The situation just described was bound to produce a reaction. In spite of the inflationary measures the revenue fell, partly in consequence of the tax evasions of the great landowners. It fell from 150,000,000 in 1021 to 116,000,000 in 1065. Expenditure did not fall, and there was a constant succession of budget deficits. The young emperor Shen Tsung (1068-1085) became convinced that the policy followed by the ruling clique of officials and gentry was bad, and he gave his adhesion to a small group led by Wang An-shih (1021-1086). The ruling gentry clique represented especially the interests of the large tea producers and merchants in Szechwan and Kiangsi. It advocated a policy of _laisser-faire_ in trade: it held that everything would adjust itself. Wang An-shih himself came from Kiangsi and was therefore supported at first by the government clique, within which the Kiangsi group was trying to gain predominance over the Szechwan group. But Wang An-shih came from a poor family, as did his supporters, for whom he quickly secured posts. They represented the interests of the small landholders and the small dealers. This group succeeded in gaining power, and in carrying out a number of reforms, all directed against the monopolist merchants. Credits for small peasants were introduced, and officials were given bigger salaries, in order to make them independent and to recruit officials who were not big landowners. The army was greatly reduced, and in addition to the paid soldiery a national militia was created. Special attention was paid to the province of Shensi, whose conditions were taken more or less as a model.

It seems that one consequence of Wang's reforms was a strong fall in the prices, i.e. a deflation; therefore, as soon as the first decrees were issued, the large plantation owners and the merchants who were allied to them, offered furious opposition. A group of officials and landlords who still had large properties in the vicinity of Loyang--at that time a quiet cultural centre--also joined them. Even some of Wang An-shih's former adherents came out against him. After a few years the emperor was no longer able to retain Wang An-shih and had to abandon the new policy. How really economic interests were here at issue may be seen from the fact that for many of the new decrees which were not directly concerned with economic affairs, such, for instance, as the reform of the examination system, Wang An-shih was strongly attacked though his opponents had themselves advocated them in the past and had no practical objection to offer to them. The contest, however, between the two groups was not over. The monopolistic landowners and their merchants had the upper hand from 1086 to 1102, but then the advocates of the policy represented by Wang again came into power for a short time. They had but little success to show, as they did not remain in power long enough and, owing to the strong opposition, they were never able to make their control really effective.

Basically, both groups were against allowing the developing middle class and especially the merchants to gain too much freedom, and whatever freedom they in fact gained, came through extra-legal or illegal practices. A proverb of the time said "People hate their ruler as animals hate the net (of the hunter)". The basic laws of medieval times which had attempted to create stable social classes remained: down to the nineteenth century there were slaves, different classes of serfs or "commoners", and free burghers. Craftsmen remained under work obligation. Merchants were second-class people. Each class had to wear dresses of special colour and material, so that the social status of a person, even if he was not an official and thus recognizable by his insignia, was immediately clear when one saw him. The houses of different classes differed from one another by the type of tiles, the decorations of the doors and gates; the size of the main reception room of the house was prescribed and was kept small for all non-officials; and even size and form of the tombs was prescribed in detail for each class. Once a person had a certain privilege, he and his descendants even if they had lost their position in the bureaucracy, retained these privileges over generations. All burghers were admitted to the examinations and, thus, there was a certain social mobility allowed within the leading class of the society, and a new "small gentry" developed by this system.

Yet, the wars of the transition period had created a feeling of insecurity within the gentry. The eleventh and twelfth centuries were periods of extensive social legislation in order to give the lower classes some degree of security and thus prevent them from attempting to upset the status quo. In addition to the "ever-normal granaries" of the state, "social granaries" were revived, into which all farmers of a village had to deliver grain for periods of need. In 1098 a bureau for housing and care was created which created homes for the old and destitute; 1102 a bureau for medical care sent state doctors to homes and hospitals as well as to private homes to care for poor patients; from 1104 a bureau of burials took charge of the costs of burials of poor persons. Doctors as craftsmen were under corvee obligation and could easily be ordered by the state. Often, however, Buddhist priests took charge of medical care, burial costs and hospitalization. The state gave them premiums if they did good work. The Ministry of Civil Affairs made the surveys of cases and costs, while the Ministry of Finances paid the costs. We hear of state orphanages in 1247, a free pharmacy in 1248, state hospitals were reorganized in 1143. In 1167 the government gave low-interest loans to poor persons and (from 1159 on) sold cheap grain from state granaries. Fire protection services in large cities were organized. Finally, from 1141 on, the government opened up to twenty-three geisha houses for the entertainment of soldiers who were far from home in the capital and had no possibility for other amusements. Public baths had existed already some centuries ago; now Buddhist temples opened public baths as social service.

Social services for the officials were also extended. Already from the eighth century on, offices were closed every tenth day and during holidays, a total of almost eighty days per year. Even criminals got some leave and exilees had the right of a home leave once every three years. The pensions for retired officials after the age of seventy which amounted to 50 per cent of the salary from the eighth century on, were again raised, though widows did not receive benefits.