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

Following is the second 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 second 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

Fellow Deputies,

The year 2002 is a very important year for the political, economic and social development of our country. It is of vital importance to do the financial work well and implement the budget for this year successfully. At present, China enjoys political stability and social prosperity and shows great potential for continued economic development. All this creates favorable conditions for economic development this year. However, we will encounter new difficulties and serious challenges in our economic development, because the growth of the world economy and trade will continue to slow down and the international situation is complicated. On the whole, China's entry into the World Trade Organization is conducive to our economic development and opening up to the outside world, but at the same time, it will produce an impact on some less competitive industries and enterprises in the country for a short period of time to come. To solve this problem, the Party Central Committee has decided to continue to adhere to the principle for boosting domestic demand, follow a proactive fiscal policy, appropriately increase expenditures and strive to promote sustained, rapid and sound development of the national economy in 2002.

The guiding principles for preparing the budget and carrying out our financial work for 2002, formulated in light of the above circumstances and requirements, are as follows. We will thoroughly carry out the resolutions of the Fifth and Sixth Plenary Sessions of the Fifteenth Party Central Committee and the Conference on Economic Work held by the Party Central Committee in 2001 to promote sustained, rapid and sound development of the national economy and all-round social progress. We will concentrate on expanding and fostering domestic demand, promote the financial reform and strengthen budgetary management. We will conscientiously follow the proactive fiscal policy, tighten revenue collection and management, ensure a steady increase in revenue, readjust and optimize the pattern of expenditures, guarantee key expenditures, improve the performance of budgetary funds and provide sufficient financial resources for implementation of the major principles and policies of the Party Central Committee.

According to the preceding guiding principles, the State Council has prepared the draft central budget for 2002.

Total revenue in the central budget for 2002 is 1.0646 trillion yuan, an increase of 76.5 billion yuan or 7.7 percent over that of the previous year. (Both here and below, the figures for 2001 have been adjusted for convenient comparison according to the reform plan for income tax sharing, which will actually begin in 2002 when the growth rate is calculated.) This figure includes 1.0042 trillion yuan collected by the central government, which is 75.4 billion yuan or 8.1 percent over that of the previous year. Expenditures in the central budget total 1.3744 trillion yuan, a rise of 126.5 billion yuan or 10.1 percent over that of the previous year. A total of 641.2 billion yuan of these expenditures will be incurred at the central level, which is 65.8 billion yuan or 11.4 percent over that of the previous year. The deficit in the central budget is 309.8 billion yuan, 50 billion yuan over that of the previous year. The value of treasury bonds to be issued is 592.9 billion yuan, including 258.1 billion yuan to be used by the central government to repay the principal on domestic and foreign debt due in 2002, 309.8 billion yuan to be used to cover this year 's deficit, and 25 billion yuan of the bonds which the central government issues for local governments. Central revenue from generation of debt in 2002 is 567.9 billion yuan. In addition, revenue for funds controlled by the central government for 2002 totals 86 billion yuan and projected expenditures from such funds total 86 billion yuan.

Total revenue in the local budgets for 2002 as compiled by the central government amounts to 1.5305 trillion yuan, an increase of 149.7 billion yuan or 10.8 percent over the actual figure of the previous year. Revenue collected by local governments totals 797.3 billion yuan, 89 billion yuan or 12.6 percent over the actual figure of the previous year. Subsidies to local governments from the central budget amount to 733.2 billion yuan, an increase of 60.6 billion yuan or 9 percent over the actual figure of the previous year. Total expenditures in the local budgets amount to 1.5305 trillion yuan, 162.2 billion yuan or 11.9 percent over the actual figure of the previous year. This figure includes expenditures of 1.4701 trillion yuan in the local budgets, an increase of 161.1 billion yuan or 12.3 percent over the actual figure of the previous year, and 60.4 billion yuan to be turned over to the central government, up 1.1 billion yuan over that of the previous year. Revenue and expenditures are balanced in the local budgets.

Total revenue in the draft central and local budgets for 2002 is 1.8015 trillion yuan, 164.4 billion yuan or 10 percent over the actual figure of the previous year. Total expenditures in the draft central and local budgets amount to 2.1113 trillion yuan, an increase of 226.9 billion yuan or 12 percent over the actual figure of the previous year.

In accordance with the plan formulated by the Party Central Committee and the requirements for our financial work set by China's political, economic and social development, we focus on the following important areas in preparing the central budget and carrying out our financial work for 2002.

1. Revenue is set at a reasonable level to ensure implementation of the budget.

In recent years, the growth rate of revenue in the central budget has been high because of a number of special factors which lead to revenue increase. The national economy in 2002 will sustain rapid and sound development. As economic restructuring is accelerated, enterprises will further improve their economic performance. All this will lay a solid foundation for increasing revenue this year. However, we should also be aware that special factors leading to revenue growth will be far fewer this year than last year and that new factors will adversely affect revenue growth. For example, to meet the commitments for China's entry into the World Trade Organization, we will have to make substantial cuts in tariff rates. Revenue from import taxes will decrease since customs will have to start evaluating imported goods according to new methods. Revenue from stock transaction stamp taxes will be further reduced by the cuts we made in the tax rates last year. Business tax rates for the banking and insurance industries will be further reduced by one percentage point this year. In light of all these factors, revenue growth for the central budget in 2002 has been set in proportion to China's economic growth.

This budget leaves little leeway in planning revenue and expenditures and more factors may lead to a decrease in revenue and an increase in expenditures during implementation. We must step up efforts to tighten revenue collection and management and ensure a stable increase in revenue. In accordance with the State Council's requirements for stabilizing the tax system and tightening tax collection and management, we will collect taxes in strict accordance with the law. We will strengthen examination and resolutely put a stop to tax evasion and fraud, refusal to pay taxes and smuggling. To meet the requirements for our entry into the World Trade Organization, we will further review and standardize our preferential tax policies, rectify any policy of first collecting taxes and then refunding taxes formulated by some local authorities and government departments, put an end to unauthorized tax reductions, exemptions and deferrals and maintain good order in tax collection.

2. The proactive fiscal policy will be conscientiously followed to boost and foster domestic demand.

In 2002, we will continue following a proactive fiscal policy. To step up construction of infrastructural facilities and boost fixed-asset investment, we plan to issue 150 billion yuan of long-term treasury bonds, 125 billion yuan of which will be listed in the central budget and 25 billion yuan of which will be issued by the central government in the name of local authorities. These funds will be mainly used for projects financed by treasury bonds under construction, development projects in the western region, technological transformation of key enterprises, projects to divert water from the south to the north and protect the water resources of Beijing and Tianjin, rural infrastructure, education and infrastructural facilities needed by public security organs, procuratorial organs, people's courts and judicial departments.

Governments at all levels and relevant government departments will strengthen management and supervision of funds from treasury bonds and conscientiously choose feasible projects. The public bidding system should be strictly implemented for projects financed by treasury bonds. More construction funds from treasury bonds will be brought under a system of centralized payments from the treasury to resolutely prevent ineffective investment, redundant construction and inappropriately high standard construction, to ensure that these funds are not retained, misappropriated, lost and wasted and to improve the performance of such funds. In addition, we will integrate implementation of a proactive fiscal policy with efforts to readjust the economic structure, deepen economic restructuring, increase employment, improve people's living standards and maintain sustainable economic development. We will fully utilize the combined results of issuance of additional treasury bonds, the tax policy, the policy on income distribution and the fiscal discount policy to boost and foster domestic demand through various channels.

3. Funding for social security benefits and wages and salaries will be guaranteed to maintain social stability.

Accelerating the establishment of a social security system is of great significance to guaranteeing the basic living allowances of urban residents with low incomes, promoting the reform of state-owned enterprises and maintaining social stability. Financial departments at all levels will put more money into social security programs. In 2002, a total of 86 billion yuan for social security programs will be earmarked in the central budget (an increase of 28 percent over the figure of 2001, calculated according to comparable factors). To solve the problem of basic living allowances for urban residents with low incomes, the State Council has decided to increase subsidies from the central budget to their subsistence allowances from 2.3 billion yuan in 2001 to 4.6 billion yuan in 2002. In view of increased expenditures for the basic pensions of retirees of state-owned enterprises and the number of laid-off workers in 2001, a total of 51.2 billion yuan from the central budget will be allocated to subsidize pensions for retirees of state-owned enterprises and living allowances for their laid-off workers in 2002. In addition, a total of 11 billion yuan of subsidies for shutdown and bankruptcy of enterprises will be earmarked in the central budget for 2002 to promote economic restructuring and support the shutdown and bankruptcy of some state-owned enterprises in accordance with the law. A total of 9.6 billion yuan for benefits for some disabled servicemen and family members of revolutionary martyrs and for social welfare and relief funds will also be earmarked in the central budget. Local financial departments at all levels will conscientiously implement the policies formulated by the central authorities and allocate more funds in their budgets for payment of social security benefits.

It is the responsibility of governments and financial departments at all levels to ensure that employees in government departments and institutions are paid on time and in full. As required by the Party Central Committee, we will continue to appropriately increase the basic wages of employees in government departments and institutions and the pensions of their retirees in 2002. Special expenditures in the central budget will be increased by 11.8 billion yuan, including 9.5 billion yuan for subsidies to local governments. To help local governments overcome the financial difficulties of departments at lower levels, the central government will further increase transfer payments, transfer more funds as salaries and allocate funds to help local governments solve the problem of seasonal occurrence of overdue salaries in local government departments. Funds in the form of salaries transferred from the central budget for 2002 total 118 billion yuan. These funds will be mainly used to subsidize county and township governments. Local financial departments also need to further improve their financial system and particularly increase transfer payments to governments below the provincial level in an earnest effort to help counties and townships in financial straits solve the problem of overdue wages. Financial departments at lower levels need to prepare their budgets rationally and first of all use their funds to pay wages as prescribed by the central government. We will continue to improve the way financial departments pay the wages of public servants in Party and government departments and to turn over responsibility for paying the salaries of teachers of rural primary and secondary schools to financial departments at the county level. We will gradually establish a mechanism to ensure normal payment of wages, accelerate changes in the functions of county and township governments, truly streamline the administrative structure, reduce the number of personnel and create conditions for fundamentally overcoming financial difficulties in counties and townships.

4. Investment in agriculture, science and education is increased to promote the development of key undertakings.

Agriculture is the foundation of the national economy. Promoting rural economic development and increasing farmers' incomes are an important effort and a long-term measure to expand and foster domestic demand. Financial departments will further increase investment in agriculture. To improve the ecological environment, in 2002 we will continue to implement projects to protect natural forests, restore 2.27 million hectares of cultivated land to forests and plant 2.66 million hectares of barren hills and uncultivated land with trees and grass. Expenditures for these projects in the central budget amount to 20.6 billion yuan (not including expenditures covered by additional treasury bonds). Investment from treasury bonds will include 13.7 billion yuan of expenditures for accelerating the upgrading of power grids in rural areas and 23.9 billion yuan of expenditures for stepping up construction of water conservancy facilities in the central budget to improve conditions for agricultural production. The reform of taxes and fees in rural areas will be introduced to about one-third of all provinces in the country and an additional 15 billion yuan will be specially transferred from the central budget for 2002 to promote the reform of taxes and fees in rural areas, standardize the order in rural income distribution and lighten the financial burden on farmers. Expenditures for comprehensive agricultural development, agricultural science and technology and anti-poverty efforts in the central budget for 2002 will total 27.4 billion yuan to adapt to changes in our agricultural development following China's entry into the World Trade Organization and increase our agricultural competitiveness. Expenditures for subsidizing local grain risk funds from the central budget for 2002 total 17.3 billion yuan to reform the grain distribution system and increase the incomes of farmers in major grain-producing areas.

The strategy of developing the country through science and education is an important condition for ensuring that we are in a strong position in fierce international competition. A total of 25.1 billion yuan of expenditures for education and a total of 40.8 billion yuan of expenditures for science and technology are earmarked in the central budget for 2002 to accelerate the development of science, technology and education, raise the quality of the whole nation and further strengthen our international competitiveness.

In addition, we will appropriately increase expenditures for national defense to utilize modern technology, especially high technology to raise our army's defense and combat capabilities, safeguard our national sovereignty and territorial integrity and adapt to changes in the international situation. We also need to appropriately raise the salaries of officers, noncommissioned officers and office staff on the regular payroll, the subsidies for compulsory servicemen and the pensions for retired servicemen. Expenditures for national defense in the central budget for 2002 will be increased by 25.2 billion yuan, an increase of 17.6 percent.

5. The reform of separate management of revenue and expenditures will be deepened to standardize the collection and use of budgetary funds.

Deepening the reform of separate management of revenue and expenditures is an important effort to establish a proper framework for public finance. It is a major measure to rectify and standardize financial and economic order and build a clean and honest government and constitutes the key to on-going financial reform. This has great and profound political, economic and social significance. According to overall requirements for deepening this reform in 2002, all extra-budgetary revenue of departments will be placed under budgetary control or the management of special financial accounts. The budget of each department must list all of its budgetary and extra-budgetary revenue and expenditures and those of its subordinate units to separate revenue from expenditures and make expenditures more transparent. Financial departments must set appropriate norms for the expenditures of the various departments and allocate funds in full and on time accordingly. We will take the following specific measures to implement the reform. First, all extra-budgetary funds collected by the five government departments according to regulations, including the Ministry of Public Security, the Supreme People's Court, the General Administration of Customs, the State Administration for Industry and Commerce and the State Environmental Protection Administration will be incorporated into their budgets and turned over in full to the central treasury. Their expenditures are to be approved by the Ministry of Finance in light of actual needs for performance of their duties and through consultation with them, and their funding is guaranteed. Second, 28 departments of the central government will be required to exercise separate management of extra-budgetary revenue and extra-budgetary expenditures. These departments will put their extra-budgetary revenue in special financial accounts, make overall arrangements for annual expenditures and prepare comprehensive budgets according to the approved comprehensive standards for fixed expenditures. Third, the current system for collecting and turning over extra-budgetary funds will be reformed to exercise separate management of collecting and turning over such funds. Accounts for extra-budgetary funds set up by units responsible for their collection will be cancelled and replaced by special financial accounts for collection of extra-budgetary funds set up by financial departments separately for each unit to exercise zero-balance management. No department will be allowed to obtain or use funds without authorization. Fourth, we will reform the practice of linking receipts for the operational funds of departments for revenue collection and management to their expenditures and require them to implement the budgeting system as well. Fifth, we will further standardize and promote the reform to help local authorities to ensure separate management of revenue and expenditures. The government departments including public security organs, courts and organs for the administration of industry and commerce, environmental protection and family planning at the provincial, prefectural and municipal levels will also turn over all extra-budgetary revenue to local treasuries so that such revenue can be placed under budgetary management. Their funds will be allocated by financial departments, and their funding will be guaranteed. Sixth, we will review experience, improve measures, revise laws, regulations and systems, deepen the reform of separate management of revenue and expenditures and gradually exercise management according to law and standards.

6. The budgetary reform will be steadily promoted to tighten budgetary control.

Promoting the reform of budgetary management is of great importance to efforts to standardize financial management and government conduct, improve the performance of budgetary funds and prevent and curb corruption in terms of sources and systems. The reform of departmental budgeting will be deepened to further improve and standardize budgetary compilation. In conjunction with efforts to deepen the reform of separate management of revenue and expenditures, the departments of the central government will compile budgets which clearly list all budgetary and extra-budgetary revenue and expenditures to implement comprehensive budgeting. In planning expenditures, we will first of all guarantee funding for basic expenditures. When planning expenditures for projects, we will give priority to financing urgent and feasible projects, monitor the entire process of their construction and report on their performance. In addition, the reform of local departmental budgeting will be accelerated. More departments covered in provincial budgets will implement departmental budgeting. Financial departments at the prefectural and municipal level will also prepare to promote the reform of departmental budgeting. In regions where conditions permit, financial departments at the county level can experiment with the reform of departmental budgeting. We will accelerate the reform of the system for management of the state treasury to cut the number of links in the flow of funds, establish a mechanism for preventing retention, diversion and misappropriation of budgetary funds and improve their performance. In 2002, the central financial authorities will expand the scope of direct payments in the central budget and increase the number of units selected for the reform from 6 in 2001 to about 40 in 2002. In addition, we will experiment with the reform of the system for collecting and turning over revenue and standardize the methods for collecting and turning over such revenue. Great efforts will be made to institute the government procurement system. We will expand the range of goods subject to government procurement, tighten the management and supervision over it and standardize its procedures. In 2002, all departments covered by the central budget must prepare their own budgets for government procurement.

7. The method of sharing income tax revenue will be reformed to promote coordinated economic development of different areas.

The State Council has decided to change the method of dividing income tax revenue. Beginning on January 1, 2002, corporate income tax revenue will no longer be divided according to the jurisdiction of enterprises. Except for a number of enterprises in some special industries, most of the corporate income tax and all personal income tax revenue will be shared between the central and local authorities according to a fixed ratio. The year 2001 will be taken as the base year for the reform and all revenue below the base figure will be retained by local authorities to protect their reasonable vested interests. All income tax revenue for 2002 above the base figure will be divided between the central and local authorities according to a fifty-fifty ratio, and the ratio for 2003 will be sixty-forty. The ratio after 2003 will be determined later in light of actual conditions. The increase in central revenue from income tax owing to this reform will be used entirely for transfer payments from the central budget to local authorities, especially those in the central and western regions. The reform of the method of sharing income tax revenue is another major reform in the financial management system following the revenue-sharing system reform introduced in 1994. This important decision made by the Party Central Committee takes into full consideration China's political, economic and social development and represents a major measure to ensure inter-regional support and coordinated development, achieve common prosperity and reflect the superiority of the socialist system. We will conscientiously implement relevant policies to ensure the smooth implementation of the reform. In conjunction with the reform of the method of sharing income tax revenue, we will further improve the financial system below the provincial level, increase transfer payments from provincial budgets to governments at lower levels and help them to overcome their financial difficulties.

8. Accounting work will be improved in accordance with the law, and the falsification of accounts will be severely dealt with.

Improving accounting work and ensuring the authenticity of accounting data constitute an important basis for maintaining the order of China's socialist market economy. At present, the problem of falsified invoices, statements, reports and accounting data has become outstanding and is seriously disrupting normal economic order. We must further improve accounting work in accordance with the law and resolutely deal with the falsification of accounts. As required by the rules of the World Trade Organization, we will further improve our accounting systems, laws and regulations to administer accounting work according to law and standards. We must strengthen accounting supervision and thoroughly implement the Accounting Law. We will tighten the supervision of accounting firms, severely punish their misconduct and resolutely ban those which commit serious violations of laws and regulations or falsify accounts and reports. Accountants, especially senior accountants and enterprise managerial staff, will receive more t raining in accounting knowledge and improve their management level in accounting work. We must support and protect accountants who handle financial affairs according to the law and commend and reward those who uphold principles and strictly enforce the law. Anyone who makes vindictive attacks on such accountants will be held fully responsible for their acts according to law.

9. We will step up efforts to advocate a style of hard work and plain living and do everything in an economical manner.

China's economic and social development is at a crucial stage. China's economy is not fully developed, the people's standard of living is not high, we are still experiencing financial difficulties and there are still many major and pressing undertakings to be accomplished. However, there is still a great deal of extravagance and waste in production, construction and consumption. Efforts must be made to advocate hard work, practice strict economy, do everything in an economical manner and resolutely stop all forms of extravagance and waste. Financial departments should take the lead in advocating hard work and plain living and set a good example by their concrete actions. We need to prepare budgets meticulously and according to scientific and reasonable methods to prohibit all unnecessary expenditures. We need to implement budgets strictly, monitor the use of budgetary funds and report on their performance to use all funds where they can be put to best use. We will tighten financial supervision and severely investigate and punish all cases of squandering money in violation of the regulations to reduce loss and waste of budgetary funds as much as possible.

Fellow Deputies,

It will be hard to carry out our financial work and implement the budget this year. We are keenly aware of the heavy responsibilities on our shoulders. Let us rally more closely around the Party Central Committee with Comrade Jiang Zemin at its core, hold high the great banner of Deng Xiaoping Theory, follow the requirements set by the important thinking of "The Three Represents", forge ahead with great confidence, work hard and conscientiously implement the budget so that we can present our outstanding achievements to the successful convocation of the Sixteenth National Party Congress.





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