School of Chinese Rural Construction, Southwest University, Chongqing 400715, China)Abstract： “Xindu Experimental County”was founded in April, 1937, cooperated by Sichuan Provincial Government and the Chinese National Association of Mass Education Movement (CNAMEM) led by Y. C. James Yen, who set the reform of county governments and rural construction as two major goals. The county officials were mainly composed of members of CNAMEM and graduates of Central Political University. But less than two years later, the experimental county became only an empty title due to “Xindu Incident”. This paper examines such factors as the experimental process, system construction, financial expenditure and farmer's burden to explore the underlying causes of “Xindu Incident” from the theoretical perspective of transaction cost or system cost.It reveals a paradox: the more vigorous effort the external subjects exerted in promoting modern governance in rural society, the higher transaction cost with scattered farmers; meanwhile, the cost in maintaining a large organizational structure, higher cost in restructuring and financial deficits were further transferred to the populace, resulting in the rebel of local forces which further exacerbated into a massive incident. After the failure of the experiment, two county magistrates established close friendship with the local brotherhood organization—paoge, and even joined them, returning to the old way of rural governance which relied heavily on nonofficial but costefficient social organizations.
