Since China embarked on economic reform in 1978, the Gross Domestic Product (GDP) grew by an impressive 9.8 percent per year in real terms, from Y 1,006 billion to Y 4,501 billion in 1994 (in constant 1994 prices) (Table 4.1, Annexes 13A and 13B). However, the growth of government revenue fell far behind that of GDP, increasing at an annual average of only 2.6 percent over the period. This resulted from decentralization and from permitting production units to retain much of their earnings without simultaneously putting in place a national tax administration until 1994. The revenue-to-GDP ratio declined from 34 percent in 1978 to 13 percent in 1994 (Annexes 13A and 13B). Government expenditure, however, increased at 3.3 percent per year, higher than revenue, resulting in budget deficit in all but one year (Table 4.1). Between 1987 and 1993, the public sector deficit hovered around 11–12 percent of GDP and was a key factor underlying inflationary pressures in the economy. In 1994, however, the public sector deficit declined to 9.9 percent.1
Public expenditure on education increased from Y21 to 98 billion (in constant 1994 prices), by an annual average of 10 percent between 1978 and 1994, far exceeding the respective growth rates of the total government revenue and expenditure (Table 4.1, Annexes 13A and 13B). As the overall public spending shrank over the years, public expenditure on education as a percentage of total government expenditure rose from 6.2 percent in 1978 to 17 percent in 1994. Public expenditure on education as a percentage of GDP rose from 2.1 percent in 1978 to the height of 3.1 percent in 1989, and then fell back to 2.2 percent in 1994 (Annex 13B). This level of public spending on education is low in comparison with least-developed countries' average of 2.8 percent, developing countries' average of 4.1 percent, and developed countries' average of 5.3 percent.2
Total public allocation to higher education grew from Y 4.2 to 18.6 billion (in constant 1994 prices), by an annual average of 9.7 percent between 1978 and 1994 (Table 4.1, Annexes 13A and 13B). Public spending on higher education increased from 20 percent of total public expenditure on education in 1978 to the peak of 29 percent in 1984, then declined to around 17 percent between 1989 and 1992, and climbed back to 19 percent in 1994 (Annex 13B). Since under 2 percent of the age cohort were enrolled in higher education in much of the 1980s, the high share of public spending devoted to them reflected the effort to rebuild the higher education system.
1The Chinese Economy: Fighting Inflation, Deepening Reform (World Bank, 1996), p. 10.
2 UNESCO, Statistical Yearbook 1995, p. 2.28.