Kuomintang i n t o a Communist party. Those Communists who j o i n the Kuomintang do so as individuals and not on a party basis.\" 2 This statement was ch a r a c t e r i s t i c of the s p l i t between the Kuomintang and the Chinese Communist Party i n l a t e r years, i n that there was never an actual agreement which could c l a r i f y the future relationship between the two Parties who were now together undertaking the task of unifying the country. This was p a r t i c u l a r l y true where m i l i t a r y a f f a i r s were concerned. In 1927, following the m i l i t a r y campaigns of the preceding year, the National Government moved to Hankow. This Government was made up of members of both Parties. At the same time, the Communist Party was developing on a party basis 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 Parties was becoming apparent as time went on. In A p r i l of the same year when the National Government, 1. China's Handbook, 1937-45, p. 66. 2. Ibid. 82. under Generalissimo Chiang Kai-shek moved to 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. In July 1927, the Chinese Coinmunist Party created the Chinese Soviet Republic and set up the Chinese Soviet Government i n southern Kiangsi with i t s t e r r i t o r y i n several central provinces. In 1933, two years a f t e r the Japanese had invaded the North-eastern Provinces, Chiang Kai-shek declared a general mobilization order i n eight provinces, i n order to raise an army to remove the Communists completely before the outbreak of an o f f i c i a l war with Japan. By 1935, the National Government had launched numerous suppressive moves i n the central 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 to 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 substantially to the dis i n t e g r a t i o n of the state since 1917 and had been an adverse influence on the progress of the Central author-i t i e s . Therefore i n 1933 a remarkable monetary reform was undertaken by the National Government. The Standard S i l v e r Dollar was minted and authorized as f u l l l e g a l tender replacing the unstable and chaotic provin-c i a l s i l v e r and paper currencies. Thus f o r the f i r s t time since 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 Financial Conference of 1928, was further reduced. The National Government planned to 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 of strengthening the provinces, consist-ent with the underlying philosophy of the Kuomintang, l a i d down by Sun Yat-sen i n his \"Fundamentals of National Reconstruction\". In the Fundamentals i t was recommended that the Hsien governments be the ultimate governmental unit to perform government services, while the pr o v i n c i a l governments were to serve as an intermediary between the Central and the Hsien governments. The Second National Financial Conference was held to r e a l i z e t h i s purpose. The other p o l i t i c a l pressure leading to t h i s Conference was the tenseness between China and Japan. In 1928 Chiang Kai-shek led his troops across the Yangtze River towards his objective -\u00E2\u0080\u0094 Tzinan, the c a p i t a l of Shangtung. Mean-while, the Japanese Government had been sending^reinforcements into t h i s Province, pretending to protect the Japanese residents and t h e i r properties, but ac t u a l l y to prevent the War of Unif i c a t i o n and to b o l -ster 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. Inevitably, i n May of the same year, street f i g h t i n g broke out i n Tzinan between the Nationalists and the Japanese. An unprecedented anti-Japanese f e e l i n g spread throughout the country even before the Unif i c a t i o n was f u l l y accomplished, Chang Tscj-lin was at that time the head of a central govern-ing body which he had recently formed at Peking. He sent a cease-fire order to his troops f i g h t i n g Chiang and began .peace negotiations with the Nationalists. Chang's actions 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 to Mukden, the c a p i t a l of 1 the Eastern Provinces where his p o l i t i c a l strength originated. 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 Tsd-lin, \"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. In December of 1928, the Kuomintang's f l a g flew over a l l the 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 increasingly serious. On the night of 18th September 1931 what the Japanese termed the \"Mukden Incident\", broke out. In the following year a puppet \"Manchu Government\" was set up at 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 -icant warlike a c t i v i t y from the puppet state, \"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 fter 1933 the Japanese ag i t a t i o n l e d to Mongolian independence from China, and thereupon successive battles followed between the National Government and the Mongol-Japanese forces 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 resistance and international opposition, however, rendered the ft/ 2| r e a l i z a t i o n of t h i s play'(the Japanese invasion) impossible.\" The \"Shanghai Incident\", thus, ended through negotiations between the two countries. 1. The International Year Book, 1928, New York, p. 166, \"Previously he (Chang Tso-lin) had been a mere t o o l of the Japanese Foreign Office, 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 ultimately breaking completely with Tokyo.\" 2. Ibid., . 3. KeilungldLang, K i r i n , Liaoning and Jehol. 4. L#i Hai-tsung, History, Chinese. Year Book, 1937, p. 125. 85. From 1932 on, the National Government had been preparing 1 f o r an o f f i c i a l war with Japan. Bearing i n mind the abuses of warlord-ism as they existed p r i o r to the Unifi c a t i o n , i t seemed v i t a l that the National Government attempt to eliminate any probable p o l i t i c a l threat from the p r o v i n c i a l governments i n order to concentrate t h e i r e f f o r t s against the Japanese. In the opinion of the w r i t e r , the Second National Financial Conference should be considered only i n connection with this p o l i t i c a l preparation f o r war. B. Economic forces leading to the Financial Conference of 1934. When the storm of world depression appeared i n I929, China 2 had the only s i l v e r standard i n the world. China, at that time, was not only a s i l v e r standard country, but there was a free 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 prices abroad e s s e n t i a l l y domin-ated her economic trends. From 1929 to 1932 the heavy f a l l of s i l v e r prices r e l a t i v e t o gold prices prevented China from suffering most of the adverse effects of the world depression, because the lower s i l v e r prices brought i n f l a t i o n a r y conditions i n the country. As a result, the general price l e v e l went up steadily from I929 to 1932. 1. Cf., Chang Peh-yi, p. 7. 2. Hawtrey, R.G., Pp 73-U, \"The greater part of L a t i n America had formerly had s i l v e r currancies, but had lapsed into inconvertible paper. Those countries which emerged from t h i s state of confusion, such as Peru, Argintina, 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 application of gold exchange standard. Similar measures settled other Far Eastern currencies on a gold basis, t i l l i n 1911; China almost alone i n the whole world retained 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 price l e v e l because of the f a l l of s i l v e r prices abroad. The other was the f a l l of cereal prices i n spite of the i n f l a t i o n a r y influences, 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 section, which was a major part of the t o t a l population. These unbalanced developments inevitably resulted i n economic c r i s i s i n a l a t e r period. Beginning with 1932 s i l v e r prices went up rapidly abroad, resulting i n d e f l a t i o n and business panic i n China. From 1933 onwards, the general price l e v e l dropped and the f a l l of cereal prices c r i t i c a l l y continued because of a good season. The influences of the world depres-sion 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 locusts and cereals i n more than 70 Hsien were l o s t . The increase i n price of cereals i n that year cannot be con-sidered as one of the influences of the great depression. From 1929 to I93I the general wholesale index climbed rapidly, while the cereal wholesale index declined. In I932 and 1933 the price of s i l v e r abroad was increasing and the general index i n Shanghai f e l l o f f , but the prices f o r cereals dropped even further. Because the agrarian population i s the greatest proportion of the t o t a l , the decline of cereal prices greatly checked domestic commercial a c t i v i t i e s . TABLE XI Effects of the World Depression i n China 1929 to 1934 Wholesale index, base year: 1926 - 100.0 Unit of s i l v e r trade: Chinese Standard Dollar - 26.7 grams s i l v e r , 880 fineness Trade, unit: 000,000 Haikwan tae l s - $34,000 i n U.S.A. funds. Unit of gold trade: Custom Gold Unit - 60.19 centigrams of pure gold. 1929 End of 1930 1931 1932 1933 1934 Wholesale index i n Shanghai (including cereals) 1 Wholesale index i n 2 Shanghai f o r cereals 101*. 5 97.2 114.8 110.3 1*6.7 94.4 112.4 81.7 103.8 69.6 97.1 69.1 New York quotations on * s i l v e r i n cents per ox. 48.48 32.64 30.12 25.01 43.35 54.39 Excess of imports(in Haikwan t a e l s ) other than s i l v e r . 4 1104 1106 1285 978 ? ? Excess of s i l v e r imports'' 164.9 104.4 70.8 - - -Excess of s i l v e r exported \u00E2\u0080\u0094 \u00E2\u0080\u0094 \u00E2\u0080\u0094 11.4 .14.1 -S i l v e r exports including smuggling. 7 200.0 a Excess of gold exports. 3.15 19.02 27.29 59.27 35.54 26.22 1. Chinese Year Book, 1937, p. 639. 2. Ibid. 3. Money and Banking, League of Nations, 1936-7, Vol. I I , p. 40. 4. China Year Book, 1934, p. 174. 5. Chinese Year Book, 1937, p. 555. 6. Ibi d . 7. Chia Teh-huei, Vol. I I , p. 463. 8. Chinese Year Book, 1937 issue, p. 554. 88. While the prices f o r s i l v e r were decreased abroad, the imports of s i l v e r played an important role i n monetary i n f l a t i o n . But from 1932 onwards, s i l v e r prices 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 greatly i n 1934, that of cereals had sunk to 69.1. The farming communities were most depressed and approached bankruptcy. Thus to 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 land tax system were urged everywhere throughout the country. The Second National Financial Conference was, therefore, h a s t i l y c a l l e d . C. Resolutions of the Financial Conference of 1934 The Resolutions of the Conference were i n four parts. The f i r s t part 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 \"International Trade\". In the f i r s t part 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 section of t h i s part, the \"Abolition of Miscellaneous Chuan\", stated that, \"Since the Financial Division Act of 1928 has been i n e f f e c t , the expenditures of the provin-c i a l and Hsien governments have been greatly increased. Since the recent expansion i n expenditure of the said governments seems to 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 to time. The disadvantages of the Chuan and s i m i l a r l e v i e s could be enumerated as follows: \"1. They are contrary to the public i n t e r e s t ; 2. They are detrimental to communication; . They encroach upon the source of the central revenues; . They constitute overlapping taxation; 5. 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 Financial 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 of production or of marketing. Except f o r t h e Chuan levies imposed on the persons and firms there were no p r a c t i c a l means f o r distinguishing the Chuan from the L i k i n . While i t was decided to abolish the L i k i n l e v i e s by the Financial Conference of 1928, the Chuan le v i e s were not mentioned. The Financial Conference of 193U thus attempted to associate these two le v i e s with the period before 1928, f o r by omitting any reference to Chuan, i t seems to have i d e n t i f i e d Chuan imposed before 1928 with 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 le v i e s stated that: A l l the Chuan and similar l e v i e s imposed by the p r o v i n c i a l and Hsien governments before the introduction of the Financial Division 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 to the Mi n i s t r y of Finance of the Central Government f o r a b o l i t i o n . In f a c t , many Chuan le v i e s had been imposed af t e r 1928, p a r t i c u l a r l y by the Hsien governments since t h e i r finances were not controlled by the p r o v i n c i a l authorities, but by the Hsien people's assembly, and they imposed the Chuan l e v i e s by the consent of these assemblies. The second A r t i c l e of 1934 thus recommended a conditional a b o l i t i o n of these Chuan l e v i e s imposed since 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 introduction of the Financial D i v i s i o n Act (1928) should be reported i n d e t a i l as to t h e i r name, amounts, rates, and purposes, to the Legisl a t i v e Yuan (Parliament; f o r approval or f o r a b o l i t i o n . According to the previous statement, the Chuan l e v i e s were attributed to 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 of the Legislative Yuan, to abolish these l e v i e s . Instead, the Conference referred the case to the L e g i s l a t i v e Yuan. I t i s apparent that t h e i r intention was to abolish a l l the Chuan l e v i e s throughout the country, regardless of whether they were \"legitimate\" or not. Furthermore, the c a l l i n g of t h e Conference was la r g e l y a p o l i t i c a l matter: to set up sound Hsien f i n a n c i a l systems instead of p r o v i n c i a l ones, and to trans-, f e r a part of the existing p r o v i n c i a l taxes to the Hsien governments. Thus the loss of the Chuan l e v i e s would not necessarily embarrass the 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 Mini s t r y of Finance of the Central Government was authorized by t his Conference to supervise the exi s t i n g and future Chuan l e v i e s . The 91. fourth A r t i c l e dealt with the timing of the 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 follows: The Ministry 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 with the laws, and acts. 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 July 1 to December 31, 1934. The funds provided f o r legitimate losses from the a b o l i t i o n of Chuan and the s i m i l a r l evies 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 could not adopt these f i n a n c i a l measures immediately. I t stated: The p r o v i n c i a l and Hsien governments should report to the Ministry of Finance of the Central Government the special cases i n which the Chuan and the similar 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 to the recommendation of a Congress of the Kuomin-tang, the Financial Conference should also improve the e x i s t i n g land taxation system. The second section 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 of the land taxes were reviewed: Since the land ttax was a l l o t t e d to the p r o v i n c i a l governments (by the Financial Conference of 1928), the forms, the rates and the amounts of surtaxes on land have been increased i n a chaotic manner. The most important part of this Section dealt with the rates at which the recommended land taxes were to be l e v i e d , ^ t stated that: The taxes on land, hereafter, s h a l l be l e v i e d under two categories only, namely, the land value tax and the land increment tax. 92 The land value tax 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 land surtaxes i n order to eliminate the discrimin-ation against the taxpayers i n d i f f e r e n t assessment areas. A more si g n i f i c a n t feature of the land value tax was that i t was expected to reform the e x i s t i n g land tax levying methods. The old levying method, which had been followed f o r hundreds of years, was to assess the farm land tax according to the acreage. Under the old method, i n many provinces, there were no separate taxes l e v i e d on urban land, but they were incorporated into the improvement l e v i e s . The A r t i c l e s of the Resolutions of the Conference thus stated that: The amount of the land value tax 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 land s h a l l not exceed the o r i g i n a l levy 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 levy on farm land s h a l l not exceed 1 per cent of the value of the farm land concerned. Any additional form or rate of land taxation s h a l l be void. In short, 1 per cent of the land value was proposed as the maximum rate on a l l improved land. The land increment tax was proposed to replace the e x i s t i n g t i t l e deeds taxes the rates of which varied from 2 to 9 per cent. The new rates recommended by t h i s Conference were not important because generally they were set up to conform with the e x i s t i n g rates. I t was stated that: The evasion of the t i t l e deeds taxes was l a r g e l y due to the high surtax rates and the lack of a uniform rate .... Hereafter, the rate of thetax on the property sold 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 rate 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 value. 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 per cent of the o r i g i n a l rates. I f the present rates, 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 sai d maximum rates, the actual rates s h a l l be maintained. The portion of the present rates exceeding the maximum rates 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 part of the Resolutions passed by the Financial Conference of 1934, two points are of importance. In the beginning of the f i r s t part of the Resolutions, the heavy Chuan l e v i e s and farm land surtaxes were attributed to the expansion of 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 to enumerate the abuses of these two l e v i e s . Following these statements, i t was proposed to abolish the Chuan le v i e s and to set a maximum rate f o r land taxation. 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 Central Government through i t s budgetary controls. The pr 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 with a general subsidy system which 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 obligations which forced them to impose the Chuan le v i e s and surtaxes on the land since the Hsien governments had not yet been given independent tax sources. In 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. In order to realize the a b o l i t i o n of various Chuan l e v i e s , either adjustment of the government taxation system, including the Central Government, or adjustment of government expenditures was necessary. For t h i s purpose there were four l o g i c a l alternatives: 1. To redistribute the ex i s t i n g sources of revenue and obligations between the Central Government and the p r o v i n c i a l and Hsien governmentsj andtjien, to adjust the expenditures according to 9k. the available sources of revenue f o r each l e v e l of government respectively. 2. To a l l o t a part of the functions of the Hsien governments to the p r o v i n c i a l governments; and i n turn, to contract Hsien expenditures. 3. To a l l o t a part of the revenue sources of the p r o v i n c i a l govern-ments to the Hsien governments, thereby reducing the p r o v i n c i a l expenditures. k. To provide, i f possible, new revenue sources f o r the already ex-panded expenditures of the Hsien governments. Bearing the previously discussed p o l i t i c a l trends i n mind, i t i s not surprising that the Fi n a n c i a l Conference of l\u00C2\u00B03k decided upon the l a t t e r two alternatives, as shown i n the second part of the Resolutions. The decisions stated i n t h i s part were l a t e r known as the \"Demarcation Act of the Provincial-Hsien Taxation System of 1935\". In 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 following purposes: a. Kuomintang's p r o v i n c i a l and Hsien headquarters; or the expenses for c i v i l i a n assembly and i t s representatives; b. Administration; c. Legis l a t i v e expenses; d. Education f a c i l i t i e s ; e. Construction; f. Public health; g. R e l i e f ; h. Capital investment; i . Police protection; j . Reclamation and settlement (provincial only); k. Cost of taxation c o l l e c t i o n ; 1. Debt charges; m. Pensions and retirement allowance to 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 issue, p. 368. 95. The sources of revenue f o r the p r o v i n c i a l and Hsien govern-ments were-defined as follows: The following sources of revenue should be administered separately by both the p r o v i n c i a l and Hsien governments: a. \"Tax receiptsj b. Special assessments; c. Fines; d. Administration fees; e. Receipts from rentals, r o y a l t i e s and franchises from the public properties; f. Receipts from administration or t r u s t s ; g. P r o f i t s from the government operating enterprises; h. Receipts from s e l l i n g public properties; i . Receipts from cancelling or reducing invested c a p i t a l ; j . Receipts from bond issues and credit 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 or other public organizations; 1. Other receipts defined by law. 1 The sub-items which constituted \"tax receipts\" of the p r o v i n c i a l and Hsien governments were as follows: Tax receipts of the p r o v i n c i a l governments: a. Taxes levi 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 \u00E2\u0080\u0094 70% of which should go to 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 to 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 land tax \u00E2\u0080\u0094 l$-h$% of which should go to the provin-c i a l governments. The improvement taxes \u00E2\u0080\u0094 15-30* of which should go to the p r o v i n c i a l governments. 1. Ibid. 96. d. Proposed new taxes l e v i e d by the Central Government :and shared among the Central, p r o v i n c i a l and Hsien governments. The income taxes \u00E2\u0080\u0094 10-20$ of which s hould go to the pr o v i n c i a l governments. The succession duties \u00E2\u0080\u0094 15$ of which should be assigned to the p r o v i n c i a l governments. Tax receipts of the Hsien governments: a. Taxes l e v i e d and enjoyed by the Hsien governments: The business license taxes; The operation license taxes;! and The special prohibitive taxes. 2 b. Taxes levied by the Hsien governments and shared between the p r o v i n c i a l and Hsien governments: The land taxes \u00E2\u0080\u0094 55-85$ of yfoich should be enjoyed by the Hsien governments; and the other 15-45$ a l l o t t e d to the p r o v i n c i a l governments concerned. The improvement taxes \u00E2\u0080\u0094 70-85$ of which should be enjoyed by the Hsien governments; and the other 15-30$ a l l o t t e d to 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 \u00E2\u0080\u0094 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 \u00E2\u0080\u0094 the Hsien rates should not exceed 50 per cent of the p r o v i n c i a l rates. e. Proposed new taxes l e v i e d by the Central Government and shared by the Central, p r o v i n c i a l , and Hsien governments: The income taxes \u00E2\u0080\u0094 20-30$ of which should be assigned to the Hsien governments; 10-20$ to the p r o v i n c i a l governments. The succession duties \u00E2\u0080\u0094 25$ of which should be assigned to the Hsien governments; 15$ t o t he p r o v i n c i a l govern-ments. 3 1. Such as the vehicle, water equipment license s , etc. 2., Such as the p r o s t i t u t i o n l i c e n s e s , etc. 3. Chia Teh-huei, Vol. I , Pp 27-8. 97. The net re s u l t of these changes i n the levying power of the pr o v i n c i a l and Hsien governments i s d i f f i c u l t to show because the Demarca-t i o n Act was never put in t o e f f e c t . For the sake of convenience, Table XII sums up these changes between the Financial D i v i s i o n Act of 1928 and the Demarcation Act of the Financial Conference of 1934 with regard to some important taxes of the p r o v i n c i a l and Hsien governments. I f this Demarcation Act were i n e f f e c t , the p r o v i n c i a l govern-ments would l i k e l y suffer a loss of 10 to 15 per cent of t h e i r previous annual income; while the Hsien governments would l i k e l y gain by 10 to 20* of t h e i r previous annual receipts. Suppose again that the various Chuan l e v i e s were e n t i r e l y abolished, then the p r o v i n c i a l governments would further lose 5 to 10 per cent of their previous annual income; whereas the Hsien governments might not lose because t h e i r losses might be offset by t h e i r gains. In other words, the plans of the Financial Conference of 193h would have transferred about 20 per cent of the prov-i n c i a l annual income to the Hsien governments. Apart from the p o l i t i c a l intentions of 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 history. During the centuries p r i o r to 1934, the l o c a l governments had never been granted independence i n the exercise of t h e i r f i n a n c i a l power. From 1850 to I928 was a period of p r o v i n c i a l struggle to secure better 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 to I93U make up the period when the Kuomintang, with i t s p o l i t i c a l supremacy, ended the period of pro 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 of the Total Receipts by Provinces and Hsien from Certain Important Taxes Under the Demarcation Act of 1935. Taxation Land tax T i t l e Deeds taxes Improve-ment taxes Busi-ness taxes * Total Both p r o v i n c i a l and Hsien l e v i e s 100$ 100$ 100$ 100$ \u00E2\u0080\u0094 2 Financial D i v i s i o n Act P 53 H 47 66.6 33.3 46 . 54 51 49 \u00E2\u0080\u0094 3 Demarcation Act P 15-45 H 55-85 66.6 33.3 15-30 70-85 70 30 The importance of each tax i n the t o t a l annual receipts under the D i v i s i o n Act.^ P 30 H 54 4 2 1 3 50 4 50 63 The importance of each tax i n the t o t a l annual receipts under the Demarcation Act. 5 P 17 H 80 5 1 0.5 4.3 20 2 42.5 87.3 * The business taxes include the butchering tax. 1. This Table shows only approximate and conservative estimates. For the sake of convenience i t does not include any possible increase or decrease i n these sources of revenue. 2. Calculated from Table VI 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 properly defined while the Hsien governments were s t i l l l e f t without independent tax resources. Owing to the lack of adequate revenues and t h e i r expanding obligations, 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 did 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 with t h e i r obligations, a chaotic and unsound Hsien tax-ation system resulted. As f a r as the three l e v e l s of government, the Central, the pr o v i n c i a l and t h e Hsien,were concerned, the obligations and administra-tions of the Hsien governing bodies were more d i r e c t l y related to the d a i l y needs of the people. The year 1934 f i r s t witnessed remarkable pro-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 tax revenues of the state were f o r the f i r s t time dist r i b u t e d among the three l e v e l s of government. The powers of the Hsien governments were f o r the f i r s t time defined by statutes and they were authorized to levy some important taxes. D. Failure i n Enforcing the Demarcation Act By I93I a l l the Hsien had an average population 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. Each 2 Hsien, on the average, had 50 Hsiang, or counties, surrounding the c i t y or town where the Hsien government was located. During the c i v i l war years since 1 9 1 7 , the population of the r i c h e r c i t i e s had been increasing 1. Cheng Nien-chung, p. 39, \"In I94I, there were 195k Hsien. Population i n each Hsien varied from 200 ( c i t . ) to 1,500,000; on the average, 230,000. The area of each Hsien varied from 100 to 350,000 square kilometers, on the average, 4,300 square kilometers\". 2. Ibid. 100. rapidly r e l a t i v e to that of the counties, because the c i v i l wars usually were carried on throughout the countryside. The re s u l t i n g population movement had concentrated the wealth of the state i n t o some of the rich e r c i t i e s . I f the levying power of the t i t l e deeds tax and the business tax had been l e f t completely i n the hands of the Hsien govern-ments there would probably have been discrimination against the tax-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 inter-Hsien firms and some other types of business organiza-t i o n . The Demarcation Act thus had set f o r t h that the p r o v i n c i a l governments were to administer the t i t l e deeds and business taxes. The Hsien governments were not e n t i t l e d to levy 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 collected 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 central 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 inter-Hsien 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 receive 15 to U$ per cent of the land taxes whichwere to be l e v i e d by the Hsien governments. The p r o v i n c i a l authorities were s t i l l to provide inter-Hsien communication which was very important i n fostering the prosperity 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 authorities were to receive 15 to 30 per cent of t he 101. revenues from the improvement taxes which were to be levi 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 to t h e Hsien where they were raised. In order to further improve the Hsien finances, the Demarca-t i o n Act recommended that the revenues from licenses were to belong to the Hsien governments because they could deal e f f e c t i v e l y i n administra-t i v e matters with the tax-payers who received the franchise to 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 duties, i f they were imposed by the Central Government. In short, the Second National Financial Conference attempted to provide a f a i r means of f i n a n c i a l cooperation between the p r o v i n c i a l and Hsien governments, and to eliminate the abuses of the various Chuan l e v i e s and surtaxes. Though the recommendations of t h i s Conference were excellent, 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 of land taxes, andthe Demarcationcof Provincial-Hsien Taxation System were passed at the Second Financial Conference i n June, I934. These three f i n a n c i a l innovations were submitted to the Executive Yuan and were to be put into 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 . force simultaneously i n July, 1935. However, except f o r the f i r s t two provisions, the Demarcation Act was not carried 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 govern-ing bodies faced a loss of revenue from t h i s action. One must bear i n mind that since 1865 the pr o v i n c i a l governments had been the most power-f u l governing bodies i n the state. Therefore, \"the key step towards the enforcement of the Demarcation Act of 1935 was neither on the part of the Central 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 to do so.\" Apart from the p o l i t i c a l resistance of the p r o v i n c i a l govern-ments, there did e x i s t actual 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 enact-ing t h i s Act. In f a c t , since the 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 functions. I t was not u n t i l the Unification of the country was rea l i z e d i n 1928 that the p r o v i n c i a l governments began slowly to perform t h e i r r e s p o n s i b i l i t i e s with the funds formerly devoted to m i l i t a r y purposes. I t was quite 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 of the governing bodies had previously had an opportunity to perform these functions adequately. 1. Ben Yu-sing, p. 7. 2. The warlords even spent the appropriation funds f o r education f o r m i l i t a r y purposes. L i Jan-nung, Vol. I I , p.6\u00C2\u00B05. 103. Following the Financial Conference of 1928, the p r o v i n c i a l governments were no longer able to monopolize a l l the sources of revenue of the state. From this 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 or intercepted. The losses from the L i k i n l e vies and the s a l t taxes were the greatest. Following 1928 the Central Government had been taking 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 relinquished a con-siderable part of t h e i r annual income. On the other hand, the new uniform business tax was imposed from 1930 onwards, replacing the old le v i e s on business firms, brokers, and pawnshops. This new business tax did not y i e l d the o r i g i n a l l y anticipated amount to meet the revenue losses from L i k i n l e v i e s . Among a l l the revenue sources remaining to 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 stable. However, the p r o v i n c i a l governments were now to perform some governmental functions, such as education, i n t e r -Hsien communications, public works, r e l i e f , reconstruction, -a\u00C2\u00A3c;,on a larger scale than ever before . Moreover, the p r o v i n c i a l governments were to subsidize the subordinate governing bodies, the Hsien governments. Furthermore, since the enforcement of the Financial 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 heavily on the subsidies from the Central Government, which were, ont^he average, more than 15 per cent of thei r t o t a l income. In addition, the p r o v i n c i a l 1. Tables V and VI, supra. io4. governments had carried on a p o l i c y of borrowing to meet t h e i r expendi-tures, to an extent of about 15 per cent of t h e i r t o t a l annual income. Evidentally the annual revenue of the p r o v i n c i a l governments was i n -adequate to 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 protection because of the s p l i t between the Kuomintang and the Communists. In some prov-inces the cost of p o l i c e protection anounted to 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 administration, were i n small amounts which were necessary to maintain minimum governmental a c t i v i t i e s . Further, the repayment of t h e i r debts, together with interest on them, ranged up to 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 1935 into e f f e c t , a problem would a r i s e : How could the p r o v i n c i a l govern-ments deal witht h e i r heavy indebtedness while 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 functions immediately, or, what sort 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 largest portion of the spendable funds went f o r p o l i c e protection and indebtedness. Neither 1. Ibid. 2. Ibid. 105. p r o v i n c i a l incomes nor the costs could be further reduced. In spite of the promulgation of -the Demarcation Act, therefore, the p r o v i n c i a l governments withheld the revenue sources which had been allocated by the Demarcation Act tothe Hsien governments. As a result of the unwillingness of the p r o v i n c i a l governments to surrender t h e i r levying power, the Hsien governments could not enjoy the r i g h t s to levy the taxes which were actually l e f t i n the hands of the former. Owing to these f a c t s , a f t e r 1935, the enforcement of the Demarcation Act was made impracticable, and the Hsien finances, supposed to be greatly improved, remained v i r t u a l l y unchanged. Conclusion The year of 1928 witnessed both~the complete downfall of warlordism and the continual r i s e of the Communist revolts. This wearied nation was again involved i n chronic c i v i l war. 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 effects 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 locusts. In the autumn of I93I the greatest flood i n China's h i s t o r y took place 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 to pay the one m i l l i o n workers c a l l e d f o r emergency dyke buildings (over 7,000 kilometers i n length) at Yangtze. I t had to negotiate a loan, the f i r s t foreign loan of Nationalist China, from the United States of America. The loan was obtained i n wheat (1|50,000 tons) which was paid d i r e c t l y to t h e workers. In September of the same year, the Japanese invasion occurred i n the Northeast. In 1932, the Japanese attacked on Shanghai. The National Government, at that time, was un-decided whether to f i g h t the Communists f i r s t or to oppose the Japanese. But i t was determined to cope with the Communist revolts f i r s t and i n 1 9 3 3 Chiang Kai-shek ordered a general mobilization i n eight prov-inces. C i v i l war thus broke out on an unprecedented scale and continued fo r eight years. By 1936, the Communists, i n a tightened ring of Nationalist troops i n northern Shensi, accepted these conditions: to give up the Chinese Soviet Government and to recognize the National Government, and to adopt Sun Yat-sen's tenets instead of Marxism. Several months after the armistice between the Nationalists and the Communists i n 1937, the Eight Years.War between China and Japan began. 1. A report from the National Flood R e l i e f Commission stated that: \"During the summer months of 1931, 25,000,000 people inhabiting an area of 70,000 square miles, were affected i n various ways by the greatest flood i n the history of 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 of $2,000,000,000 was borne by a community whose average family earnings do not exceed #300 a year.\" C i t . China Year Book, 1934, p. 776. 107. The above description of the general s i t u a t i o n of these eventful years i s highly i n d i c a t i v e of the obstacles to improvement of the nation's finances. The governments, nevertheless, did make headway i n dealing with t h e i r finances during these s t i r r i n g years. Remarks have already been made with regard to p r o v i n c i a l finances. 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, while i n 193\u00C2\u00B0 the same income had 1 increased to 18,000,000 yuan of I30 per cent of that i n 1930. The most cha 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 that no more funds were spent f o r m i l i t a r y purposes but were devoted to public 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 further improved; or, at l e a s t , a great part of the spendable funds of the p r o v i n c i a l governments used for police protection would have been spent f o r reconstruction, education, or f o r other public interests. Likewise, the Hsien finances would have been i n a more healthy condition. Since the Financial D i v i s i o n Act was i n ef f e c t , an effec t i v e general subsidy system was b u i l t up. The subsidies from the Central Government to 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 Central Government could balance 1. Cf., Tables IV and VI, supra. 108. 1 i t s budgets, as shewn i n Table XI I I TABLE X I I I Subsidies from the Central Government to the Provincial and Local Governments, 1929 - I936 inclusive 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 to the establishment of a general subsidy system, the increase i n the amount of the subsidies from the Central to the pr 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 of 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 sa t i s f a c t i o n to t h e Central Executive Committee (of the Kuomintang) \u00C2\u00B0 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 to balance i t s budget at 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 addition to the depression, the Govern-ment has had to confront the colossal burden of the I93I floods, 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, Vol. I, Pp 261-62. 109. The Demarcation Act of 1935 was expected to be a remedy f o r the existing p r o v i n c i a l and Hsien f i n a n c i a l relationships. I t was the f i r s t attempt to 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 of the past, namely, a system i n which only the Central and p r o v i n c i a l governing bodies participated i n the f i n a n c i a l a f f a i r s 1 of the state. At the Financial Conference of 1934, i t was decided that a l l three l e v e l s of government were to administer the finances of the country, and at the same time, to cooperate i n solving admin-i s t r a t i v e problems. Although the Demarcation Act, due to 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, neverthe-les s , a s i g n i f i c a n t event i n Chinese economic history. This Act became, i n 1946, a model plan f o r the \"Central, Provincial and Hsien Tim*0*1 Taxation and Disbursement System Act\" which was passed by the Fourth National Financial Conference. The period between the Second and the Fourth National Fi 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 Third National Fi 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 tax structure was devised to enable the National Government to finance i t s resistance to the foreign invasion. 1. The Special Municipal Governments, though they were l o c a l govern-ments 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. 110. Chapter VI - Appendix to 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 levies was one of the three chief parts of the program of the Second National Financial Confer-ence. Because of the f a i l u r e to enforce a new provincial-Hsien taxation system and because the Hsien governments had depended heavily on them, the Chuan levies were abolished more slowly than they should have been. From July to December 193k, 21 out of 2k provinces had reported to the Mi n i s t r y of Finance of the Central Government the cancellation of the Chuan and s i m i l a r l e v i e s . The number of cancellations was 3,600 and was equivalent to a t o t a l 1 revenue of 28,890,000 yuan. The year 1935 saw further progress 2 when 1,600 l e v i e s were discontinued, amounting to 20,lk0,000 yuan. By December, 1936, 1,190 additional Chuan le v i e s were cancelled, to 3 the amount of 10,039j500 yuan. In the f i s c a l year of 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 to more than 20 per cent of t h e i r annual income; and more than 10 per cent of the income of the p r o v i n c i a l govern-5 ments. 1. Cf., Chinese Year Book, I937 issue, p. U$5. 2. Ibid. 3. I b i d , k. In sixteen provinces, p. 77 supra. 5. In nineteen provinces, Table VI, supra. Note: These figures include the abolished 6huan l e v i e s i n 20 prov-inces and 3 Special M u n i c i p a l i t i e s . The cancellations also include Chuan levi e d formerly by the p r o v i n c i a l , Hsien and the 3 Municipal governments. The greatest cancellation among these governments was from Kwangtung, 30,98k,k36 yuan. Cf., The Chinese Year Book, 1937 issue, p. k56. 111. B. Adjustment of the Farm Land Taxes. After the F i n a n c i a l Conference of 1928 there were two farm taxes, the farm land tax and the farm land surtax. The farm land tax 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 land surtax by the Hsien governments. After the Financial Conference of 1934, there were three di f f e r e n t methods of land taxation: the land value tax, the farm land tax, and the farm land surtax. The land value tax was recom-mended by the Financial Conference of 1934 to replace both the two old taxes, the farm land tax and the farm land surtax. The two old taxes were based on the acreage of the land concerned, while i t was proposed to levy the land value tax at 1 per cent of the value of the land concerned. In the d i s t r i c t s where a new land survey had not been completed, the p r o v i n c i a l and Hsien governments s t i l l im-posed the farm land tax and the farm land surtax respectively as they always had. But i n those d i s t r i c t s where a new land survey had been completed, both the p r o v i n c i a l and the Hsien governments were to surrender the ttwo old taxes and to i n s t i t u t e the land value tax which was to 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 land. Another new method, the land increment tax, was recommended by the Financial Conference of 1934 to 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 retained 113. the old t i t l e deeds tax because the land increment tax was not a new tax i n f a c t , but merely a new name f o r the old \" t i t l e deeds tax\". Another Financial Conference was held i n 19kl during the war to help the National Government finance the resistance to the Japanese and a l l p r o v i n c i a l tax revenues were incorporated into the central finances. The Central Government thus administered the t i t l e deeds tax, although the name \"land increment tax\" 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 the unstable p o l i t i c a l s i t u a t i o n , the land taxes had long been administered i n e f f i c i e n t l y . P r i o r to the est-ablishment of the Republic, the l a s t tax r o l l of farm land had been completed i n 1713, under the Ch'ing Dynasty. Though the agrarian areas as a whole d i d not change appreciably during t h i s time, the tax r o l l of 1713 was by no means adequate f o r use i n the nineteenth century. From 1850 to 186k there was a great revolutionary movement, known as the Taiping Rebellion, or the Hong-Yang Revolution. The revolutionary leaders, during t h i s period, founded a kingdom with t e r r i t o r i e s stretching over most of sixteen provinces. This Kingdom prohibited private ownership of land, and destroyed the tax r o l l s i n the provinces under t h e i r control. After this Kingdom had been crushed out by the Government of the Ch'ing Dynasty, the tax r o l l s i n these provinces were completed on the basis of other records which were much less s a t i s f a c t o r y . 1 No r e a l attempts were made under the 1. Chinese Y e a r Book, 1937 issue, p. k57. 114. Ch'ink Dynasty to improve the tax r o l l s , because a f t e r i860 i t was busy waging war against foreign powers,and during the twentieth century i t was involved i n coping with the revolutionary movement. Owing to t h i s lack of an accurate tax r o l l , the administration of the land tax met with enormous d i f f i c u l t i e s . . After 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 land tax r o l l s . Successive c i v i l wars also made improvement impossible. A f t e r the Kuomintang had come into power i n 1931, a National Economic Council was set up by and was subordinate to the chairman 1 of the Central Government. I t was empowered to plan projects f o r the economic reconstruction of the state. In 1934 a report was made by t h i s Council i n the f i e l d of agriculture. I t stated that: A l l studies agree that the fundamental factors i n the s i t u a t i o n are the low output of Chinese agriculture, the very high cost of c r e d i t f a c i l i t i e s , the burden of taxation, p a r t i c u l a r l y of surtaxes, and i n large parts of the country the harsh and uneconomic system of land tenure. 2 1. The Council consisted of various ministers of the National Govern-ment and of u n o f f i c i a l members designated by the Government so as to 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 said Council was to plan and execute various projects f o r economic reconstruction of the state. Cf., The China Year Book, 1934, Pp 763-64. 2. Ibid., p. 766. 115. I t continued t o d e s c r i b e the farm l a n d t a x : Another burden, besides the system of tenure, which weighs h e a v i l y upon a g r i c u l t u r e , i s the l a n d t a x . This t a x , based on an assessment made over two hundred years ago, which i n the course of time has become obsolete and anomalous, i s nevertheless moderate. However, during the l a s t s e v e r a l years the tax has i n many pr 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 times. Though l e g a l l y payable by the landowner, the t a x appears i n many cases where the tendency p r e v a i l s t o be p a i d i n whole or i n p a r t by the tenant. I n Kansu i t was discovered, f o r example, t h a t the tenant p a i d 60 per cent of the (land) t a x and the (land) surtaxes. I t i s not pos-s i b l e t o give any f i g u r e s f o r the ushole of China demonstrat-i n g the burden which t h i s t a x causes, s i n c e c o n d i t i o n s v a r y from one province t o another. 1 The r a t e s of the farm l a n d t a x des c r i b e d by the same r e p o r t are as f o l l o w s : A c a r e f u l study was made (by the group o f the N a t i o n a l Economic C o u n c i l ) o f the methods of c o l l e c t i o n , amounts p a i d , amounts r e c e i v e d by the p r o v i n c i a l government. The r e s u l t s are enumerated i n the i n t r o d u c t i o n t o the re 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 by i t s e l f , i f l e g a l l y a p p l i e d without a d d i t i o n a l charges o r ex 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 of l a n d t a x a t i o n which 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 are (a) the surcharges, (b) the 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) the system 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 . Surcharges i n Chekiang are a recent phenomenon. They have n e a r l y a l l come i n t o e x i s t -ence si n c e 1927. They now range from 20 per cent t o 30 per cent i n t h e d i f f e r e n t Hsien, and they are extremely unequal 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 on the poorer l o c a l -i t i e s . I n f i v e r e l a t i v e l y r i c h Hsien taken a t random, f o r example, the surcharges were found on the average t o i n v o l v e an excess over the l a n d t a x o f on l y 25 p e r cent. I n f i v e r e l a t i v e l y poor Hsien the average excess i n v o l v e d was 350 per cent. \"Among the f i r s t f i v e H s i e n the t o t a l l a n d t a x a t i o n o n ly amounted , i n one case, t o over 65 cents a Mou (2,)j among the l a t t e r i t averaged over $1 (one yuan), and i n one Hsien reached #2.80.\" 1. The Chinese Tear Book, 193k, p.766 2. S i x Mou equal one acre. 116. With such gross in e q u a l i t i e s a general average i s d i f f i c u l t to 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 tolerable, though unjust, i f they represented a l l that the peasant had to pay. Unhappily the system of tax c o l l e c t i o n leads to additional exactions (Chuan l e v i e s ) , which add greatly to the r e a l burden of taxa-t i o n , admits of evasion on a large scale, e s p e c i a l l y on the part of those best able to pay, and results i n a great l o s s of revenue ... At the c racial point of the i n t r i c a t e chain of tax 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 egistrars with 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 father to son, as the only record of taxable owners and proprietors ... I t i s impossible to estimate what t h i s system involves i n evasion and extortion. But a l l the evidence suggests that both are on a very large 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 of land taxation 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 equally and inexpensively collected without large evasion, misapprorpiated exactions and grossly disproportionate incidence i n d i f f e r e n t d i s t r i c t s . With an effecient system of c o l l e c t i o n , reductions i n rates could be made, and at the same time the revenue main-tained or even increased. 1 The essence of t h i s Report can be reduced to three points: 1. The lack of a uniform t a x rate \u00E2\u0080\u0094 the farm land surtaxes were the major fac 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 lack of an accurate tax r o H \u00E2\u0080\u0094 the government levi e d the farm land tax and the surtaxes i n accordance with the old tax regardless of the actual acreage of the land cu l t i v a t e d by the taxpayers. Inevitably, a large scale of tax evasion resulted. 1. C i t . , The China Year Book, 1934, p. 768. 117. 3. Adjustment i n tax rates \u00E2\u0080\u0094 i f an accurate tax r o l l were adopted, the abuses of tax evasion would be eliminated; the t o t a l revenue from the land might be maintained or even increased though the existing 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 resu l t of succes-sive c i v i l wars. Because of t h i s any relationship between the land taxes and the land values was d i f f i c u l t to ascertain. S i m i l a r i l y , i t was impossible to f i n d accurately what portion of the taxes were shi f t e d t o the consumer i n the form of higher prices. Speaking generally, the burden of the farm land taxes was not f u l l y born by 1 the tenants and landlords, but was p a r t l y shifted to 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 Kiangsi, a paragraph of which may be quoted: ' In addition to his burdensome taxation and land tenure conditions, the Kiangsi farmer i s faced with a serious decline i n the price of a g r i -c u l t u r a l produce and an enormous discrepancy between prices which he can obtain l o c a l l y and actual market prices i n the large towns. Accord-ing to figures furnished by the Pro v i n c i a l Reconstruction Bureau, the difference between prices paid to Kiangsi farmers f o r t h e i r produce and prices charged to consumers i n Shanghai may amount to no less than 100 per cent. This question of 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 of the most important problems i n the work of r u r a l reconstruction.\" Various provinces, notably Kiangsu, have attempted to deal with t h i s problem by providing warehouses where the farmer can pledge his gain, thus enabling him to hold i t o f f the market u n t i l he can obtain the most favourable prices. 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 period of warlord! sm, the provin-c i a l governors r e l i e d on the revenue from the farm land 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 that the amounts and the rates of the farm land taxes 1 varied not only from one Hsien to another, but from time to time. I t i s d i f f i c u l t to compute an average rate on the farm land through -out the country. I f given, i t would merely mislead readers because the variations were so great. For instance, i n Szechwan, a f t e r 1917, the power to levy the farm land taxes was l e f t i n the hands of the warlords. In each year following the farm land taxes were collected to as much as 12 times i n advance (or, s i x years ahead). Not u n t i l 1934, when Generalissimo Chiang Kai-shek himself was i n Szechwan coping with the Communist revolts, was t h i s practice abolished. Previously the rate i n Szechwan, including 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 levying excessive and i l l e g a l taxation 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 cereals, including r i c e , for Shanghai on the base of 100 f o r February, 1913, indicates a constant r i s e . Beginning with August, 192k, the index numbers are as follows: 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, Vol. 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 did not include other miscellaneous forced pay-2 ments imposed on the farmers. There were many other i l l u s t r a t i o n s of the variety i n land tax rates. For instance, i n Shangtung, from 3 k 1925 to 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\u00C2\u00A3 ^Assuming 2.5 p i c u l s of r i c e per Mou) At that time the price f o r r i c e i n Shanghai was only about Lk to 16 yuan per 5 p i c u l . In Kiangsi, after 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, the rate was somewhat reduced. 7 In 1932, the rate was reduced by 4 O per cent. Though there was a tendency after 1928 toward reduction of the farm land tax rates, the National Economic Council, quoted above, proposed measures f o r reform-ing the land taxation system because the surtaxes, at the same time, were increasing. I t recommended an adequate survey of land. 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, Vol. I I , p. 587. 7. Ibid. Note: Other alternative rates of the farm land taxes, the rates i n other provinces and the increase i n cereal prices 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 i n i t i a l 1 stages, expensive ... And some reform i s urgent. The f i r s t necessi-t i e s are s i m p l i f i c a t i o n , equalization and reduction, and a removal, or 2 at least mitigation, of some of the worst anomalies of assessment. In the same year, 1934, the Second National Financial. Con-ference was held. Three major tasks were worked out at 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 of provincial-Hsien taxation rights and the adjustment of the farm land taxes. The l a s t was emphasized p a r t i c u l a r l y . The recommendations of t h i s Conference regarding the adjustment of farm land taxation could be summed up as follows: 1. The removal of the Hsien surtaxes on the farm land \u00E2\u0080\u0094 Before 1928, the heavy farm land tax was attributed to the expanding m i l i t a r y a c t i v i t i e s of the warlordsj but af t e r 1928, i t was due la 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 tax sources. The abuses of the lack of an accurate tax r o l l caused large-scale tax evasion. 1. A preliminary paper, the Rural Economic Reconstruction i n China by Franklin L. Ho, presented to the Sixth Uonference of the Ins t i t u t e of P a c i f i c Relations held at Yosemite, C a l i f o r n i a , August 15-29,1926, stated that \"A complete cadastral survey f o r the whole of China with i t s area of 11,000,000 square kilometers would take 30 years and cost $2,200,000,000, provided 100 planes were at work a l l the time.\" This description was translated from the Journal of the Chinese Association of 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 the development of the a g r i c u l t u r a l economy, and handicapped the recovery of 1 the a g r a r i a n bankruptcy. Both the e x i s t i n g p r o v i n c i a l and Hsien taxes on l a n d should be c o n s o l i d a t e d i n t o one s i n g l e l a n d tax f o r the e f f i c i e n c y of f u t u r e a d m i n i s t r a t i o n . 2. The maximum r a t e of l a n d t a x - One p e r cent of the l a n d v a l u e should be the maximum r a t e o f the 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 of l a n d ownership - The lan d owners should r e p o r t t o the government the value and the acreage of 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 o f t h i s l a n d r e g i s t r a -t i o n , the l o c a l and p r o v i n c i a l governments should l e v y the l a n d t a x at one per cent o f the reported l a n d value. One might ask why the Chinese Government allowed the l a n d -owners t o dec l a r e the value o f t h e i r own holdings. I n answering t h i s question, we must c o n s i d e r the background o f the p r o p o s a l . Back i n 1924 when the Kuomintang was reformed and i t s F i r s t Congress was convened, Dr. Sun Yat-sen drew up a \"Fundamentals o f the N a t i o n a l Reconstruction\" which was i n s t i t u t e d as the organic law of the N a t i o n a l Government. The A r t i c l e s w i t h regard t o l a n d t a x a t i o n s t a t e d t h a t : A r t i c l e 10. Every Hsien, a t the commencement of self-government, s h a l l f i r s t assess the value of p r i v a t e l a n d i n the whole Hsien, which v a l u e i s t o be declared by the 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 the b a s i s of the value assessed, and at any time may buy i t on the same b a s i s . I f a f t e r 1. See the Economic Aspects Leading t o the Second N a t i o n a l F i n a n c i a l Conference, Pp 8 5 - 7 . 122. t h i s assessment the land increases i n value as a result of p o l i t i c a l advancement or s o c i a l progress, such un-earned 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 receipts from land tax, unearned incre-ment, products of public land, y i e l d s from'mountains, forests, r i v e r s and lakes, proceeds from mineral deposits and water power, a l l belong to 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 public enter-prises 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 to meet various public demands. Dr. Sun Yat-sen's idea regarding the declaration of land value by the landowners can be interpreted that, \"The land owners would not declare t h e i r land value much lower than that i n the actual market, because the Government could buy t h e i r lancL^ at any time, according to the declared value. Neither would the land owners declare t h e i r land value much higher than that i n the actual market, because the landowners would pay more taxa-t i o n than presumably they could afford. Therefore, the land 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 taxation.\" After the proposal regarding the r e g i s t r a t i o n of land ownership was submitted by the Financial Conference of 1934, and was promulgated by the Central Government, some provinces put t h i s proposal into e f f e c t , on an experimental basis. The following Table indicates that 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 tax 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 After Registration i n 20 Hsien 1 Unit: Mou- one s i x t h of 1 acre Hsien Befor Regist. After Regist. Increases 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 ( 11 ) 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 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 3,384', 423 m m 1,653,878 1,665,004 3,005,013 OLD'713 1,723,424 1,121,584 448,638 74,115 42,^1 1,54^ , 839 295,909 290,078 l,22i;53l 89,663 239,795 m Total 22,699,080 34,745,741 12,046,661 Average 2,2697908 1,-1 31 , per cent of the declared urban land value was also subject to t h i s tax. The rates were defined as shown i n the Table following. t 126. TABLE XV Rates of the Land Increment Tax of the Land Law of 1936 1 P r o f i t s Rates Less than 15$ of the declared urban land II II 20$ \" \" \" \" \" Exceeding 20$ but l e s s than 50$ of the declared value of both urban and r u r a l land Exceeding 50$ but l e s s than 100$ Exceeding 100$ \" \" \" 200$ Exceeding 200$ \" \" 11 300$ Exceeding 300$ and above None None 20$ of the excess over the \"permitted p r o f i t 1 i|0$ 60$ 80$ 100$ The purpose of t h i s land increment tax was to prevent concentration i n land ownership and to 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 at diff e r e n t rates i n di f f e r e n t prov-inces. This Law was never put i n t o effect because of the outbreak of War with Japan i n 1937. Since the proclamation of t h i s Lav/-, many economists have c r i t i c i z e d i t s th 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 said, \" 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 translated from a Chinese a r t i c l e quoted above, i n which the author did not give d e t a i l s regarding A.Damaschke and his essay, except a q u a l i f i c a t i o n of \"land s p e c i a l i s t \" . 127. means satisfactory to assess the land increment tax merely according to the percentage of the increased land value. For instance, a small farmer, who owned a piece of land worth 1,000 yuan, now s e l l s his land at a value of 2,000 yuan with 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. I f a speculator who purchased a piece of land at a value of 100,000 yuan now s e l l s his land 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 rate 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 that i t should be based on three important factors: \"1. The percentage of the increased value to the o r i g i n a l value, 2. The actual amount of the increased value, and 2 3. The duration of the ownership.\" Mr. Sun Shan-fu emphasizes \"the duration of the ownership\" because \"the longer the period of ownership the less would i t be speculative 3 i n character\". As mentioned above, following the Financial Conference of 191+1, the Central Government took over a l l p r o v i n c i a l taxes and obligations. Meantime, the Central Government proclaimed the \"Provision f o r the Enforcement of Wartime Land Taxation\". This 1. I b i d . , p. 65. 2. I b i d . , Pp 65-6. 3. I b i d . , p. 66. 128. Provision set f o r t h the graduated rates f o r land increment tax as follows: TABLE XVI Rates of the Land Increment A f t e r 1941 1 Tax P r o f i t s Rates The increased value l e s s than 100$ of the o r i g i n a l value of both urban and farm land Exceeding 100$ but less than 200$ 20$ on the excess over the \"per-mitted p r o f i t \" . ko% \" Exceeding 200$ but less than 300$ 60$ \" \" Exceeding 300$ and above 80$ \" \" The same Provision defined the rates of land value tax as follows: TABLE XVII The Rates of the Land Tax Aft e r I9I4I 2 Land value per Mou Rates Less than 000 yuan 6 to 10 per m i l l e Exceeding 000 yuan but less than 10 ,000 11 to 10 \" \" \" 10,000 \" \" \" \" 0 0 , 0 0 0 16 to 20 \" \" \" 0 0 , 0 0 0 \" \" \" \" 100,000 21 to 20 \" \" \" 100,000 \" and above 26 to 30 1 1 \" This tax was only applied to urban land, since r u r a l land was taxed i n kind, at d i f f e r e n t rates, which w i l l be discussed i n the following chapters. 1. Cheng Cheng-mo, p. 11. 2. Sun Shan-fu, p. 06. 129. C. Pro v i n c i a l and Hsien Finances i n Kiangsi Province. 1928-1937 Kiangsi Province i s situated i n the middle-east part of the country. I t s area i n 1937 was 200,000 square kilometers, divided up into eighty-three Hsien and one pr o v i n c i a l municipality; and i t s 1 population was 15,820,000. This Province had suffered severely along with i t s neigh-bouring provinces during the Un i f i c a t i o n War before 1928 and also i n the series of c i v i l wars between the National Government and the Communists af t e r 1929. I t i s proposed i n t h i s Appendix to discuss the p r o v i n c i a l and Hsien finances of this province, emphasizing the relationships 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 character-i 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 following paragraphs have been selected and translated from an A r t i c l e on \"The Central-Kiangsi Financial Problems i n the Last Ten Years\", by a Chinese scholar, Mr. Ben Yu-sing, and published i n the Fi 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 relationship with the Central Government was analyzed e s s e n t i a l l y as follows: 1. Provincial Finances. From 1912 to 1917, the Kiangsi Provincial Government s t i l l drew up budgets even though there were d e f i c i t s . But i n 1918, 1. Chinese Year Book, 1937 issue, Pp 278-9. 130. 1919, and 1920, these d e f i c i t s , c a u s e d by m i l i t a r y expansion, were so great t h a t no attempt was made t o present a budget. T h i s s t a t e of a f f a i r s l a s t e d u n t i l the F i n a n c i a l Conference of 1928. During t h i s e n t i r e p e r i o d there was no order i n the c o l l e c t i n g and spending of revenues because o f the confused 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 a l s o 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 , the finances of t h i s p r ovince were g r a d u a l l y improved and, as a r e s u l t , p r o v i n c i a l budgets were again brought down i n 1928 and 1929. There were d e f i c i t s t o o , but loans were^sought by the P r o v i n c i a l Government t o remedy t h i s s i t u a t i o n . A f t e r March, 1929, however, the revenues o f the P r o v i n c i a l Government r a p i d l y dwindled because o f the Com-munist r e v o l t s . P r e v i o u s l y the major revenue of provinces was t h a t from the farm l a n d tax. Before I929 i t brought i n an annual income of about 9,000,000 yuan. But i n 1929 the revenue from t h i s t a x amounted t o only 3,000,000 yuan. The c i v i l wars not only caused a shortage i n the government's revenues, but i t a l s o expanded the government's expenditures. For example, i n 1929, the 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 expendi-tu r e s t o t a l l e d 14,000,000 yuan. In 1930, the revenue from the 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 at less than 10,000,000 yuan while the t o t a l expenditures were more than 17,000,000 yuan. These figures do not include the funds spent d i r e c t l y from the Central treasury f o r m i l i t a r y purposes. In 1931 the National Government promulgated a new law regarding the organization of p r o v i n c i a l and l o c a l govern-ment administration. According to t h i s law, l o c a l s e l f -government was to be set up i n each Hsien; and the National Government was to improve the p r o v i n c i a l and l o c a l finances necessary to promote the development of l o c a l self-govern-ment. Thereafter, the increasing expenditures seemed less burdensome to the provinces and Hsien. In the same year, the surtax on s a l t was handed over by the K^ensi Government to the Central Government which, i n turn, granted subsidies equivalent to the old y i e l d s , to the province. 2. The Importance of 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 Financial Conference of 1\u00C2\u00B028 that p r o v i n c i a l governments sur-render t h e i r power to levy the L i k i n l e v i e s and the s a l t taxes to the Central Government. In 1930, the L i k i n l e v i e s were 132. abolished and the s a l t tax was taken over by the Central Government. In I93I the Central Government further demanded that the s a l t surtaxes be placed under central control i n order to make a uniform s a l t tax rate e f f e c t i v e . Before the surtax on s a l t was administered by the Central Government, i n t h i s Province, t h i s surtax had been r e l i e d upon by the Provincial Government f o r the following purposes: ( i ) Adjustment of the Provincial Bond Market Before 1926, the Pro v i n c i a l Government had issued various bonds to meet d e f i c i t s . Some bonds were issued against the old bonds which became a reserve fund f o r the new issues. Some bonds were permitted to ci r c u l a t e i n the market as means of payment, and others were issued to redeem the old bonds. Because of a lack of systematic planning, the p r o v i n c i a l bonds were issued i n a capricious manner. As a r e s u l t , the bond market i n t h i s Province was seriously undermined by these unending issues. In January 1928, the P r o v i n c i a l Government issued \"Circulation Adjustment Bonds\" i n the amount of 8,000,000 yuan, to absorb a part of the Kiangsi P r o v i n c i a l Bank notes and two outstanding bond issues. Part of 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 repay-ment of t h i s new issue. 133. Again i n 1930 the Provincial Government issued bonds to 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 also to be provided by the s a l t surtax. This surtax was also planned to provide 240,000 yuan annually f o r redemp-t i o n of part of the P r o v i n c i a l bond issue of 1931? which t o t a l l e d 400,000 yuan, ( i i ) Educational Funds In 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 entire increase i n the expenditure f o r education was to be covered by part of the surtax on s a l t . Later, because of the Communist revolts and the drop i n p r o v i n c i a l revenues, a larger portion of the s a l t surtax was set aside to balance the expenditure of 2,000,000 yuan f o r education, ( i i i ) Communication In order to expedite the suppression of the Com-munists, the P r o v i n c i a l Government rap 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 Central Government, the Provincial Government pro-vided 1,000,000 yuan annually, derived from the s a l t surtax In 1934 the completion of the luping Railway was assisted by a 12,000,000 yuan issue of bonds, once more secured by the s a l t surtax. 134. ( i v ) Subsidies to Subordinate Governments There had been i n the past no independent tax sources f o r the Hsien governments. Their l i m i t e d funds were by no means adequate f o r the expenditures on police protection and on r e l i e f i n the war-torn areas. Extraordinary subsidies of 400,000 yuan to the Hsien governments were derived from the s a l t sur-tax. 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 to the Kiangsi 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 revolts. Since p r o v i n c i a l finances depended so heavily upon the salt surtax, the Central Government had to subsidize the Pro v i n c i a l Government af t e r taking i t over. New subsidies from 1934 on were assigned by the Central Government to the Province i n the following amounts: In addition, a subsidy of from 1,000,000 to 1,500,000 yuan was annually granted by the Central Government to t h i s Province f o r highway construction. When part of the Provincial bonds were redeemed i n 1934, the subsidy from the Central Government was re-appropriated to the reserve fund of the Tuping Railway Bonds. Education Reserve f o r the old Provincial 2,000,000 yuan 1,834,000 \" 96,000 \" bonds Highways 3,930,000 yuan 135. The subsidy of 96,000 yuan under the heading of Highways was also l a t e r assigned to the reserve fund of the Railway Bonds. Two months af t e r the war with Japan broke out, the Central Government reduced by 30 per cent i t s subsidy f o r education. 3. Hsien Finance Ever since the Republic had come into existence i n 1912, the expenditure f o r po l i c e protection i n l o c a l finance had always constituted one of the largest outlays of the l o c a l governments. This l o c a l phenomenon also appeared i n Kiangsi, especially during c i v i l wars between the.Nationalists and the Communists. In order to cope with the Communist expansion, the Hsien governments, under the Central and the Provincial order, organized m i l i t i a forces. In 1933 these Hsien m i l i t i a i n Kiangsi comprised thirty-two units, each unit containing more than 300 s o l d i e r s . The funds were derived from the sur-taxes on farm land and on s a l t . After 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 land surtaxes. The Central Government, therefore, assumed part of the cost of t h i s m i l i t i a organiza-t i o n , and assigned 250,000 yuan monthly to a l l Hsien governments. On the other hand, because of the departure of the Communists from this Province, the m i l i t i a was gradually reduced i n member-ship. 136. By 193$, the c i v i l wars i n t h i s Province had come completely to an end. As a r e s u l t , the Pr o v i n c i a l and Hsien governments were able to divert a larger proportion of t h e i r revenue from war expenditures to post-war r e l i e f and reconstruction. The Pr 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 to the Hsien governments were increased annually u n t i l they exceeded those received by Kiangsi from the Central Government, as shown i n the following Table: TABLE XVIII Subsidies from the Central and P r o v i n c i a l Governments to the Hsien Governments i n Kiangsi 1935 - 19la (Unit: yuan) Year Grants from the Central Govern-ment to the Prov-i n c i a l Government Grants-from the Pr o v i n c i a l Govt, to the Hsien Governments Percentage of the Central Grants i n the P r o v i n c i a l Grants 1935 1936 1937 1938 1939 1940 1910. 120,000 210,000 290,000 290,000 230,000 220,000 280,000 130,000 250,000 450,000 222,000 534,944 692,524 1,639,310 92* 84 54 45 39 32 17 Note: These grants did 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 highly i n d i c a t i v e of the Pr o v i n c i a l Government's new a b i l i t y to subsidize i t s subordinate governments. This state of a f f a i r s was due l a r g e l y to the peaceful s i t u a t i o n i n the Province i n l a t e r years, or, s h a l l we say, the previous finan-c i a l d i f f i c u l t i e s could be attributed to c i v i l wars and the need for expanded police protection. 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 ed i t i o n . Cheng Nien-chung. Local Self-Government, Chungking, Commercial Press, A p r i l 194^, f i r s t e d i t i o n ; July 19U4, fourth edi t i o n ; Shanghai, Commercial Press, September 194\u00C2\u00B0, Shanghai-first e d i t i o n ; July 1947, Shanghai-second e d i t i o n . Chia Teh-huei, F i n a n c i a l History of the Republic of China L i Jan-nung, Chinese P o l i t i c a l History i n the Last One Hundred Years'. English: Hawtrey, R. G., The Gold Standard i n Theory and Practice, Longmans, Green & Co., Ltd., London, New York, Toronto, Calcutta, Bombay and Madras, 1927. Ho, Franklin L., Rural Economic Reconstruction i n China, a paper presented to the Sixth Conference of the In s t i t u t e of P a c i f i c Relations, 1926. Periodicals (Chinese): Ben Yu-sing, The Central-Kiangsi Financial Problems i n the Last Ten lears, Shanghai Financial 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?, Vol. 16, No.2 Cheng Cheng-mo, New Land Act and Land Policy. Shanghai, Financial Review, November 1946, Vol. l b , No. b. Sun Shan-fu, The Arguments of Tax Rates on Land. Chungking, Financial Review, June 1944, Vol. i\u00C2\u00B1, No. 6. 139. Periodicals i n English: China Handbook, 1937-1940. Compiled by Chinese Ministry of Information, Revised and enlarged with 1946 supplement, New York, MacMillan Company, 1947. China Year Book, 1926, Tientsin, Tientsin Press Ltd. China Year Book, 1934, Shanghai, The Northern-China Daily News and Herald, Ltd. Chinese Year Book, 1937 issue, Shanghai, Commercial Press. International Year Book, 1928, New York. Money and Banking, I936-7, Vol. 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 lk l . PART 1Y Chapter 711 Financial Developments Between 1937 and 1941 Introduction In this Bart the Third National Financial Conference w i l l be stressed i n d e t a i l . Before the wartime financial projects recommended by this Conference are reached, however, i t i s advisable to discuss the dev-elopment of the Eight Years War which persisted from July 1937 to August 1945. In the f i r s t years of the War, neither China nor Japan did an-ticipate that the h o s t i l i t i e s would last for eight years. The Central Government developed i t s wartime financing rather spasmodically, and no permanent and comprehensive financial policies followed for the provincial and Hsien governments u n t i l 1941, when China was convinced that the War was chronic and the Financial Conference of 1941 was called. In the f i r s t years of the War, since the danger was worse in China than in Japan, the financial strength of the Central Government was greatly weakened by the loss of the taxpayers in enemy territ o r y . In order to enable the Central Government to liberate the nation from the foreign invasion, the Financial Conference of 1941 was assembled to provide means for solving central economic handicaps. The provincial governments there-by surrendered their tax levying power to the Central Government enabling i t to handle national defence more effectively. This Chapter is entirely a discussion of the background of this Financial Conference. 1U2. A. War Areas and Financial 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 in English as Manchuria, had already been occupied by the Japanese. The Japanese f i e l d forces could easily attack the Provinces of Hopeh and Chahar, the south and west. On the night of July 7, 1937, what was termed by the Japanese an \"incident\", following a Japanese \"military manoeuver\", took place in the v i c i n i t y of Pelping, formerly known as Peking, Hopeh Province. The Chin-ese Government attempted at the beginning to settle this \"incident\" through diplomacy, and, on July 10, sent a written protest to the Japanese Embassy in Nanking. However, i t was believed that no satisfactory results could be expected through diplomacy and on July 17, General Chiang Kai-shek, in a public speech, l a i d down four minimum conditions for the settlement of the so-called \"incident\". In response to Chiang ,s statement, on July 25, Japanese Field Headquarters sent an ultimatum to General Soong-Cheh-yuan, the Chinese commander in 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 this 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 Shang-hai. The Chinese Government then announced that 200 kilometers of the Yangtze River, from Shanghai upwards, had been mined and were closed to t r a f f i c . One week later, a Non-Aggression Treaty was signed between the Chinese and Soviet Governments in Nanking. On August 30, a conscription law was put into effect. Two days later, on September 1, the Central Gov-ernment issued i t s f i r s t wartime bonds, amounting to 500,000,000 yuan, 40 per cent of the total Central budget for the preceding year. The eight n o . Years War had begun; not u n t i l August, 1945\u00C2\u00BB did the Japanese forces surr-ender 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 this f i s c a l year. It was necessary f o r the Central Gov-ernment to rush the f i r s t wartime bonds, which were issued two months after the outbreak; but a relatively permanent wartime financial plan was out of the question because both China and Japan never realized that this \" i n c i -dent\" would last for eight years. Following the early bloody campaigns, China's forces withdrew westward from the maritime provinces. The loss of the land together with the taxpayers there domiciled, was particularly inconvenient, so f a r as the financial matters were concerned. The following Map and Table give a rough picture of the war areas and population situations. 1. Beginning from 1938, the f i s c a l year was altered from January to December of each year. I n t e r n a t i o n a l Boundaries P r o v i n c i a l Boundaries R i v e r s Great W a l l Area under Japanese c o n t r o l from 1896 t o 19U0. Provinces occupied by the Japanese from 1931-33 t o 19U5>. Provinces e n t i r e l y occupied by the Japanese a f t e r 1937. I \u00E2\u0080\u0094 iProvinces where a f t e r 1937, the Japanese c o n t r o l l e d major I 'portion of l a n d . Provinces where major p o r t i o n of l a n d s t i l l under Government c o n t r o l . Note: This Map'shows the 28 Provinces and the t e r r i t o r i e s of Mongolia and T i b e t i n 1937? the I s l a n d Hainan was under the j u r i s d i c t i o n of the Kwangtung P r o v i n c i a l Government. The changes of the i n -t e r n a t i o n a l and p r o v i n c i a l boundaries a f t e r 19U0 w i l l not be shown here. TABLE m i l l 145. Population and War Areas in the 28 Provinces of China. (1) (Population and acreage quoted below in accordance to 1937*s census ) * Popula-' Per- 1 Areas \u00E2\u0080\u00A2 Per-P R O V I N C E S \u00E2\u0080\u00A2 tion 'centage to* sq.km. * centage to \u00E2\u0080\u00A2 (000) ' Total \u00E2\u0080\u00A2 (000) \u00C2\u00BB Total The 28 Provinces \u00E2\u0080\u00A2452,614 \u00C2\u00BB 100,0 * 8,766 ' 100.0 Provinces f u l l y occupied by the Japanese: Four Eastern . Provinces 30,007 6.6 1,247 14.3 Chahar 2,036 0.5 279 3.3 Hopeh 28.6U 6.3 154 1.8 Total 60.687 13.4 1.680 19.4 63 per cent of ' the Hsien i n the Provinces occupied by the Japanese: Kiangsu 36,469 8.0 108 1.4 Che kiang 21,231 4.7 103 1.3 Anhwei 23,265 5.1 134 1.5 Kiangsi 15,820 3.5 200 2.2 Hupeh 25,542 5.6 208 2.4 Hunan 28,294 6.2 273 3.1 Shantung 38,029 S.7 179 2.0 Honan 34,290 7.3 173 1.9 Shane! 11,601 2.6 156 1.8 Fukien 11,756 2.6 159 1.8 Kwangtung 32,290 7.1 217 2.5 Suiyuan 2,084 0.6 291 3.3 Kwangsi 13.385 2.9 218 2.5 Total 293.956 64.9 2,419 27.7 The Provinces intact during the War: Szechwan 52,963 11.7 431 4.9 Yiman 11,995 2*7 320 3.7 Sinklang 4,360 0.9 1,828 20.8 Chinghal 1,196 0.2 697 7.9 Kweichow 1 9,043 2.0 179 2.0 Sikang 968 0.2 372 4.2 Kansu 1 6,705 1.5 378 4.2 Ningsia 1 1,023 0.2 275 3.1 Shensi 1 9.718 2.3 187 2.1 Total 97,971 21.7 4,667 52.9 1. These Provinces not entirely intact. 1. Cf., Chinese Year Book, 1937 issue, pp 278-79 and China Handbook, 1937-1945, P.112. Figures do not include those of Special Municipalities and the Territories of Mongolia and Tibet. 11*6. Before 1937, 13*4 per cent of the total population and 19.4 per cent of the land among the 28 provinces had already been occupied by the Japanese. During wartime an additional 45 per cent of the population and an additional 20 per cent of the land were lost from the administra-tion of the Central C3overnment. Roughly speaking, i n the later years of the War, the Central Government was only directly supported by 40 per cent of the population, inhabiting 60 per cent of the land which was much poor-er than that occupied by the enemy. Since the Central Government had pre-viously depended on the revenues from the indirect taxes , as we shall see i n the next section, the loss of majority of the population would nec-essarily put a tremendous burden on the Central Government i n i t s strugg-les against foreign invasion. This was the elementary factor that handi-capped the central treasury in financing the war expenditures, and that led to the convening of the Third National Financial Conference i n 1941\u00C2\u00BB by which time China was positively convinced that the \"incident\" was\"chro-nic\". B. Inefficiency of the Central War Financing Since the pressure on the central finances was the chief eause for the Financial Conference of 1941\u00C2\u00BB i t i s advisable to discuss,as back-ground, b r i e f l y the economic projects of the Central Government prior to 19U. In order to cope with the financial d i f f i c u l t i e s of the War, the Central Government had adopted three policies, namely the issue of bonds, the imposition of new taxes, and the Inflationary printing of bank-notes. These policies, however, were by no means sufficient to raise the funds necessary f o r the huge war expenditures, as the separate headings U 7 . below w i l l show. F i r s t policy: Wartime Bonds The f a i l u r e of the coastal defences of China was inevitable because she lacked a strong navy, while Japan at that time was pre-eminent i n sea power. In 1937 and 1938\u00C2\u00BB the Japanese had successfully occupied a l l the important sea ports, i n d u s t r i a l centers and commercial c i t i e s along the coast. As a resul t of t h i s , the Central Government not only l o s t a l l revenues from the maritime customs duties, and the tax on the s a l t produced on the coast, but also the considerable annual i n -come from commodity taxes. I t was the worst period i n the records of the cent r a l finances since the U n i f i c a t i o n era of 1928, f o r the Central Gov-ernment had l o s t i t s three major revenue sources, while i t had to carry the costs of t o t a l war. The following Table shows the percentages of the Indirect taxes i n the Central Government's budgets since 1928. Table XX Importance of the three major Rev-enue sources i n the Estimated Bud-gets of the Central Government, 1928-1937 (1) 1 Revenues 'from Indirect Taxes Borrow- \u00E2\u0080\u00A2 Other Year Customs Salt Commodity Total \" ings Revenues * % (1) fo # 1928 26 22 -- 48 21 31 1929 34 19 \u00E2\u0080\u0094 53 18 29 1930 40 18 7 65 28 7 1931 42 18 9 69 20 13 1932 52 24 13 89 -- 11 1933 52 21 13 84 \u00E2\u0080\u0094 14 1934 41 20 12 73 5 22 1935 35 19 11 65 7 28 1936 32 19 13 64 22 14 1937 36 22 17 75 \u00E2\u0080\u0094 25 Tne nscaj. year sta.n,eu 1 \u00E2\u0084\u00A2 ouxjr ^yji w \u00C2\u00AB u ^ \u00C2\u00AB , < -^ w a - C T ~ZZ*\u00E2\u0084\u00A22 -^^A\u00E2\u0080\u009E broke out i n July 1937. The figures do not include the wartime bonds, 1U8. On the average, in the ten years up to 1937\u00C2\u00BB the Central Gov-ernment's revenue from customs duties7 salt taxes, and commodity taxes, were 69 per cent of i t s total annual income. When the War broke out these reliable revenue sources dwindled sharply. By 1939\u00C2\u00BB the revenue from these taxes amounted to only 46 per cent of that of 1937\u00C2\u00BB while the total expenditure f o r 1939 rose to 125 per cent of the 1937 figure. With an eye to the expected loss of the indirect taxes, the Central Govern-ment 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 l a t t e r policy could be administered more easily and e f f i c i e n t l y in the emer-gency. Thus, the f i r s t wartime bonds were issued two months after the outbreak of the War. In these early War years, the central budgetary d e f i c i t s were not so great that the Government could not balance i t s t o t a l expenditures with i t s t o t a l income. After 1940, however, deficits increased so rap-id l y that bond sales were no longer sufficient to offset them, as shown in the following Table. 1. Cf., Yen Wen-Bhin, p.112. 1U9. TABLE XXI Deficits and Domestic Bonds of the Central Government,1937-1941 1 Year Unit: Bonds Issued Names and Purposes 000,000 Amounts yuan Total Central Deficits 1937 Liberty Banking 500 17 517 496 1938 National Defence Relief 4,500 30 4,530 396 x 1939 Reconstruct! on National Defence 600 1,200 1,800 1,383 1940 Reconstruct iom National Defence 1,200 2,000 3,200 4,007 1941 Reconstruction National Defence 1,200 1,200 2,400 9,000 x The f i s c a l year ran from July to December in 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 deficits exceeded the am-ount of the bonds issued plus a l l other sources of revenue of the Central Government. By 1941, the bonds offset only 37 per cent of the budgetary d e f i c i t . A remedy had to be provided for the Central Government, so that in the summer of 1941, the Third National Financial Conference was held for this purpose. Second Policy: New Taxes of the Central Government Ever since the Unification of the country, and particularly after the Japanese seizure of the Four Eastern Provinces, the Central Government had been attempting to strengthen i t s financial system i n pre-paration for a war with Japan.^ In 1934, the Second National Financial Conference had proposed new income taxes and succession duties imposed by the Central Government. In the following year, an income tax act was actually put into force, and, in 1937, succession duties were imposed. One year after the War began, legislation regarding a wartime excess profits tax was promulgated. This tax was f i r s t imposed in 1939\u00E2\u0080\u00A2 In 1940, the Central Government temporarily established a mon-opoly of the sales of sugar, salt, tobacco, cigarettes, and matches in a few areas. Because of the good results of t h i s operation the Central Government, in 1941\u00C2\u00BB applied this policy 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, particularly evident after 1932 (the Japanese attacked on Shanghai)\". 151. As the war situation worsened, voluntary donations from the people to the Central Government increased from year to year. From 1940 on, the Central Government in i t s budgets put th i s sort of income under a separate heading. The following Table shows the percentages that the new taxes, monopoly sales, and donations were of the total income of the Central Government, from 1937 to 1941* TABLE XXII New Receipts as a Percentage of the Total Receipts of the Central Government, - -1937- 1941 (1) Year Income E.P.T. Succession Monopoly Donations Bonds Total Tax Duties Sales 1937 1.6 0.1 37.0 38.7 1938 x 0.3 0.01 89.9 90.2 1939 1.3 0.2 0.1 77.9 79.5 1940 1.0 0.7 0.1 0.8 1.1 84.6 88.3 1941 1.5 1.7 0.1 7.9 3.4 58.2 67.8 x Fiscal year ran from July to 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 deficits of the Central Government s t i l l mounted more rapidly, as shown in the following Table: !\u00E2\u0080\u00A2 Source: Chang Peh-yi, Pp 10-7, & Table XX supra 152. TABLE XXL11 Total Income as a Percentage of the Total Expenditure of the Central Government 1937 - 1941 1* Unit: yuan Tear Total Income Total Expenditure Per cent 1937 1938 1939 1940 1941 1,515,357,000 x 5,037,679,000 2,309,089,000 3,784,439,000 4,118,985,000 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 x Fi s c a l year ran from July to December, 1938. As the to t a l incomes as a percentage of the total expenditures dwindled, the Central Government's a b i l i t y to s e l l more new bonds was weakened. It was, therefore, necessary for the Government to resort to dilute i t s currency to meet i t s d e f i c i t s . Inflation, however, was poor remedy for such a prolonged struggle. Third' Policy: Fapi, the inconvertible f i a t money From 1934 on, the price of s i l v e r had increased rapidly abroad, which led to the export of a great deal of s i l v e r to the gold standard countries. This event brought to China a shortage of s i l v e r in 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 after the middle of October, 1934. In November, 1935 an emergency decree was issued by 1. Ibid 103. the Central Government authorizing an inconvertible paper money, known as Fapi, as f u l l legal tender. In that peaceful year Fapi was expected to prevent a domestic economic panic, but in fact, i t was one of the whole link of the Nationalist war policies. Mr. Ping Liang, the head of the Issue Department of the Central Bank of China, in his a r t i c l e issued i n 1948 to 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 emer-gency decree, as a preparation for war\".1 In the same a r t i c l e , Mr. Liang went on and said that, \"During the later years of the War, the Government had done i t s best to avoid the use of note issues for war purposes\".\" In 1948, the Minister of Finance, Wang Tu-wu, in his statement regarding a later monetary reform said that, \"At present, the Fapi has met with i t s fate after several s t i r r i n g years. During these years, i t did periodically increase i n quantity but not as much as our citizens im-agined\". J The Government had never made a detailed statement concerning the extent of the note issue while the War was going on; even during the post-War years, when the conflicts between the Government and the Chinese Communists were spreading. It i s d i f f i c u l t to discover how important was the role played by the Fapi inflation in the central financing of the War. According to Mr. Liang's a r t i c l e , the inflation was not c r i t i c a l i n the f i r s t three years. He also said that, \"during these three years, a quan-t i t y of Fapi was necessary only in order to meet emergency needs at the 1. Ping Liang, p.34. 2. Ibid. 3. Financial Records, Financial Review, Vol. 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 in the f i r s t three years of the War, the Government had issued wartime bonds in the amount of 11,500 million yuan. These funds had to be provided from the existing money stream which was at the eve of the War only 1,410 million yuan. There-fore, the Central Bank had to increase the quantity of the Fapi through loans to private business in order to maintain a useful volume of the currency In circulation. In 1938, the Fapi was increased from 31\u00C2\u00AB2 m i l l -ion to 32.4 million yuan; in 1939, by 340 million yuan; and i n the f i r s t 2 six months of 1940, by 540 million yuan. From then on, there was no o f f i c i a l statement regarding the Fapi issuing, but Mr. Liang said that, \"The Fapi should be elastic i n i t s quantity\".^ In view of the central budgets, one would believe that the Government, beginning in 1940, had begun to spend the Fapi directly to meet a part of i t s expenses because in that year i t f i r s t met with net d e f i c i t s . 4 1. Ping Liang, p.34. 2. Ibid. 3. Ibid. 4. 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 after Pearl Harbour was bombed, the sudden reduction in ports caused serious shortage of various staple goods (because less and less the staples imported across the Pacific Ocean)\u00E2\u0080\u00A2 This resulted in a rapid rise of the general price level and was a further factor in tbs seemingly limitless f a l l i n the value of the Fapi\". 155. Of the three wartime financial measures, .the, the bond issue, the taxes and in f l a t i o n , the dilution of the Fapi was the last and most desperate resort. But such inflation was never an effective weapon for coping with financial d i f f i c u l t i e s in the long run. Other remedies had to be provided i f the Government was to continue the war effort to the end. Thus, the Third National Financial Conference was called in 1941. (C) Developments in the Provincial and Hsien Finances, 1937 to 1941 In 1934, the Second Naticmal Financial Conference took a signif-icant step through which to provide an expansion of the Hsien finances was expected. But only a few of i t s Resolutions \u00E2\u0080\u0094 such as abolition of the Chuan levies and the introduction of land value taxes \u00E2\u0080\u0094 were put into effect by the provincial governments, while the Demarcation of the Prov-incial-Haien Taxation was never realized. In March, 1937, the Central Government promulgated an Enforcement Provision for the Demarcation Act.\"*\" This Provision was to be in 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 stress the finan-c i a l developments among the provincial and Hsien governments from 1937 to 1941* Of these, the New Hsien System was the most important, and w i l l be discussed in a following chapter. Provincial Finances The provincial 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 for their extraordinary The Provision was of the same pattern of the Demarcation Act, decided by the Financial Conference of 1934, with slight changes in names and terms. 156. expenditures, as is shown in the following Table. TABLE m i l l Provincial Wartime Bonds, Issued Annually 1937-1940 1* Unit;000 yuan 1 ' P U R P O S E S t t t Tear 'Reconstruction & Public works * Relief \u00E2\u0080\u00A2 Highway & * \u00E2\u0080\u00A2 Industry * Deficit'Defence ' '& Others * Total i ' 1937 5,000 1938 56,000 1939 7,500 1940 6,000 2,960 20.000 \u00C2\u00A30,000 15,980 8,900 25,000 500 17,000 9,200 5,000 14,460 88,980 25,600 90,000 Total! 68,500 26,000 42,960 49.880 31.700 219.040 Note: the figures include the bonds which had been authorized and not yet issued. The Provinoial Governments of Anhwei, Chekiang, Fukien, Honan, Hunan, Hupeh, Kansu, Kiangsi, Kiangsu, Kwangsi, Kwangtung, Shantung, Shensi, Sikang, & Szechwan. The financial conditions of the individual provincial govern-ments were varied with their proximity to the front. The following Table shows the finances of three Provinces. In Chekiang, there was fighting with the Japanese i n 1939. Fukien was one of the neighboring Provinces of Chekiang, and war areas i n this Province were small. Szechwan was free from active h o s t i l i t i e s . 1. Cf., Chia Teh-huei, Vol. 11. p.664-66. 157. TABLE XXV Provincial Budgets of Chekiang, Fukien, and Szechwan for 1939 Unit;000 yuan Fukien Szechwan From: ' Amount t 1 Amount \u00E2\u0080\u00A2 . % ; ' Amount 1 Farm land taxes 5,800 14.8 1,540 11.8 29.000 30.8 Ti t l e deeds taxes 500 1.3 154 0.2 3,000 3.2 Business taxes 5,729 14.5 2,364a 17.3 11,000 11.8 Improvement taxes \u00E2\u0080\u0094 \u00E2\u0080\u0094 4,000b 30.5 1,000 1.1 Public properties 266 0.7 146 0.1 100 0.1 Public enterprises 819 2.1 57 90 0.1 Administration 8,152 20.5 687 0.5 2,700 2.9 Subsidies from the Central Government 1,861 4.7 2,144 16.4 14,000 15.0 Debts & borrows 12,000 31.0 1,983 15.2 30,300c 32.0 Others A.347 11.0 30 200 0.2 Total (cit.) 39,475 100.0 13,105 100.0 94,000 100.0 Expenditures For Administration (d) 3,050 7.7 3,708 28.5 24,900 26.2 Police protection 10,194 25.8 3,288 25.3 9,400 10.0 Subsidies to sub-ordinate govern- -ments 7,153 18.0 \u00E2\u0080\u0094 M M 700 0.7 Education 2,599 6.6 2,999e 23.0 7,400 7.9 Financial Ad. 2,104 5.3 1,780 13.7 5,700 6.2 Debt Service 9,756 24.7 \u00E2\u0080\u0094 M M 26,000 27.7 Public enterprises 199 \u00E2\u0080\u0094 \u00E2\u0080\u0094 M M \u00E2\u0080\u0094 Pensions to retired o f f i c i a l s , etd. 110 60 1,000 1.1 Construction, etc. 1,127 2.9 328f 2.5 15,000 16.0 Other \u00E2\u0080\u0094 M M . 744 5.7 \u00E2\u0080\u0094 M M Reserve funds 3,182 9.0 744 5.7 3,900 4.2 otal (cit.) 39,475 100.0 13,105 100.0 94,000 100.0 The budget had not been submitted to the Central Government for approval, a) Including butchery tax, etc. b) Including a part of land taxes, c) Debts:300,000 yuan,Deficits:30,000,000 yuan, d) Including the expenditures for administration, j u d i c i a l ad-ministration, and the Party.ef) Including the expenditures for special training of c i v i l o f f i c i a l s . j\u00C2\u00A3) Including the expenditures for public health, etc. Pp 656-67. 1. Cf., Chia Teh-huei, Vol. 11. 108. In Chekiang, the income from debts and borrowing was the great-est, 31 per cent of the total income of the Provincial 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 Provincial 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 total income of the Provincial 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 their old debts, 24 and 27 per cent of their total expenditures respectively. Since actual battles waged in Chekiang, the Provincial Govern-ment also had an expenditure, the largest one of a l l , for c i v i l protec-tion and police amounting to 25.8 per cent of i t s t o t a l expenditures. But, in Szechwan, the cost of police protection was only 10 per cent of the to t a l expenditures, while in Fukien, the same expenditure was 25.3 per cent of the t o t a l . The expenditure for construction was only 2.9 per cent i n Chekiang compared to 21.5 per cent in Fukien and 16 per cent in Szechwan.\u00E2\u0080\u00A2\u00E2\u0080\u00A2 In Chekiang, as the areas under the Provincial administration steadily diminished, the expenditure for administration became less im-portant. But i n Fukien and Szechwan, the same expenditure amounted to 28.5 and 26.2 per cent respectively. This expenditure included the cost incurred i n maintaining provincial people's assemblies. The Chekiang Government was burdened by subsidies to 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, this cost was incorporated into that for admini st rat ion. A better understanding of the provincial wartime financing w i l l be given by the following Table, which shows the variations in Chekiang's budgets for the years 1936 and 1939\u00E2\u0080\u00A2 TABLE XXVI Comparison of the Chekiang Provincial Budgets of 1936 and 1939.1 Unit;000 yuan Revenues & ' Amount * Percent 'Expendi- * Amount 1 Percent * Receipts \u00E2\u0080\u00A2 I936. 1939 \u00E2\u0080\u00A2 1936. 1939 ' tures for \u00E2\u0080\u00A2 1936. 1939 '1936.1939' Land taxes 10471 5800 36.2 14.8 Administ. 5681 3050 19.6 7.7 T i t . deeds 1080 500 3.7 1.3 Pol.Prot. 3423 10194 11.8 25.8 Business 5665 5729 19.6 14.5 Subsidies Pub. prop. 610 266 2.1 0.7 to Sub. Pub. enterp . 3905 819 13.5 2.1 gov'ts 1035 7153 3.6 18.0 Administ. 1033 8125 3.6 20.5 Financial Subsidies 1218 2104 4.2 5.3 from the Debts 5959 9756 20.6 24.7 Gen.Gov't. 4669 1861 16.1 4.7 Pub .enterp . 3373 199 11.7 Debts 1194 12000 4.1 31.0 Pensi on 98 110 0.3 Others 311 4347 1.1 11.0 Construct. 4089 1127 14.1 2.9 Others 107 0.4 Reserve 824 3182 2.9 9.0 Total 28938 39475 100 100 Total 28938 39475 100 100 1. Tables VI & Xx/v supra. 160. Because fighting was going on i n this Province, the revenue from the land taxes was sharply reduced from 36.2 per cent in 1936 to 14.8 per cent in 1939\u00C2\u00BB of the t o t a l receipts. In 1936, the income from provincial enterprises was 13*5 per cent, of the t o t a l , but the same i n -come in 1939 was only 2.1 per cent. In 1939. the receipts from t i t l e deeds, and public properties had fallen to 50 per cent of those in 1936. The receipts from debts being a stable amount of money increased from 4.1 per cent i n 1936 to 31 per cent in 1939 of the t o t a l revenues of the Provincial Government, and the debt charges in 1939 rose 4 percentage points alove that of 1936. In 1936, administration, construction and pub-l i c enterprises were 45\u00C2\u00AB5 per cent of the t o t a l expenditures; but these expenditures were not of importance in 1939, being 10.6 per cent only. The cost for police protection and the subsidies to the subordinate gov-ernments were only 25.4 per cent in 1936; however, by 1939 they were 43.8 per cent. To sum up, the essences of the provincial wartime financing can be analyzed as follows: 1) In these provinces where battle was carried on, the provin-c i a l governments not only had an increasing costs for police protection, but the heavy burden of subsidizing the subordinate governing bodies. They had to keep a reserve fund of high percentage of their 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 carried on a greater scale than in the pre-War years. Here, the subsidies from the Central Government be-came more important than ever. 161. 3) Generally speaking, a l l provincial governments developed their debt financing during the War years. The expenditure for the repayment of the old 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, rehabilitation, military 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 effect. The Hsien f i n -ancial methods were rushed and particularly i n those d i s t r i c t s close to the theater of War. When the subsidies from the Central or the provincial governments were not received, or were inadequate, the Hsien treasuries had to distribute the burden of the extraordinary costs among the people. In 1939, the Kwangsi Provincial Government f i r s t promulgated 9 rules governing such \"distribution\" of extraordinary costs of i t s Hsien governments.' After this i n i t i a l step, other provinces made similar rules for their respective local bodies. The regulations drafted by the Kwangsi Provincial Government can be summed up as follows. 1 1) The total amount of the \"Distribution\" should be f i r s t app-roved by the people's assembly i n the Hsien concerned. 2) The individual levies of the \"Distribution\" should be deter-mined by each District Assembly, (which was subordinate to the Hsien people's assembly) in accordance with the financial a b i l i t y of each Hu ( one Hu us-ually contained one family; and every business firm was considered as a separate Hu). 3) The spending of the \"Distribution\" in 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 collection of the \"Distribution\" should be in each Hsien treasury for safe keepingJbut,-5) The Hsien governments must spend the \"Distribution\" i n accordance with the budgets originally made by each D i s t r i c t Assembly, Conclusion After the outbreak of the War, the Central, provincial and Hsien governments were a l l confronted with d i f f i c u l t i e s . The most characteristic feature in China's wartime financing was that none of the three levels 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 to increasing i t s funded debt to meet i t s huge war expenditures. The currency was, therefore, diluted in order to expedite sales of war bonds. The provincial governments developed debt financing too, but their annual repayments of their old debts increased in direct proportion. Because of the lack of adequate revenue sources, the Hsien governments resorted to the Chuan levies. 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 in good condition. Another characteristic feature of China's wartime financing was the continually advancing price level, which was the principal prob-lem of a l l three levels of government. After 1940, the general wholesale index number accelerated more rapidly than ever before, as shown in the following Table. A l l these forces led to the Third National Financial Conference in 1941, which redistributed the government functions and tax levying powers among the three levels of government. TABLE m i Index Numbers of Wholesale Prices of 22 Basic Commodities in Chungking 163. Base Year. Jan-Jun,1937t slOO Weighted geometric mean Items 'General' Food ' Textiles \u00E2\u0080\u00A2 Fuel * Metal \u00E2\u0080\u00A2 Timber1 Sundries index ; No.of Com-' modities ' i 22 \u00C2\u00BB t 10 .5 ' 3 \u00E2\u0080\u00A2 2 . 5 ' 1 2 \u00C2\u00BB t 1 \u00C2\u00BB 3 Date 1937 Decern. 98 95 96 125 186 148 54 1938 July 98 91 103 153 254 193 51 Decern. 104 89 156 213 400 217 64 1939 June 120 102 170 344 471 233 73 Decern. 177 151 262 576 922 249 102 1940 June 336 309 439 852 1362 305 171 Decern. 1094 1129 715 1889 1453 1095 208 1 9 U March 1187 1171 844 2192 1823 1604 390 June 1726 2194 982 2058 I832 1456 408 Sept. 2336 2568 1222 2936 2214 1817 494 Decern. 2848 3100 1550 3508 2397 2607 596 1942 March 3515 3718 2046 4963 6044 2 9 a 1008 June 4162 4310 2556 6347 9691 4 a 2 951 Sept. 5238 4971 5597 8403 21536 8223 902 Decern. 57a 5098 7688 13942 28286 10340 1173 1943 March 7435 6787 12840 15771 28391 9202 1571 June 11250 10374 23522 18931 30556 IO656 2125 Sept. 15920 15351 2/,/,/,l 23600 4a70 14442 3543 Decern. 1944 March 36219 38660 42803 37031 42712 18850 9711 June 54470 59532 62674 44785 50974 23247 13218 Sept. 47180 47330 63555 59860 48910 33556 14890 Decern. 54860 49850 71210 145500 56260 78860 70250 1945 March 118900 114500 H 1 1 5 0 216150 134650 124000 36936 June 155300 141200 229400 315900 275700 213700 57740 Sept. 122600 109950 151600 413020 147570 155650 57781 Decern. 140448 127124 258324 254975 169573 72863 67670 Source: Central Bank Monthly, Vol. IV No.l. pp 141r2 16U Chapter T i l l - The New Hsien System In the last Chapter some significant features i n China's wartime financing were discussed. The Central Government attempted to balance i t s budgets through bond issuance, wartime taxation, and Fapi i n -fl a t i o n . The provincial governments strove to meet their d e f i c i t through indebtedness. The Hsien governments instituted \"Distribution\" methods through which part of their 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 this Chapter, the chief topic is the New Hsien System which was created to replace the \"Distribution\" system. Be-fore t h i s , however, i t is advisable to discuss the nature of the \" D i s t r i -bution\" method. The \"Distribution\" method was different from that of Chuan lev-i e s . The collection and disbursement of the \"Distribution\" method were determined by the people *s assembly while the Hsien governing authority was the decision-making group* But the Chuan levies before the War had been collected by the Hsien governing authority while the Hsien assembly was the legislator. Funds raised from the Chuan levies had been spent on gen-eral obligations of the Hsien government, but those raised from \" D i s t r i -bution\" were spent for specific purposes which were referred from the Hsien government to the people's assembly, particularly where the cost of mil-i t i a maintainence was concerned. The advantage of the -\"Distribution\" method-was that i t s yield was determined according to the need. Theoretically, there would be neither surplus nor d e f i c i t . However, i t had an undesirable feature: even within 165. a Hsien the burden on similar taxpayers domiciled in different d i s t r i c t s would be unequal. According to the Kwangsi rules mentioned in the last 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\" in that very d i s t r i c t . It was quite reasonable that, within this d i s t r i c t , the subscription of \"Distribution\" was raised in accordance with the financial a b i l i t y of each individual Hu. However, i t was very i n -equitable when this method was applied for a l l d i s t r i c t s , f o r a poor tax-payer in a d i s t r i c t where many wealthy people resided would have a much lighter burden than one who was domiciled i n a poorer d i s t r i c t . 1 the Hsien governments to give up this sort of financing, but the Hsien governments were unable to manage their wartime obligations with limited 2 sources of revenue. Other means must be provided to prevent the growth of \"Distribution\": either to reduce the Hsien wartime obligations or to strengthen the Hsien taxing powers. Nationalist China were unfavourable to the provinces, as has been seen in preceding chapters. It was, therefore, enacted that a part of the ex-is t i n g provincial tax revenue be transfered to the Hsien in the \"Organiz-ational Outline of Various Graded Units i n the Hsien\", known br i e f l y in Chinese as the New Hsien System. In September, 1939, the Central Government promulgated this Organizational Outline. It was enforced after 1940. It had ten chapters, 1 . Ben Yu-sing, Hsien Finance, p.89 2 . Chia Teh-huei, p. 660 Cf., Vol. 11 The Central Government had attempted unsuccessfully to persuade One must remember that the p o l i t i c a l intentions of L66. namely, 1) General provisions 2) Hsien government 3) Hsien council 4) Hsien finance 5) Chu 2\u00C2\u00BB 6) Hsiang ( or Chen) 7) Hsiang ( or Chen) council 8) Hsiang ( or Chen) finance 9) Fao-chia 10) Annex Three points should be noted i n the New Hsien System. They are: ( l ) the Hsien obligations. (2) the Hsien sources of revenue, and (3) the budget-ary procedure and the power of Hsien council; which were stated i n the second, fourth, and the t h i r d chapters of the Organizational Outline. Hsien obligations The Functions of the Hsien governments were stated as follows: 1. Hsien people's assembly. 2. Under the Hsien there were Hsiang ( r u r a l d i s t r i c t ) or Chen (urban d i s t r i c t ) . The Hsiang and Chen were further divided up into Pao (borough) and Chia (ward). Of a Hsien i s unusually large and has special conditions, i t may be f i r s t divided into 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 to 30 Hsiang. 3. Subordinate to 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. Article 7) Each Hsien shall have a Hsien government and a magistrate, whose powers and functions shall be as follows: (a) To administer a l l affa i r s of the Hsien self-government under the supervision of the provincial government; (b) To execute, under the direction of the provincial gov-ernment, a l l orders of the National Government. The execution of the preceding orders of the National Gov-ernment and the provincial government shall be stated on o f f i c i a l documents. Art i c l e 8) In the Hsien government there shall be sections of c i v i l a f f a i r s , finance, education, reconstruction, military a f f a i r s , land administration and social a f f a i r s . Each provin-c i a l government s h a l l , according to the classification of the Hsien and actual requirements, determine the number of sections and the distribution of t h e i r duties, and report same to the Ministry of Interior (of the Central Government) for reference.-1* These Articles were quite ambitious, particularly where wartime financing was concerned. The function of military affairs was considered to be one of the responsibilities of the Hsien governments. It was the f i r s t time that local governments had undertaken m i l i t i a training in Chinese history. The intention was evidently that the nation should not again experience the consequences of the radical provincialism which had existed during the decade following 1917* The power of the provinces over Hsien a f f a i r s was practically removed. They could supervise the Hsien government directly only in prom-oting the development of further Hsien self-government. No provincial or-ders were to be executed by the Hsien government, except those originally received from the Central Government. After having c l a s s i f i e d the Hsien governments into various grades according to the conditions of population, 1. China Handbook, 1937-1945. P. 122 168; area, etc., the provinces were to report these facts to the Central Gov-ernment. In other words, the Hsien governments under the New Hsien System should carry out th e i r functions under the direction of the Central Gov-ernment only. Hsien sources of revenue Article 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 tax and of i t s surtax after the completion of land registration; 3) Thirty 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 in 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 re-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 legally permitted taxes and levies. In explaining the Hsien taxes under the New Hsien System, i t is fa c i l i t a t e d by comparison with the recommendation of the Financial Conference of 1934\u00E2\u0080\u00A2 The land value tax was to be introduced to replace the old levies on land: the provincial land tax and the Hsien land surtax. To framing the land tax reform, there had been two devices, namely, a complete cadastral sur-vey 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 in many Hsien; so the provinces s t i l l c o l l -ected the old land tax and the Hsien governments imposed the land surtax in their old manner. The term \"land Law\" quoted above means the \"land value tax\". The registration of land ownership was a subsidiary means i n -1. Ibid., p.123 169. troducing the land value tax in d i s t r i c t s where the land survey had not been carried out. Because land registration in pre-War years had brought about more yield to both the provincial and Hsien governments,^ the Or-ganizational Outline induced the Hsien governments to adopt the new land registration with a promise that the Hsien governments were to enjoy the entire revenue surplus through this operation. The Central Government was to grant thir t y per cent of i t s f i s c a l stamp tax revenue to the Hsien where i t was raised. The most important part of financial adjustment under the New Hsien System was the revenue transfer from the improvement tax and butch-ering tax by the province to the Hsien. Before 1937\u00C2\u00BB the improvement tax had been imposed, in many cases, by the.provinees; in other cases, by the Hsien; and in s t i l l other cases, by both the provincial and Hsien govern-ments. Recommended by the Financial Conference of 1934* this levy was to have been imposed by the Hsien governments, but the provinces were to en-joy 15 to 30 per cent of the total y i e l d . This proposal had never been realized before 1937* and therefore, the administration of this tax re-mained unchanged in wartime. Since the outbreak of the War, some provinces had independently granted the improvement tax to the Hsien. But this tendency was not gen-eral in the provinces. Not u n t i l the enforcement of the New Hsien System did a l l provincial governments have to relinquish entirely their improve-ment tax. The same situation occurred in the administration of the butch-ering tax* 1. Appendix, supra. 170. As we have seen before 1937\u00C2\u00BB the business taxes (including the butchering tax and the business license) were enjoyed by both the prov-i n c i a l and Hsien governments, with the former receiving a slightly 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 for the prov-inces to grant the butcher^ revenues tax to the Hsien, particularly after 1937. Now, under the present New Hsien System, the Hsien governments were not only to enjoy the entire revenue from the butcher^} tax, but also 20 per cent of that from the other business taxes. The other \"legally permitted taxes and levies\" 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 well as these Chuan levies which had not been abolished but considered legal before the War. The Organiz-ational Outline did not mention various license taxes which were partly enjoyed by the provinces and partly by the Hsien. The Organizational Outline provided another means for Hsien finance in case of i t s deficiency. It stated that: Article 20) In order to meet reconstruction needs the Hsien government, upon the resolution of the Hsien council, (the Hsien people's assembly) and with the approval of the prov-in c i a l government, may in accordance with law issue Hsien loans. Although In the past statutes there were distinctions between the provincial and local governmental functions, the provinces often re-ferred matters to the local governments for execution without adequate funds. This was embarrassing to local finances. Thus, the Organiz-ational Outline stated that: 1. China Handbook, 1937-1945, P. 123. 2. Ma Da-ying. p.6. 171. Article 19) Expenses incurred for national or provincial a f f a i r s shall be defrayed by the national treasury or the provincial treasury. The Hsien government shall not be ordered to raise funds loca l l y to meet such ex-penses. In a financially self-sufficient Hsien i t s administrative and enterprise expenses shall be paid by the Hsien treasury. In the case of Hsien whose i n -come is not enough to meet i t s expenses, i t shall re-ceive a subsidy fromthe provincial government. In the case of a sparsely populated Hsien, where land has not been reclaimed, funds needed for i t s development shall be paid by the provincial treasury, and any further de-ficiency 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 to create a sound Hsien financial system in order to meet the greater responsibilities of the Hsien governments. The other was to pro-mote the development of local self-government in order to make the\"local autonomy finance\" more effective. Because the System was conceived for war purposes rather than other reasons, the power of the Hsien people's assembly over the Hsien budget was limited, and the magistrate was granted great power in drawing up emergency Hsien budgets. The Organizational Outline stated that: Article 22) Pending the formation of the Hsien council, Hsien preliminary and f i n a l budgetary estimates shall 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 gov-ernment with the magistrate of the same as chairman) first,and then presented by the magistrate to the prov-i n c i a l government for approval. After the formation of the Hsien council, Hsien pre-liminary and f i n a l budgetary estimates sha l l be passed f i r s t by the Hsien council and then presented by the magistrate to the provincial government for approval. In case of necessity, the magistrate may f i r s t present the estimates to the provincial government for approval, enforce them, and then send them to the Hsien council.^ 1. China Handbook, 1937-1945. p.123. 2. Ibid, Pp 123-24. 172 The Fi 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 with 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 after the next. Chapter IX The Third National Financial Conference 173. Summary Prior to 1937, China had divided her public finance into three levels: central, provincial, and Hsien, Although the three levels of government had endeavoured to overcome their financial difficulties,none of them had had adequate revenue sources to meet their obligations, even on the eve of tbs War. In wartime, the finances of a l l the levels of government were confronted with handicaps more serious than ever before. Under such circumstances, to work out an efficient financial system mere-l y on the basis of the old one, was a discouraging task. The Third National Financial Conference was convened in June, 19A1* A two level-financial structure was decided upon, so that the in-> dependence of provinces disappeared. The structure was indeed a pathetic reshuffling of the same old taxes and obligations. It did contribute to wartime streamline and efficiency but only at the price of a drastic and u n s k i l l f u l removal of provincial powers. The characteristic features of the new structure can be summarized In three aspects: 1) Provincial finances were taken by the Central Government. Following the outbreak of the War, the provinces because their responsibilities were increased, particularly i n areas adjacent to the front, heavily relied on borrowing to handle financial a f f a i r s . Theoret-i c a l l y , there would be no advantages to the Central Government in taking over the c r i t i c a l provincial finances. But the wartime China was in fact under a military administration. 1; and the central authority, in Tl In the Nationalist 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 called, except an Extra-ordinary Congress which was held in 193&. In the re-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 this 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 emer-gencies\", \"...the Supreme National Defence Council was created as the highest wartime body to be in charge of a l l organs of the Kuomintang Central Executive Committee, the five Yuan of the National Government, and the boards and departments of the National Military Council\". Cf., China Handbook, 1937-1945. Pp 39,40,60 & 61. control of the provincial 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 central administration for war purpose. 2) Farm land tax was paid in kind. The advance cf price levels in the wartime China was the re-sult of many causes, mainly lack of capital investments and materials,as well as the high cost of transportation. From 1939 onward, a new power-f u l force, the Fapi i n f l a t i o n , had greatly accelerated the increase of prices. As a rule under continuous in f l a t i o n , the revenues received by the government had one value, and when spent had another. In order to feed millions of soldiers, to provide food rati en systems, and especially to avoid the influence of the steadily rising prices, the Conference of 1941 proposed that the farm land tax be levied in kind. 3) Hsien finances remained the same as before. In Nationalist China, the Hsien government was considered as the last unit of the nation's governing authority; and the establishment of Hsien self-government was the fundamental step towards constitutional-ism, as recommended by Sun Yat-sen's \"Fundamentals of National Recon-struction\". To encourage this the New Hsien System had been instituted. 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 altered (except for minor changes of Hsien revenues); because the New Hsien System i t s e l f was created for war purpose and because the National-i s t China had been trying to inculcate a democratic s p i r i t . 1 i n the Hsien. T~. See: China Handbook / 1939-1945\u00E2\u0080\u00A2 P.H8. 176. A. Resolutions of the Financial Conference of 1941 In June, 1941* the Third National Financial Conference was called at Chungking, the wartime capital 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, in a speech at the inaguration of the Confer-ence. He said: \"Since the National Government was established, we have had two National Financial Conferences. Each of them, with specific ends, has worked out various financial projects which are extremely valuable. Today, we hold the third 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 financial scheme sound enough to enable the Government to undertake defensive war and to reconstruct the country at the same time\". After proposing a two level-financial system, Chiang continued, \"After the nation's frnances have been divided into two levels (national and Hsien), not only the cen-t r a l finance could be stabilized; but the New Hsien System would be pro-moted more effectively under the direction of the Central Government, the funds necessary for the System would be provided without obstacles: (the Central Government was to subsidize Hsien directly); economic reconstruc-tion in each province could be carriedut more e f f i c i e n t l y than before,es-pecially as far as the industries for national defense are concerned\".1 Previously the farm tax was imposed by the provinces according to the acreage of the land concerned. Under continuous inflation,yields from this tax declined in importance among the governments* revenues be-cause the rates were not raised s u f f i c i e n t l y . Thus, Chiang proposed that the farm land tax be levied in kind \"for an equal burden of the War cost on taxpayers as a whole\". 1. Financial Year Book, 1934-1942, Vol.1. Pp32-4. 177i Resolutions passed by the Conference of 1941 contained s i x chapters, which were: 1) Taxation 2) Bonds 3) Financial administration 4) Local finance 5) Money & Banking 6) Material resources For the sake of convenience, the following materials do not discuss the Resolutions i n the sequence above, but summarize them i n some sp e c i f i c aspects* P r o v i n c i a l Finance Under the new structure, the provincial f i n a n c i a l department should either be replaced by a \"Board\" d i r e c t l y subordinate to the Min-i s t r y of Finance cf the Central Gkivernment or serve merely as an agency of the M i n i s t r y . The function of the new f i n a n c i a l Board was to c o l l e c t the revenues previously belonging to the province, and to disburse the funds which thereafter, were to be assigned from the Central Government. The existing p r o v i n c i a l treasuries should be incorporated into the Cen-t r a l Treasury. The ordinary administrative 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 to the Financial Control Department, which was subordinate to the Chairman of the Central Government, f o r approval. The cost of the province other than that f o r administrative purposes was considered not \"ordinary\" and the p r o v i n c i a l government was to make a preliminary budget for i t . The Resolutions said that each 1. Financial Year Book 1934-1942,Vol.1. Pp 105-120 178. province should, according to the \"nation's' financial a b i l i t y \" , plan the \"necessary\" economic programs and construction i n detail as to their char-acter, timing and the funds required. Those plans should be f i r s t pre-sented to the Executive Yuan for approval. 1 Furthermore, one a r t i c l e of the Resolutions, which was the o s t r o n g e s t in terms of waging war, stated that: \"The head of the provin-c i a l financial department should execute decrees from the Minister of Finance (of the Central Government) applying to a l l financial administra-tion in the province\".2 Thus, the independence of provincial finance had 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* Every \"tax-payment yuan\" of 1941 on the land should be, thereafter, paid i n two Tou, or 0.44 gallon, of paddy. In other words, the actual rate of the new farm tax was one-tenth of the t o t a l crop from the land. 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 total crop. In other words, the land as a whole was classified 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 yield of a good season. Public Treasury System The Central Bank of China, and some other national banks had been the treasury or financial agency of the Central Government. By 1. Ibid. 2. Ibid. 3. Cf., Ibid. 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 levels of government in the hands of the Central Bank for forming a more useful 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 transfer of cash, notes and bonds, and the safekeeping of t i t l e deeds of the property of the three levels of government. In places where the Central Bank had no branch offices, the post office, or other banks might be authorized to handle matters relat-ing to the public treasury. ^' In order to strengthen this banking system, some changes had been made, of which the most important were as follows: Inspection officers ( of the Public Treasury System) were appointed to work in various designated d i s t r i c t s to see to i t that the tax- collecting units and the public treasuries handle revenues and expenditures in accordance with law. When necessary, supervision i s exercised. To ensure better circulation of treasury checks, thereby making the public treasury system more effective, treasury checks are guaranteed for payment by the banks acting for the public treasury. 2 Hsien Finance Hsien finance modifications contained i n the Resolutions of the Conference w i l l be di scussed in 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., Ibid. 2. China Handbook, 1937-1945, p.204. 180. the Enforcement Provision of the Financial Collecting and Disbursing System. The former was promulgated in 1939, and had been in effect from 1940 on. The l a t t e r was promulgated in 1936 and was to be in effect by 1937 in order to implement the Demarcation Act of 19341 but i t was post-poned because of the outbreak of the War. The Act after the Conference of 1941 was the Revised Enforcement Provision of the Financial Collect-ing and Disbursing System which had been in force i n 1942. The Articles read as follows: Ar t i c l e 1) The nation's finances are divided into national finance and local finance. Article 11) The National Finance shall include a l l the rev-enues and expenditures pertaining to the National, pro-v i n c i a l , and special municipal governments under the d i r -ect jurisdiction of the Executive Yuan and therefore not included in l o c a l finance. Ar t i c l e 111) Local finance includes a l l revenues and expen-ditures pertaining to municipalities, Hsien, towns and villages, provincial. Article IV) National Government tax receipts to be apportioned to Hsien and provincial municipalities are based on the following standard: a) 30 Per cent of net stamp tax receipts to Hsien and provincial municipalities; b) 25 per cent of net inheritance duty receipts to Hsien and provincial municipalities; c) 30 to 50 per cent of net business tax receipts to Hsien and provincial municipalities; d) The portion of land tax (in areas where the Land Tax Law is not enforced, the name farm tax i s s t i l l used), or-iginall y belonging to the provinces, is now turned over to the National Government, while the Hsien and provincial governments s t i l l retain their original shares. During the period when the land tax i s collected i n kind, the National Government collects the entire amount in kind. The Hsien and provincial municipal portion is paid back to them by the National Government in cash. e) The portion of tax on t i t l e deeds, originally belonging to the provinces, is turned over to the National Government, while the Hsien and provincial municipal governments s t i l l retain their original shares the t i t l e deeds surtax. f) The entire butchery tax shall, separated from the bus-iness tax, go to Hsien and provincial municipal governments} Article V) The entire income tax goes to the National Govern-ment. Article VI) Subsidies to Hsien and provincial municipal govern-ments are decided by the National Government 181. Footnote prey, page 1. China Handbook, 1937-1945, p. 201. Note: Special Municipality was qualified on the basis of province, while the Provincial Municipality on the basis of Hsien. Those Articles relate to Hsien finance w i l l be discussed in the Chapter following. 182. (B Enforcement of the Act of 1941 The Act of 1941 had been put into effect i n 1942. The revenue from the farm tax was the greatest amount of a l l the Central Government's incomes. Table XXV11 shows the importance of two major p r o v i n c i a l tax-es now levied by the Central Government and also the Wartime Excise \"Duty which also recommended by the Conference of 1941J i n the National Budgets of 1942 and 1943* These Budgets summarized not only the c e n t r a l , but also the provincial finances. Because the Central Government had taken over the p r o v i n c i a l finanoes, i t was necessary for i t to administer the old p r o v i n c i a l debts. In 1942, i t banned the f l o a t i n g of further p r o v i n c i a l loans; and i n 1943\u00C2\u00BB a Provincial Readjustment loan of 175*000,000 yuan was issued by the Central Government, to absorb and replace a l l p r o v i n c i a l bonds outstand-i n g . 1 Thus, because from 1942 on China had no pr o v i n c i a l finances, only the Hsien financing w i l l be discussed i n the chapters following, at least u n t i l the topic 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: - * 1 9 4 2 \u00E2\u0080\u00A2 1 9 4 3 ' Amount 5 3 ' Amount ' Farm tax 3 , 0 9 2 , 7 7 4 3 6 . 3 6 , 8 2 9 , 5 0 0 2 8 . 4 Business tax 4 0 0 , 0 0 0 4 . 5 1 , 2 0 0 , 0 0 0 5 . 0 Wartime Excise Duty 4 1 0 . 0 0 0 4 . 5 1 . 0 0 0 . 0 0 0 5 . 0 Total new incomes 3 , 9 0 2 , 7 7 4 4 5 . 3 9 , 0 2 9 , 5 0 0 3 8 . 4 Other receipts (bonds not included) 4 , 6 0 3 , 5 0 4 5 4 . 7 1 4 , 2 1 2 , 8 6 9 6 1 . 6 Total Revenue % 5 0 6 , 2 7 8 1 0 0 . 0 2 3 , 2 4 2 , 3 6 9 1 0 0 . 0 Deficits 1 9 , 7 7 7 , 0 3 4 1 2 , 9 9 4 , 0 4 5 Expenditure for: Provincial a f f a i r s 1 , 9 1 4 , 0 5 0 6.8 3 , 5 1 0 , 5 2 7 9.6 National public works 8 , 7 8 9 , 0 2 8 31.0 9 , 7 1 2,06? 2 6.8 Subsidies to Hsien (not including revenue-grants) 59,915 37,416 Defense 12 , 5 0 5,547 4 4 . 2 1 7 , 3 1 3 , 7 6 7 47*8 Other purposes 5.014.772 18.0 5 . 6 6 2.637 15*8 Total Expenditure 28.283.312 100.0 36.236.414 100.0 1. Cf., Chang Peh-yi, Pp 19-22. Chapter X- Hsien Autonomy Finance \u00E2\u0080\u00A2 1 8 4 - . Introduction Hsien financial powers in Nationalist China changed frequently. In 1928 when the Nationalists had just come into power, the Hsien were not granted independence in either p o l i t i c a l or financial f i e l d s , but were placed under the province. After the Central Government had actually consolidated i t s rule i n 1934* Hsien finances were planned to be indepen-dent of the provinces. Although the Demarcation Act of 1934 was never put into effect, Hsien finances, with limited tax resources, gradually be-came stable. In the f i r s t two years of the War, many provinces individ-ually added to Hsien economic strength and i n 1940, under the New Hsien System, a uniform Hsien financial system was founded. Two years later, the \"Hsien Autonomy Finance\" replaced the New Hsien System with some light changes in Hsien powers* In this Chapter the revenue sources i n the \"Hsien Autonomy Fin-ance\" w i l l be discussed, and i t s functions in 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 Hsien 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 185\". (C) Central revenue-grants and subsidies: 30 per cent of net stamp tax 25 per cent of net succession duty 30 per cent of net business tax Subsidies (D) Other Hsien receipts: Administration fees and fines Incomes from public property and enterprise Donations from public or private individuals Borrowings (A) Autonomy Taxes 1) Improvement tax Before 1934\u00C2\u00BB the levying power on houses belonged to the prov-ince. In some cases, the revenue was, f u l l y or partly, assigned from provinces to the Hsien; and in other cases, the Hsien could levy a separ-ate surtax on buildings. In 1934\u00C2\u00BB the Second Financial Conference decided that the improvement tax was to be imposed by Hsien, but this proposal was not adopted in some provinces. In 1940, under the New Hsien System the provincial governments transferred the levying power to the Hsien. In 1941, an enforcement provision concerning the improvement tax was promul-gated by the Central Government, in which a uniform assessment rate and method were defined to be effective in 1942. Before this new rate and method are discussed, however, i t i s advisable to review b r i e f l y the old ones \u00E2\u0080\u00A2 Because the levying power had long been in the hands of each province before the War, the rates differed among provinces. Moreover, as we saw, i n some provinces the Hsien governments levied surtaxes on houses, so that rates differed from one Hsien to another. Generally speak-ing, prior 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 rate of 15 per cent of the rental value of business premises had been set, while residences were taxed at 10 per cent. In Hunan, prior to 1940, 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 levied an improvement tax on businesses at 10 per cent of rental value, while rates on residences were cl a s s i f i e d into five 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 to pay one half of the t o t a l improvement tax. In some exceptional cases, a custom had developed whereby the provincial and Hsien authorities allowed the landlord to claim a deposit from the tenants in advance against this tax, in case the tenants defaulted in paying rent. 2 Before the War in 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 to the tax regardless of whether their houses were for rental purposes or not. The house-mortgagees were liable f o r the tax rather than the owner. But, those tenants who permanently 3 occupied a house were subject to the levy. Hsien improvement surtax rates, i n those l o c a l i t i e s were the provincial governments were to levy this tax and the Hsien were per-mitted to levy surtax, in general were 50 per cent of the provincial 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 in Chekiang levied improvement surtax at 24.8 per cent of the rental value of the business buildings, while at that time the provincial rate was only 15 per cent. 1 \"Such a heavy tax burden based on rental value directly discouraged new houser construction, be-cause the tax discouraged increases i n rents\".2 By 1940, under the New Hsien System, the provincial governments had transferred the improvement tax to the Hsien, but no substantial re-duction in 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 levied in two ways: one was on rented buildings and the other on owned houses. The maximum tax rate on the former was set at 5 per cent of the rental value, while that on the latter was 0.5 per cent of the appraised value. Surtaxes on improvements were no longer allowed by law. Tenants were to pay the tax, although they were authorized to deduct the tax amount from the rent to the owners. (The writer knows personally that the improvement tax was customarily paid by the tenants.) If the building was mortgaged, the mortgagees were sub-ject to the tax. A peculiar feature in Chinese improvement tax administration i s the role of \"Erh Fang Tung\", or the \"second house owner\", who exists in most c i t i e s . Between the Erh Fan Tung and the original owner there are written contracts which state the rights of both the parties. Comm-only, the Erh Fang Tung has the entire right to conduct the rental oper-ation, and assumes the maintenance costs and risks of the business. The 1. Ibid., Pp 93-4 2. Ibid, p 94. 188. original owner then receives his rent only from the Erh Fang Tung, which i s less than that paid by the tenants to the Erh Fang Tung. Thereby, the Erh Fang Tung earns his income through the dif f e r e n t i a l between the two \"rents 1 1. 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 tax adminis-tration is that, prior to 1941\u00C2\u00BB 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 inflationary prices; so that the owner of the land would not necessarily always own the house. The enforcement provision stated that the improvement tax should be levied at different rate than the land tax. Temporarily, the assessment rate on this sort of land was 50 per cent of the improvement tax rate.-' Therefore, the t o t a l improvement tax rate was 7*5 per cent of the rental value cf the rented buildings, and 0 .75 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 . If the Erh Fang Tung pays to the original owner 100 yuan per month, and he charges the tenants a rent of 150 yuan, the total assessment value is 150 yuan. The original owner is to pay 5 yuan for the im-provement tax and the Erh Fang Tung pays 2 . 5 yuan, on the basis of the tax rate of 5 per cent of their respective rental incomes. 2 . Ben Yu-sing, p. 95* 3. Ibid. 189, 1) Public buildings used non-profit organizations 2) School, charity, and public association buildings 3) Buildings and establishment f o r religious 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 for li v i n g purpose, including the temporary and simple houses built by refugees and the poor houses built by farmers. It has been suggested previously that the economic conditions among the Hsien greatly di f f e r e d . 1 Taking population as an index of Hsien economic strength, i t is apparent that the improvement tax could not yield income of any importance to many Hsien governments. According to the 1941 census, the Hsien population varied from 200 to 1,500,000 within an average area of 4\u00C2\u00BB300 square kilometers .2 Moreover, in general Hsien had much less urban population than the special or provincial municipali-t i e s . Most peasants other than landlords i n Chinese farming areas build simple l i v i n g accommodations for 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\u00C2\u00BB the Legislative Yuan revised the improvement tax en-forcement provision. The new rates were defined as follows: 1) The business premises for rental 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 \u00E2\u0080\u00A2 Cheng Nien-chung, p.39* 190. TABLE XXIX Revenue From Improvement Tax i n Kwangsi and Szechwan in 1942 and 1943 Unit: yuan Kwangsi in 1942' Revenue classes ,1 Szechwan in 1943 Revenue classes No. of Hsien No.of Hsien 450,000 50,001 and more 10,001-50,000 1,001-10,000 1 2 8 54 12 21 3 100,001-300,000 50,001-100,000 10,001- 50,000 10,000 and less 700,000 1 4 12 60 62 501- 1,000 500 and less No revenue 3) The resident houses for rental purposes should pay the improvement tax at 10 per cent of the rental 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 in Hsien finances, particularly in prosperous Hsien. 2) But oner ing tax though i n some cases, the revenue had been granted, partly or entirely, to the Hsien. In 1931, the Central Government promulgated the Business Tax Act which defined the levying method on the butchering business according to the number of livestock slaughtered f o r sale. This Act did not set rates but stated that the rate was to be determined by each province in accordance, with the state of the butchering business. 1. Yee Hong-lin, 112. 2. Ben Yu-sing, 106. The butchering tax had been a provincial levy before the War, 191. Before and after 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 provincial or Hsien governments. By 1933, the Kiangsi Government had allotted the entire levying power to i t s Hsien gov-ernments. Some other provinces adopted this policy in later years in or-der to help stabilize Hsien finances. After the tax had come under ad-ministration of the Hsien, the variation in the tax rates gradually and greatly inoreased among different taxing areas. In 1935\u00C2\u00BB 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 substantially raised the assessment rates from time to time. In 1941\u00C2\u00BB the t o t a l revenue from the butchering tax in this Province exceeded 9,490,000 yuen. In Hunan since 1938, the Provincial Government relinquished the levying power of the tax to the Hsien; and, the rates had been i n -creased each year. Previously in 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 this revenue source\u00E2\u0080\u00A2 Under the New Hsien System, the butchering tax was considered only as Hsien levy. Those provinces (who had not yet done i t ) now had to relinquish their levying power. But, there was s t i l l a lack of a uniform tax rate among the Hsien. Owing to the great differentials i n the tax rates, i t was inevitable that livestock-smuggling from one pro-vince to another resulted. 1 To prevent th i s , the Financial Conference of 1941 proposed a separate butchering tax provision in which a uniform rate was set out. The most striking aspect of t h i s provision was that the but-chering 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 in China had evolved towards that of an ex-cise tax. The facts are: 1) According to the business tax acts, there are three alternatives bases for the assessment: capital investments, gross receipts, and net prof i t s . But the butchering tax was levied at a f l a t rate per head of o the livestock slaughtered. 2) If owners slaughtered livestock for celebrating marriages, the New Year, etc., they weie paid the butchering tax. Apparently, this tax 3 was not levied on business act i v i t i e s but on consumption.J 3) Butchery is different from other types of business. A butcher buys livestock when it is alive; and slaughters i t and processes i t be-fore he makes a sale. Before slaughtering has been completed he, like other workers and manufacturers, had no a b i l i t y to meet the tax payment, and he has to,in fact, shift i t to the consumers through prices. It w i l l be more reasonable to impose license tax, or property tax on him but not a business tax. Furthermore in China, some large c i t i e s have big centralized abattoirs, under government or private operation, which handle a l l l i v e -1. Ben Yu-sing, p.97 2. Ibid. 3. Ibid. 193. stock for the local food supply. Under such a system, dealers in meat markets are not butchers and should be taxed on one of the three alterna-tive basis stated above. But in most Hsien, there i s no such system. In August 1941, an enforcement provision of butchering tax was promulgated. 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 this levy at a rate exceeding 6 per cent, so that in some cases, the new rates brought an increase of 300 per cent more over the same tax revenue under the old rates. 1 The butchering tax played an extremely important role in the wartime Hsien finance, as revenue from this source became more preponder-ant 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 in Table XXX following. In 1943\u00C2\u00BB the Legislative Yuan revised the butchering tax enfor-cement provision and decided that the maximum rate should be 5 par cent of the r e t a i l selling price. At that time, no HsiBej had a rate exceeding this new maximum rate \u00E2\u0080\u00A2 1 . Yee Hong-lin, p. 111 . 2 . Ben Yti-eing, p . 6 8 . 194. TABLE XXX Importance of the Butchering Tax in Hsien Budget in 1941 and 19421 Butchering tax Provinces where Provinces where Provinces as a Percentage Revenue from Butchering tax of Hsien Budgets Butchering tax Exceeded a l l Exceeded that othe r Revenues from the Land including those tax from the Central Government 1941 1942 1941 1942 1942 Kwangsi 43 54 X X X Szechwan 41 48 X X Hunan 39 47 X Anhwei 34 54 X X Chekiang 30 12 Slkang 30 54 X X Fukien 24 55 X X X Hupeh 23 43 X Kweichow 21 38 X X Kwangtung 16 32 X Kiangsi ? 58 X X Honan ? 35 X 3) License tax The license tax 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 later by the Hsien. When the Financial Conference of 1941 recommended that provin-c i a l finances be put under central control, they also suggested that this tax be levied by the Central Government. In January 1942 when the 1. Ben Yu-sing, p.68. new \"National Financial System\" became effective, the Central Government promulgated a business license tax enforcement provision under which i t s levying power was granted to the Hsien, 1 The maximum rate of the business license tax i n each year was set at 0.25 per cent of the preceding year's gross receipts. It was so defined because the Central/had collected i t s business tax (under the new National Financial System) and inspected the firms accounts during that preceding year, so that the Hsien governments could save the expenditure of inspection and other costs. But with the continuous Fapi in f l a t i o n , a certain volume of trade i n the f i r s t year might appear only a fraction of that in the second. Thus, the revenue from this tax, originally unim-portant to the provinces, now further dwindled in importance in Hsien f i n -ance, particularly in the poorer Hsien. The enforcement provision authorized provinces to work out i n -dividually a classification by type of business for Hsien taxation pur-poses. After the classification had been completed, each type of busin-ess was taxed at differential-flat-rates not exceeding the maximum rate; o the number of differentiated categories should not be more than s i x . Use tax before the War; each individual Hsien had imposed a license tax on vehicles and boats. In September 1942, the Central Govern-ment promulgated a use tax enforcement provision for a l l the Hsien. The rate on such communication equipments for business purposes was 150 per cent of that f o r personal use. The revenue from this tax was not important 1. Ben Yu-sing, 99. 2. Yee Hong-lin, p. 112. 1 9 6 . before the War and during wartime; because of the f l a t rates and the in -fl a t i o n , i t became even more insignificant in many Hsien, as i s shown in Tables XXX and XXXI. TABLE XXXI Revenue From Business License Tax in Kwangsi and Szechwan i n 1942 and 1943 Unit: yuan 1 2 Kwangsi i n 1942 Szechwan in 1943 Revenue Classes No. of Revenue Classes No. of Hsien Hsien 230,000 1 100,000 and more 3 220,000 1 50,001-100,000 15 160,000 1 10,001- 50,000 60 110,000 1 10,000 and less 58 50,001-100,000 10 ? 1 40,001- 50,000 6 20,001- 40,000 19 10,001- 20,000 24 201- 10,000 37 1. Tee Hong-lin, p. 112 2. Ben Yu-sing, p. 106 197. TABLE XXXll Revenue From Use Tax in Ewangsi and Szechwan in 1942 and 1943 Unit:yuan 2 Kwangsi in 1942' Szechwan in 1943 Revenue classes No. of Hsien Revenue classes No. of Hsien 86,000 56,000 10,001-50,000 5,001-10,000 1,001- 5,000 1,000 and less No revenue 1 1 15 7 29 22 25 100,001-249,696 10,001- 50,000 10,000 and less No revenue 2 12 60 65 4) Feast and Amusement taxes The feast tax was a new wartime levy which was imposed on consumers who held banquets in restaurants or who ordered more expensive dishes. In Apr 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 rates defined. In Ap r i l 1942, a maximum rate was set by the Central Government of 30 per cent of the admission to teaters, recreation halls, gymnasiums,etc. These two taxes would yield a stable revenue only to the special and provincial municipalities, or to ri c h Hsien because such businesses are not l i k e l y to perate in the poorer Hsien, as i s shown in 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 in Kwangsi and Szechwan in 1942 and 1943 Unit: yuan Kwangsi in 1942' Revenue classes No. of Hsien Szechwan in 1943' Revenue classes No. of Hsien 1,440,000 1 1 7 2 15 10 44 21 1,220,000 1 11 10 29 87 640,000 100,001-900,000 50,001-100,000 10,001- 50,000 10,000 and less 100,001-500,000 50,001-100,000 10,001- 50,000 5,001- 10,000 5,000 and less ? 1 No revenue In summarizing the importance of these \"autonomy taxes\", only the butchering tax made a substantial contribution to the Hsien wartime finances: in 1942 and 1943 i t provided on the average 50 per cent of the total Hsien income. For example in Kwangsi in 1942, the improvement tax, license tax, and feast and amusement tax together made Tip less than 15 per cent of the total Hsien tax revenue.3\" In Szechwan in 1943, the revenue from these taxes was only 25 per cent of the total Hsien income from taxation 2 plus the revenue-grants from the Central Government. B) Other Hsien Taxes l) Part of the land tax Prior to 1942, the farm land tax was levied by the provinces while the Hsien imposed the farm land surtaxes. The Financial Conference of 1941 recommended that the entire land tax be administered by the Tl Yee Hong-lin, p.112, \"The total Hsien revenue from taxes in 1942 was 75,450,000 yuan.\" 2. Ben Yu-sing, p. 106. 1 9 9 . Central Government. This proposal was carried out i n 1942. From 1942 on, that part of the farm land tax which previously belonged to the provinces was now levied in kind, and retained by the Central Government; that part of the farm land surtaxes which previously belonged to the Hsien was now paid in cash to the Central Government which in 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-tion; the revenue from that portion of the land taxes originally belonged to the Hsien now went f i r s t to the Central Government and then to the Hsien. Only the Central Government was now the authority to levy the land taxes. The present rate of the farm land tax was fixed at that i n 1941, while the other land tax rates were adjusted by the Central Govern-ment. In general, most Hsien had more farm land than urban land and for-est areas, etc. So the revenue from the Hsien farm land tax (now was the revenue-grant from the Central Government) was fixed i n monetary amount in the f a l l of the steady increase in the price l e v e l . Because of this inflexible 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 War, now became less and less significant, as i s seen in the following Table: 200. TABLE XXELV Revenue From Farm Land Surtax as a Percent-age of Total Hsien Budgetary Income in Thir-teen Provinces, 1935-19411 Provinces 1935 1936 1937 1939 1940 194] Kiangsu 77 74 67 immm Kansu 66 70 \u00E2\u0080\u0094 73 70 26 Kiangsi 55 63 61 55 26 \u00E2\u0080\u0094 Honan 57 57 48 52 52 28 Hupeh 48 69 28 -\u00E2\u0080\u0094 50 Shensi 55 50 45 44 53 29 Anhwei 70 51 52 46 53 17 Hunan 42 37 41 39 30 20 Kwangsi 33 39 38 26 26 26 Szechwan 46 32 33 34 20 16 Chekiang 27 20 16 15 8 43 Fukien 36 11 10 12 15 10 Average 51 48 40 38 35 27 Previously, the Hsien farm surtax rates ranged up to more than 50 per cent of the provincial rate. But, in 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 \u00E2\u0080\u0094 on the basis of this new r a t e -should also be levied in kind. 1 This operation, however, made no signi-ficant change, so that the revenue from the Hsien farm surtax was s t i l l unimportant to the Hsien finances as a whole. 1. See the i l l u s t r a t i o n of the land tax following. 201 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 Central Government and the Hsien i n 1942 In the following 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 divided into two kinds only, namely, the \"farm land\" and the \"other land\". Suppose that i n 1941, the revenue from the p r o v i n c i a l \"farm land tax\" was 200 yuan and that from the p r o v i n c i a l \"other land tax\" was 100 yuan. In that 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 land surtax\" was 90 yuan and that from the \"other land surtax\" was 40 yman. The d i s t r i b u t i o n of the entire land taxes between the province and the Hsien i n 1941 i s indicated i n the following f i g u r e : P r o v i n c i a l land taxes (according to acreage) 1! 1 ! I farm IO,/H4 i i \ e?Mer \ I-}-I ;11 % -i-l \u00E2\u0080\u00A2 -+ t- -14 J-44 f-m h-l-H r r t \" %\\\ Yu "Thesis/Dissertation"@en . "10.14288/1.0107070"@en . "eng"@en . "Economics"@en . "Vancouver : University of British Columbia Library"@en . "University of British Columbia"@en . "For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use."@en . "Graduate"@en . "Provincial and local financial systems of the Republic of China, 1912-1946"@en . "Text"@en . "http://hdl.handle.net/2429/41881"@en .