Rural compulsory education is a very weak link in the development of China's education system. For many years, an education fiscal input mechanism with the township as the main player was adopted for supporting China's rural compulsory education. In May 2001, China's rural compulsory education was placed under an administrative system of "level-by-level management with counties as the main players," responsibility for rural compulsory education was brought within the orbit of public fiscal guarantees, and the focus of compulsory education investment was gradually shifted upward. Beginning in 2001, textbooks were provided free of charge to poor rural secondary and elementary students in targeted counties where nine-year compulsory education had yet to be popularized. Beginning in fall 2004, central finances extended the distribution of free textbooks to all secondary and elementary school students from families with financial difficulties in the central and western regions. In December 2005, the State Council promulgated the State Council Circular on Deepening the Rural Compulsory Education Assured Funding Mechanism Reform. In March 2006 the "Two exemptions and one subsidy policy" (TEOS) was formally implemented in the western region. With these policy shifts as a backdrop, this study intends to answer the the following questions: To what degree do various interested parties understand TEOS? How extensive is the coverage of free textbooks and the subsidies for boarding students' living expenses? Is TEOS being oriented toward impoverished rural households in unfavorable circumstances? Are funds reaching their destinations promptly and in full? What are the effects of implementing TEOS? (Contains 3 tables and 1 note.)