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Full Text of Finance Minister's Budget Report (I)

Following is the first part of the full text of the udget report delivered by Finance Minister Xiang Huaicheng at the Ffth Session of the Ninth National People's Congress on March 6, 2002:


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Following is the first part of the full text of the udget report delivered by Finance Minister Xiang Huaicheng at the Ffth Session of the Ninth National People's Congress on March 6, 2002:

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2001 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2002

Xiang Huaicheng

Minister of Finance

Fellow Deputies,

I have been entrusted by the State Council to submit a report on the implementation of the central and local budgets for 2001 and on the draft central and local budgets for 2002 for your examination and approval, and also for suggestions and comments from members of the National Committee of the Chinese People's Political Consultative Conference.

Under the correct leadership of the Party Central Committee and he State Council, in 2001 all local authorities and government departments conscientiously implemented the macro-control measures formulated by the central authorities, fulfilled the requirements for financial and economic work set at the Fourth Session of the Ninth National People's Congress and strove to boost and foster domestic demand and promote reforms. Despite a notable slowdown in the growth of the world economy, China's economy grew rapidly. On this basis, revenue increased considerably and the pattern of expenditures was further improved. This notably gave great support to the development of the national economy and various social undertakings and helped exercise the macro-control function.

The state budget for 2001 exceeded targets and the deficit in the central budget was smaller than expected. Total revenue for the whole country in 2001 amounted to 1.6371 trillion yuan (excluding revenue from generation of debt, both here and below), 161.1 billion yuan over the budgeted figure and an increase of 297.6 billion yuan or 22.2 percent over that of the previous year. Expenditures for the whole country totaled 1.8844 trillion yuan, 148.6 billion yuan over the budgeted figure and an increase of 295.7 billion yuan or 18.6 percent over that of the previous year. Total expenditures exceeded revenue, leaving a deficit of 247.3 billion yuan.

Total revenue in the central budget for 2001 totaled 917.1 billion yuan, 74.8 billion yuan over the budgeted figure and an increase of 158.3 billion yuan or 20.9 percent over that of the previous year. This figure includes 857.8 billion yuan in revenue collected by the central government, 74.8 billion yuan over the budgeted figure, and 59.3 billion yuan turned over to the central government by local authorities, the same as the budgeted figure. Total expenditures in the central budget for 2001 amounted to 1.1769 trillion yuan, 74.8 billion yuan over the budgeted figure. This figure includes 575.4 billion yuan of expenditures for the central government, 9.1 billion yuan less than the budgeted figure, and 601.5 billion yuan in the form of subsidies for local authorities, 83.9 billion yuan over the budgeted figure. Expenditures in the central budget exceeded revenue, leaving a deficit of 259.8 billion yuan, the same as the figure approved at the Fourth Session of the Ninth National People's Congress.

Total revenue in the local budgets in 2001 came to 1.3808 trillion yuan, 170.2 billion yuan over the budgeted figure and an increase of 273.7 billion yuan or 24.7 percent over that of the previous year. This figure includes 779.3 billion yuan in revenue collected by local authorities, 86.3 billion yuan over the budgeted figure, and 601.5 billion yuan in subsidies granted to local authorities by the central government, 83.9 billion yuan over the budgeted figure. Total expenditures in the local budgets amounted to 1.3683 trillion yuan, 157.7 billion yuan over the budgeted figure. This figure includes 1.309 trillion yuan of expenditures in the local budgets, 157.7 billion yuan over the budgeted figure, and 59.3 billion yuan turned over to the central government, the same as the budgeted figure. Total local revenue exceeded expenditures, leaving a surplus of 12.5 billion yuan.

In addition, central revenue from generation of debt in 2001 totaled 460.4 billion yuan. This figure includes 199.9 billion yuan for servicing domestic and foreign debt, 259.8 billion yuan to cover the deficit for 2001 and 700 million yuan for supplementing the central budget debt repayment fund. Total revenue from the funds controlled by the central government in 2001 came to 105.3 billion yuan and total expenditures by the central government taken from the above funds amounted to 105.3 billion yuan.

These figures may change a little when the final calculations are made for the central and local budgets.

Central and local revenues increased considerably and some items of expenditures varied greatly from the budgeted amounts. Total national revenue in 2001 was up 22.2 percent over that of the previous year. This was due to steady economic growth, continued improvement in the performance of enterprises, efforts to further tighten tax collection and management and a number of special factors which led to revenue increase. The vehicle purchase surcharge was converted into the vehicle purchase tax and put under budgetary control, resulting in a revenue increase of 26.6 billion yuan. Receipts from reduction of the number of shares held by the state became a special item of revenue turned over to state finance, resulting in an increase of 12.2 billion yuan, consisting mainly of 11 billion yuan of income from reduction of state shares listed on overseas stock markets. The People's Bank of China turned over 18.8 billion yuan of revenue from previous years to the state. With the exception of special factors which led to revenue increase, calculated according to comparable factors, revenue for the whole country in 2001 increased by 17.9 percent over that of the previous year, and revenue in the central budget was up 14.5 percent.

Revenue in the central budget for 2001 exceeded the budgeted figure by 74.8 billion yuan, and total revenue in the local budgets exceeded the budgeted figure by 86.3 billion yuan. But financial departments were not able to divert to other purposes some extra revenue for special use and many key items required more funding than anticipated. All this made it difficult to ensure that revenue met all expenditures. The Decision of the Standing Committee of the National People's Congress on Strengthening Examination and Supervision of the Central Budget stipulates that "Any extra revenue in the central budget may be used to offset its deficit or cover other necessary expenditures. "According to this decision and in light of actual needs of social and economic development, the extra revenue in the central budget was mainly allocated for the following purposes: 8.6 billion yuan (increased revenue from collection of the vehicle purchase tax) for increased transportation expenditures, 31 billion yuan to subsidize national social security funds, 30 billion yuan to increase capital construction funding and 5.2 billion yuan to increase the wages and salaries of employees in government departments and institutions. Extra revenue in local budgets was mainly used to pay the overdue wages and salaries of employees in government departments and institutions, raise the wages and salaries of such employees in compliance with a relevant policy adopted in the fourth quarter of 2001, increase subsidies for social security, guarantee funding for key projects in education, science and technology, agriculture and protection of the ecological environment and support reform of the grain distribution system.

Two main factors led to great differences between budgeted figures and actual expenditures for some items in the central budget for 2001. First, some policies were either adopted or amended during implementation of the budget. For example, in October 2001, the state increased the wages and salaries of employees in government departments and institutions once again to boost domestic demand. In light of the results of experimentation with the reform of taxes and fees in rural areas, the State Council stepped up the pace of the reform. Export tax refund quotas were appropriately increased to further expand exports. Second, some items in the central budget were transferred to local budgets during implementation of the budget, including expenditures for capital construction, geological prospecting, culture and education, science and public health.

The proactive fiscal policy was satisfactorily implemented and domestic demand was expanded and fostered. In accordance with the requirements set by the Party Central Committee, in 2001 the state continued to implement a proactive fiscal policy through the approval of the Fourth Session of the Ninth National People's Congress. A total of 150 billion yuan of long-term treasury bonds was issued for construction of infrastructural facilities. Use of funds from treasury bonds helped to ensure the timely construction of some major development projects in the western region, such as the Qinghai-Tibet railway line and projects to divert electricity from the west to the east. In addition, some of these funds were used to accelerate a number of major projects under construction. As of the end of 2001, a total of 25,500 kilometers of highways had been opened to traffic, 4,000 kilometers of railway lines had been built, including 1,988 kilometers of double-track railway lines and 1,063 kilometers of electrified railway lines, and projects to upgrade rural power grids had been completed in 1,895 counties. In addition, funds from treasury bonds were allocated to 781 technological transformation projects launched by key state-owned enterprises in the form of subsidies on the interest payments of bank loans.

Implementation of the proactive fiscal policy has played an important role in avoiding the impact of the Asian financial crisis, curbing the trend of deflation, protecting ourselves against the influence exerted by the slowdown in the growth of the world economy and promoting sustained, rapid and sound development of the national economy for four consecutive years. Facts have proved that the policy decision made by the Party Central Committee and the State Council is entirely correct. Deficit in the central budget and the national debt have increased to some extent, but the overall quality of the national economy has been raised and state revenue has increased rapidly. Deficit in the central budget for 2001 totaled 259.8 billion yuan, accounting for 2.7 percent of GDP, and outstanding debts totaled 1.5608 trillion yuan, 16.3 percent of GDP, all of which are still within safe limits. As China's economy continues to develop, our ability to stand risks will be further enhanced. In addition, we have always paid close attention to the fluctuations in these indices and took some measures to prevent financial risks. First, we made reasonable adjustments in the maturity periods of treasury bonds, reduced fund-raising costs and staggered repayment dates. Second, we began to incorporate the expenditures for interest on treasury bonds into the regular budgets in 2000 and separate these expenditures from the principal of such bonds. Third, we strove to improve the performance of funds from treasury bonds by tightening supervision and management over the use of such funds and implementing a system of centralized payments from the treasury for funds earmarked for construction of some projects financed by treasury bonds. The Party Central Committee and the State Council are paying close attention to some long-standing, hidden financial risks and taking measures to eliminate them step by step.

The policy on income distribution was further revised and great efforts were made to pay overdue wages to employees of local government departments. The state has been appropriately revising its policy on income distribution over the past few years, resulting in increases in the wages and salaries of employees in government departments and institutions year after year and in social security benefits. Some county and township governments, however, failed to pay all the wages owed to their employees on time during implementation of the state policy on wage readjustment. According to statistics submitted by local authorities, by the end of 2001 a total of 6.5 billion yuan, or 1.8 percent of the wages payable during the year as prescribed in accordance with the national unified wage policy, had not been paid to their employees. Wages fall in arrears mainly in county and township governments in the central and western regions. In light of their local financial resources as a whole, their total revenue has been growing fairly rapidly in recent years. In 2001, it came to 779.3 billion yuan, an increase of 138.7 billion yuan over that of the previous year. However, increases in revenue and in transfer payments from provincial budgets to governments at lower levels have been uneven between regions and the number of government-paid employees has increased rapidly. Although local financial departments have made great efforts to solve the problem of overdue wages, it is still hard to ensure that wages are paid in full and on time in some counties and townships. Over the past few years, transfer payments from the central budget to local budgets have been increased by a large margin. The central government's expenditures in the form of subsidies for local authorities rose from 332.1 billion yuan in 1998 to 601.5 billion yuan in 2001, an average annual increase of 21.9 percent. This rate of increase is 5.2 percentage points higher than the average annual growth rate of expenditures in the central budget. A total of 89.2 billion yuan in transfer payments used exclusively for wages was included in the central budget for 2001 despite great pressure to increase expenditures in many other areas. To help county and township governments in underdeveloped areas of the central and western regions to overcome difficulties in meeting their payroll demands, the central budget has provided most or all of the funding needed to implement the state policy on readjustment of income distribution in these areas since 1999. With the exception of nine coastal provinces and municipalities directly under the central government, the other 22 provinces, autonomous regions and municipalities directly under the central government have begun increasing the wages of employees in government departments and institutions with funds from the central budget according to a relevant policy adopted in October 2001. In addition, 5 billion yuan of the working capital from the central budget has been earmarked every year to solve the problem of seasonal occurrence of overdue wages in major grain-producing provinces.

Through the concerted efforts of governments at all levels, the problem of overdue wages was basically solved in some counties and townships in 2001. In addition, some provinces began to solve the problem of overdue wages even before 2000. In 2002, we will work even harder to ensure that no wages or salaries fall into arrears in all counties and townships during the year.

Social security expenditures continued to increase and the social security system was gradually improved. In recent years, expenditures in the central budget for social security programs have increased considerably to implement policy decisions made by the Party Central Committee. Expenditures in the central budget for social security programs in 2001 totaled 98.2 billion yuan, 5.18 times the figure for 1998. This figure includes 34.9 billion yuan to subsidize the old-age insurance fund, 13.6 billion yuan for subsidies to provide basic living allowances for laid-off workers from state-owned enterprises, 2.3 billion yuan for subsistence allowances for urban residents, 31 billion yuan to replenish the national social security fund and 8.4 billion yuan for benefits for some disabled servicemen and family members of revolutionary martyrs and for social welfare and relief funds. In addition to providing more funding for social security programs, a special social security account has been set up in the budget to provide extra funding for special purposes. Liaoning and other provinces are prudently promoting experimentation with the reform to improve the social security system. According to statistics, as of the end of 2001, over 47 million persons received social security subsidies from the central budget. In addition, a fund of 13.5 billion yuan to subsidize the shutdown and bankruptcy of enterprises was earmarked in the central budget for 2001 to help phase out outmoded industrial production capacity and reduce surplus production capacity. This fund was also used to support the shutdown and bankruptcy of enterprises according to the law and ensure the placement of laid-off employees and social stability.

Investment in agriculture was further increased and the position of agriculture as the foundation of the economy was consolidated. In 2001, the central government increased investment in agriculture through various channels. First, the central government allocated 3.3 billion yuan in the form of transfer payments to support and improve experimentation with the reform of taxes and fees in Anhui Province and 106 counties in other regions to lighten the financial burden on farmers there. Second, a policy on agricultural tax reduction or exemption was implemented for areas affected by disasters or crop failure. A total of 5 billion yuan of agricultural taxes was reduced or exempted in such areas, 4 billion yuan of which was in the form of subsidies from the central budget during the year. Third, more funding was allocated to fight poverty in rural areas. The central government allocated 10 billion yuan to fight poverty, resulting in further improvement in conditions for production and daily life among the poor population in rural areas. Fourth, a total of 4.2 billion yuan was used to help restore cultivated land to forests and plant barren hills and uncultivated land with trees to further improve the ecological environment and increase farmers' incomes in the western region. Fifth, investment was increased in projects related to natural forest protection, comprehensive agricultural development, agricultural science and technology and industrial management of agricultural production. A total of 23.3 billion yuan was allocated for these items from the central budget. Sixth, funds were allocated to implement the policy on grain risk funds, support efforts to deepen reform of the grain distribution system and increase incomes of major grain-producing areas and farming households. For these purposes, the central government increased total grain risk funds by 4.9 billion yuan for major grain-producing areas. Subsidies from the central government granted to local governments in the form of grain risk funds came to 17.3 billion yuan, accounting for 57 percent of all grain risk funds.

Investment in science and education was gradually increased and the strategy of developing the country through science and education was effectively implemented. Expenditures for education from the central budget for 2001 totaled 21.3 billion yuan. As required by the central government, the proportion of educational spending to total expenditures in the central budget should be increased by one percentage point each year from 1998 to 2002, calculated in comparable terms. This required allocation of an additional 4.1 billion yuan for education in the central budget in 2001. During the same year, one billion yuan from the central budget was used to implement the second phase of the state program to make compulsory education universal throughout poverty-stricken areas. A total of 32 counties (cities, districts) met state standards for making nine-year compulsory education basically universal and basically eliminating illiteracy among young and middle-aged people. For the program to renovate primary and secondary school buildings in poor condition in rural areas, special subsidies totaling 2.6 billion yuan were granted to local governments to renovate 17 million square meters of school buildings. Expenses for science and technology from the central budget in 2001 totaled 37.3 billion yuan, up 29.5 percent over that of the previous year. This figure includes 1.6 billion yuan specially for state natural sciences funds, 600 million yuan specially for key state basic research programs, 2.5 billion yuan of special funding for the state's March 1986 High-Tech Program and 2.3 billion yuan for the knowledge innovation pilot program of the Chinese Academy of Sciences.

On the whole, the budget for 2001 was satisfactorily implemented. But we are fully aware that there are still some pressing problems that need to be solved in the process of implementing the budget. Revenue increases are unbalanced and some county and township governments still experience serious financial difficulties. In addition, budgetary control has not been standardized, discipline is lax in financial and economic affairs, and there are still disorder in finance and taxation and too much loss and waste of budgetary funds. Some of these problems have piled up for many years and others are related to imperfections in the reform and in our work. We will pay close attention to them and take effective measures to solve them.

(To be contined)





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