Despite the rise in grade retention in poor areas in rural China recently, little work has been done to understand the impact of grade retention on the educational performance of students in these areas in rural China. This paper seeks to redress this shortcoming and examines the effect of grade retention on educational performance on 1649 students in 36 elementary schools in Shaanxi province. With a dataset that was collected from a survey designed specifically to capture school performance of students before and after they were retained, we use Differences-in-Differences, Propensity Score Matching and Differences-in-Differences Matching approaches to analyze the effect of grade retention on school performance. Although the descriptive analysis shows that grade retention helps to improve the scores of the students that were retained, somewhat surprisingly, the results from the multivariate analysis consistently show that there is no significant positive effect of grade retention on school performance of the students. In fact, in some cases (e.g., for the students who repeat grade 2), grade retention is shown to hurt school performance.

Although rural schools in China are still lagging behind urban schools in the quality of education provided, the government has made considerable efforts in improving rural education. In March of 2006, the central government announced that over the next five years it would provide the funding needed to finally implement the Compulsory Education Law of 1986, which mandated free and compulsory nine-year education (Xinhua, 2006). In the past few years, officials have also taken measures to bolster investment in teacher salaries), buildings and facilities and curriculum reform (Hannum et al., 2008). While there is still much effort needed to continue to improve rural schools, considerable progress has been made in the quality of teachers, facilities and curriculum and making education free in rural as well as urban schools.

However, there is a growing segment of the population that does not fit neatly into the rural-urban dichotomy traditionally characterizing the economy and the school system. The children of the rural-to-urban migrants that are flooding China’s cities have fallen into a conspicuous gap in the provision of public education.

Why are migrant children not covered by the formal education system? The source of the problem most likely is that migration itself has not always been fully sanctioned by the government. In recent years, however, the government has gradually begun to pass laws and design policies to protect the rights of migrants (Nielson et al, 2006). Migrant children are now allegedly entitled to attend urban schools in their local school districts. Schooling in urban areas is supposed to be free. There are indications that municipal governments are begging to address the migrant schooling issue.

Despite the change in the official line, access to schooling is still not routine; there are considerable barriers remaining (citation). Difficulties for migrant children to enroll in urban public schools have led to the emergence of privately-run migrant schools, which struggle to fill the educational gap. However, the quality of the school has been observed to be low by many scholars. Unfortunately, most of the studies have been based on small sample sizes and interviews and not on rigorous survey-based research.