inequities through special policy initiatives across sectors. Since late 1990s, a massive public investment program boosted infrastructure, especially in the transport sector, across the country, with the national policy emphasis on the twelve under-developed provinces. Investments under the national poverty alleviation program have been supporting basic infrastructure, including safe water and roads, in poor counties and villages across China. Although in 2007 government spending on education was still only 2.9% of GDP and government spending on health was 0.9%<sup>14</sup> , important policy initiatives have emerged in both sectors. Public spending on the 9-year basic education has been rising, emphasizing the need to accomplish the objective of universal 9-year schooling in the Western provinces and in rural areas across provinces. Similarly in health, new initiatives in the form of investments in public health infrastructure, New Rural Cooperative System in rural areas, and the urban basic health insurance for unemployed for urban residents, including children, outside the formal labor market have been launched and backed by higher public spending with the objective to enable that all Chinese citizens to benefit from public health programs and essential care. In line with China’s 11<sup>th</sup> Five-Year Plan, new spending programs target the development of a Socialist Countryside with the objective to reduce the existing sharp ruralurban disparities in public service delivery.

**_This study has revealed that inadequacy, inequalities and inefficiencies in public resource allocation for basic public services have been also present within cities although to a lesser degree than in rural areas_** .  In the surveyed cities, under-funding has jeopardized the reliability and quality of some public services, and equitable utilization of others.  Case studies have illustrated that funding for many “ordinary” primary and secondary schools, community healthcare centers and the urban water systems fail to meet the basic needs in some cities.

**_Disparities by jurisdiction, location and socio-economic population group within cities have been evident, although smaller than the existing disparities between the urban and rural areas_** .  Geographically, within cities, the disparity in quality mainly has reflected the fiscal capacity of any given district or county within the municipality.  Fiscal equalization mechanisms within municipalities (as well as within provinces) have appeared weak, which has reduced the potential role of public services in equalizing opportunities for children and citizens at large.   Accordingly, case studies have revealed that public service outcomes, such as the shares of graduates enrolling in senior high schools, differ by jurisdiction of the service providers and also by district/county within the same city.

# **_Furthermore, the survey and case studies have suggested inequities in the allocation of_**

**_public resources, indirectly favoring the richer population groups in cities_** .  Although it is not government policy, public resources have in effect favored selected “key schools” and specialized hospitals, which have generally catered to the more affluent urban residents.  The lower-income official urban residents and migrants generally could not afford or have faced administrative barriers when accessing the better funded facilities. Furthermore, as the higher-ranked key schools and hospitals are in great demand, they have extracted additional

> 14 As per _China National Health Accounts Report 2008_ , the total health spending in 2007 included government health spending (0.9% of GDP), social health expenditure (1.6% of GDP) and out-of-pocket health expenditure (2.0% of GDP).

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