Full Text of Budget Report by Minister Xiang Huaicheng

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Full Text of Budget Report by Minister Xiang Huaicheng

Following is the full text of the budget report delivered by Finance Minister Xiang Huaicheng at the First Session of the 10th National People's Congress on March 6, 2003:

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Following is the full text of the budget report delivered by Finance Minister Xiang Huaicheng at the First Session of the 10th National People's Congress on March 6, 2003:

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2002 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2003

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 2002 and on the draft central and local budgets for 2003 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.

I. Satisfactory Implementation of the Central and Local Budgets for 2002, with the Deficit in the Central Budget Being Smaller Than the Budgeted Figure

The year 2002 was a tremendously significant one in the history of China's development. The successful convocation of the Sixteenth National Congress of the Communist Party of China greatly encouraged the Chinese people of all ethnic groups to build a well-off society in an all-round way. All local authorities and government departments worked hard with one heart and one mind, conscientiously put into practice the important thought of the Three Represents and strove to carry out the principles for economic work formulated by the Party Central Committee and meet the requirements for financial and economic work set at the Fifth Session of the Ninth National People's Congress. The national economy continued to grow rapidly, all social undertakings progressed and the living standards of the people further rose despite the adverse effects of a notable slowdown in the growth of the world economy. The central and local budgets were satisfactorily implemented. Total revenue for the whole country in 2002 (excluding revenue from generation of debt, both here and below) amounted to 1.8914 trillion yuan, 89.9 billion yuan over the budgeted figure and an increase of 252.8 billion yuan or 15.4% over that of the previous year. Expenditures for the whole country totaled 2.2012 trillion yuan, 89.9 billion yuan over the budgeted figure and an increase of 310.9 billion yuan or 16.4% over that of the previous year. Total expenditures exceeded revenue, leaving a deficit of 309.8 billion yuan. Total revenue in the central budget for 2002 totaled 1.102 trillion yuan,37.4 billion yuan over the budgeted figure and an increase of 124.8 billion yuan or 12.8% over that of the previous year. This figure includes 1.039 trillion yuan in revenue collected by the central government, 34.8 billion yuan over the budgeted figure and an increase of 120.8 billion yuan or 13.2% over that of the previous year, and 63 billion yuan turned over to the central government by local authorities, 2.6 billion yuan over the budgeted figure. Total expenditures in the central budget for 2002 amounted to 1.4118 trillion yuan, 37.4 billion yuan over the budgeted figure. This figure includes 675.6 billion yuan of expenditures for the central government, 34.3 billion yuan over the budgeted figure, and 736.2 billion yuan in tax rebate and subsidies for local authorities, 3.1 billion yuan over the budgeted figure. Expenditures in the central budget exceeded revenue, leaving a deficit of 309.8 billion yuan, the same as the figure approved at the Fifth Session of the Ninth National People's Congress. Total revenue in local budgets for 2002 came to 1.5886 trillion yuan, 58.2 billion yuan over the budgeted figure and an increase of 208.1 billion yuan or 15.1% over that of the previous year. This figure includes 852.4 billion yuan in revenue collected by local authorities, 55.1 billion yuan over the budgeted figure and an increase of 132 billion yuan or 18.3% over that of the previous year, and 736.2 billion yuan in revenue from tax rebate and subsidies granted to local authorities by the central government, 3.1 billion yuan over the budgeted figure. Total expenditures in local budgets amounted to 1.5886 trillion yuan, 58.2 billion yuan over the budgeted figure. This figure includes 1.5256 trillion yuan of expenditures for local governments, 55.6 billion yuan over the budgeted figure, and 63 billion yuan turned over to the central government, 2.6 billion yuan over the budgeted figure. Revenue and expenditures were balanced in the local budgets. In addition, central revenue from generation of debt in 2002 totaled 567.9 billion yuan, the same as the budgeted figure. This figure includes 256.3 billion yuan for servicing domestic and foreign debt, 309.8 billion yuan to cover the deficit for 2002 and 1.8 billion yuan for replenishing the central budget debt repayment fund. Total revenue from the funds controlled by the central government in 2002 came to 99.9 billion yuan and total expenditures by the central government taken from the above funds amounted to 99.9 billion yuan. There may be a few minor changes in these figures when the final calculations are made for the central and local budgets.

Under the correct leadership of the Party Central Committee and the State Council, in 2002 all local authorities and government departments focused on the budget and the objectives for the financial work defined at the Fifth Session of the Ninth National People's Congress and worked hard in a pioneering spirit. The proactive fiscal policy was conscientiously carried out, the financial legal system was improved, and the financial and economic order was rectified. All aspects of the financial work proceeded smoothly. This promoted the sound development of the economy and all social undertakings. Efforts to increase revenue and reduce expenditures were intensified to ensure satisfactory implementation of the budgets. At the Fifth Session of the Ninth National People's Congress, I reported that there were a fairly large number of uncertainties in the process of the implementation of the budgets for 2002. Special factors leading to revenue growth were fewer than expected, and there were more factors leading to revenue decrease. For example, to fulfill the commitments for China's entry into the World Trade Organization (WTO), we lowered the general tariff level from 15.3% to 12%. Stamp tax rates on stock transactions dropped from 4 for A shares and 3 for B shares to 2 for both. The business tax rate for the banking and insurance industries fell from 7% to 6%. Implementation of the policy of reducing the number of shares held by the state was ceased. With regards to expenditures, some key projects required additional funding that had to be guaranteed. In implementing the budgets, we found it more difficult than expected at the beginning of 2002 to fulfill some items of revenue. For a time, the situation was pregnant with grim possibilities for budgetary revenue and expenditures, especially those in the central budget, with revenue growth far lower and expenditure increases much higher than budgetary projections. To reverse this situation, in May 2002 the State Council held a national videophone conference on increasing revenue and reducing expenditures, at which a series of requirements and measures were put forward. To consolidate and maintain the momentum of gradual improvement in revenue and expenditures across the country, in September 2002 the State Council held another national conference on increasing revenue and reducing expenditures, at which effective measures and additional requirements were put forth to intensify efforts in this regard. The Ministry of Finance paid close attention to implementation of the budgets, organized financial departments to analyze and study changes in central and local revenue and expenditures in many ways, increased exchange and communication and supervised and inspected increase in revenue and reduction in expenditures in all localities. All local authorities and government departments paid great attention to this work and promptly formulated and implemented effective measures to plug loopholes in the management of revenue and expenditures and eliminate some factors leading to revenue decrease and expenditure increase. The revenue and expenditure situation further improved through out the country. In the first quarter of 2002, revenue for the whole country rose by 3.4%, and expenditures for the whole country, by 23.9%. In the second, third and fourth quarters of 2002, revenue increased by 14.4%, 14.3% and 27.3% respectively, while the growth of expenditures went down to 13.6%, 17.3% and 14.7%. This helped ensure satisfactory implementation of the budgets for the whole year.

In accordance with relevant provisions of the Decision of the Standing Committee of the National People's Congress on Strengthening Examination and Supervision of the Central Budget, the revenue of 37.4 billion yuan in excess of the projected figure in the central budget for 2002 was used to increase funding for highway construction and to replenish the national social security fund in light of the actual needs for social and economic development. This was reported in writing to the Standing Committee of the National People's Congress according to regulations. Local authorities used revenue in excess of the projected figures in the local budgets mainly for the purpose of increasing social security expenditures and paying overdue wages and salaries. The pattern of expenditures was adjusted to ensure funding for the development of key social undertakings. In view of the overall interests of reform, development and stability, all local authorities and government departments pooled their financial resources to guarantee funding for key projects while keeping general spending under strict control. First, more funds were allocated to help low-income groups and people in straitened circumstances solve essential problems in their production and lives. While continuing to ensure that the living allowances for workers laid off from state-owned enterprises and basic pensions for retirees were paid on time and in full and the subsistence allowances were provided to those living below the poverty line, we raised basic pensions for retirees from state-owned enterprises again as of July 1, 2002. We paid special attention to workers, army officers transferred to civilian jobs and former industrialists and merchants who had retired a long time ago and whose basic pensions were low. Benefits were again increased for older ex-servicepersons living in rural areas and for retired veteran cadres who joined the revolutionary ranks in the early days of New China. Subsidies were provided in a timely manner to support the closedown and bankruptcy of 87 state-owned enterprises according to law and to guarantee the working and living needs of the 380,000 affected employees. Expenditures for social security programs from the central budget for 2002 came to 136.2 billion yuan, an increase of 38.6% over that of the previous year. In addition, financial authorities cooperated with competent government departments to tighten collection, management and supervision of social security funds and improve the method of making special transfer payments for social security and the system for managing the special financial accounts for subsidies under social security programs. Experimentation with the reform of social insurance fees collected by tax organs was extended to 16 provinces. In addition, financial authorities took an active part in and gave support to the reform of the basic medical insurance system for urban employees and experimentation with the reform to improve the urban social security system in Liaoning and other provinces. All this promoted smooth implementation of the reforms. Statistics show that basic pensions for retirees from state-owned enterprises and living allowances for workers laid off from state-owned enterprises who had registered with reemployment service centers were basically paid on time and in full as of the end of 2002. The number of urban residents who received subsistence allowances increased from 1.84 million at the end of 1998 to 20.6 million at the end of 2002. This helped maintain social stability. Second, more funds were allocated to agriculture, rural areas and farmers to promote rural development and stability. Experimentation with the reform of taxes and administrative charges in rural areas was extended to 20 provinces (autonomous regions and municipalities directly under the central government). The burden on farmers was lightened by an average of 30% in areas where the reform was carried out, with even greater reduction in some areas. This reform was praised by farmers as a "project of governance by virtue." In 2002 subsidies totaling 24.5 billion yuan were allocated from the central budget as transfer payments to areas where the reform was carried out. This guaranteed the normal operation of political power at lower levels in those areas, supported the development of compulsory education in rural areas, and played a vital role in stabilizing and reducing the burden on farmers and rationalizing rural economic relationships. A total of 108.8 billion yuan from the central and local budgets for 2002 was used to support rural production and integrated agricultural development and provide operating expenses for departments in charge of agriculture, forestry, water conservancy and meteorology, an increase of 18.6% over that of the previous year.

In addition, more funds were allocated to programs to fight poverty in rural areas, transform rural power grids and build water conservancy infrastructural facilities. These measures promoted agricultural development, raised the incomes of farmers, improved the living conditions and the ecological environment in rural areas and helped maintain stability there. Third, more funds were allocated to science, technology and education to promote the implementation of the strategy of developing the country through science and education. A total of 7.2 billion yuan was allocated from the central budget for 2002 to support key state projects for basic research, the Knowledge Innovation Project and the March 1986 High-Tech Program. Numerous achievements in scientific research were made and the overall level of China's science and technology was raised. We continued to implement the policy of increasing the proportion of educational spending to total expenditures in the central budget by one percentage point each year. Local financial departments also increased educational funds. In 2002 educational expenditures for the whole country amounted to 264 billion yuan, an increase of 19.6% over that of the previous year. The state program to make compulsory education universal in impoverished areas was carried out, primary and secondary school buildings in poor condition were renovated and higher and vocational education further expanded. Funding for other key projects was also guaranteed. Effective measures were taken to ensure smooth progress in the reform to share income tax revenue. The State Council decided to implement the reform to share income tax revenue from January 1, 2002 to further implement Deng Xiaoping's strategy for developing the coastal areas first and then the interior and the important thought of the Three Represents, improve the fiscal and tax systems, narrow the gap between regions in terms of financial strength, promote coordinated development of different regions and push forward the reform of state-owned enterprises. To this end, the Ministry of Finance solicited opinions from local authorities on many occasions, examined and determined the base figures, improved supporting measures and gave guidance and supervision to implementation of the decision. Government departments in all regions, especially the developed eastern region, stressed political awareness, took the overall interests of the country into consideration and adopted effective measures to conscientiously implement the decision of the State Council, making great contributions to the smooth implementation of the reform. Thanks to this reform, revenue increased by about 12.4 billion yuan in the central budget for 2002. According to regulations, this entire amount was used as transfer payments to local authorities, especially those in the central and western regions. In conjunction with the reform to share income tax revenue, central financial authorities, on the basis of increasing transfer payments to local authorities, further standardized and improved the transfer payment system and helped local financial authorities raise their capability to manage funds. In many regions, the financial systems at the provincial level and below were adjusted and standardized, and more financial resources were put at the disposal of financial authorities at the county, township and other lower levels. These measures eased the financial difficulties of county and township authorities and helped pay overdue wages and salaries of employees in government departments and institutions. As of the end of 2002, 25 of the 36 provinces (autonomous regions and municipalities directly under the central government) and cities specially designated in the state plan were paying wages and salaries on time and in full. Although the remaining 11 delayed payment of wages and salaries due for the year as prescribed by the state, the amount in arrears dropped to 1.7 billion yuan. This amount accounted for 0.4% of the total payable during the year, 4.8 billion yuan less than that of the previous year.

Reform was further deepened to ensure constant improvement in the budgetary management system. The fiscal reform is highly policy-related and technical and has a direct bearing on the adjustment and standardization of the relationship between different interests. Under the correct leadership of the Party Central Committee and the State Council, Party committees and governments at all levels paid great attention to the fiscal reform. The people's congresses at all levels gave more supervision and guidance to the reform. Financial authorities at all levels continued to improve their services, worked hard to organize implementation of the reform of the budgetary management system and promoted further deepening of the reform. In 2002, 34 departments of the central government including the Ministry of Public Security, the Supreme People's Court and the General Administration of Customs took the lead in experimentation with deepening the reform for separate management of revenue and expenditures. This was done in compliance with the requirements for cutting ties between revenue and expenditures and separating the collection of administrative charges and fines from the use of those funds. Local authorities also worked hard to carry out this reform. The departments of the central government which carried out the reform took the initiative to meet the requirements of the reform and alter their functions and improved their capacity to perform their official duties according to law. This resulted in a notable decrease in the number of cases involving unauthorized administrative charges and fines. In 2002, all departments of the central government and those directly under provincial governments compiled their departmental budgets in two parts, one for basic expenditures and the other for project expenditures. Governments of some cities (prefectures) and counties (county-level cities and city districts) have been working conscientiously to carry out there form for preparing departmental budgets. This ensures that budget compilation will be fair, just and open. On the basis of promoting and standardizing experimentation in six departments of the central government, the pilot reform for a centralized treasury payment system was extended to 38 departments of the central government in 2002, and the number of regions involved increased from two in 2001 to nine. In addition, the reform to implement a centralized treasury revenue system was carried out in 15 departments of the central government with a view to incorporating all of their revenue and expenditures into a single treasury account system. This guaranteed safe and efficient use of budgetary funds, reduced the number of links in the transfer of funds, ensured that revenue went directly into the state treasury and that expenditures went directly to suppliers of goods and labor services, resulting in improved efficiency of budgetary funds. In 2002, total government procurement exceeded 100 billion yuan, an increase of more than 34 billion yuan over that of the previous year, with savings on each item generally exceeding 10%. Since the Law on Government Procurement was promulgated, the management of government procurement has become increasingly statutory and standardized. In addition, the pace of applying IT in financial management has been notably accelerated, and the Government Financial Management Information System (GFMIS) designed for timely control of the use of budgetary funds entered the stage of implementation. These reforms have further promoted the standardization and modernization of financial management under the socialist market economy.

Fellow Deputies,

Over the past five years, new achievements were scored in our financial work, as in all other fields of endeavor in the country, and great changes have taken place in state finance. First, we have established a sound mechanism to ensure a steady increase in revenue and the national financial strength has increased notably. Revenue for the whole country in 2002 amounted to 1.8914 trillion yuan, an increase of 1.0263 trillion yuan or 119% over that of 1997, with an annual average rise of 205.3 billion yuan. The ratio of total revenue to GDP rose from 11.6% in 1997 to 18.5% in 2002, an annual average rise of 1.4 percentage points. Second, transfer payments have increased rapidly to promote coordinated economic and social development. Expenditures in the central budget in 2002 came to 675.6 billion yuan, accounting for 30.7% of the expenditures for the whole country. If the expenditures for payment of interest on treasury bonds are taken out of the regular expenditures in the central budget, which is an incomparable factor, the percentage would be 28.5%, calculated in comparable terms. This was 1.8 percentage points below the 1994 figure of 30.3% when the reform of the financial management system was first introduced. This shows that since the reform was carried out, the increased revenue in the central budget has been allocated mainly to local authorities. Apart from the 301.4 billion yuan of tax rebate and 32.3 billion yuan of institutional subsidies, transfer payments from the central budget to local authorities in 2002 amounted to 402.5 billion yuan, an increase of 610% over that of 1997, representing an annual average growth of 43.4%. Transfer payments were mostly used in the central and western regions. This has played and will continue to play an important role in supporting the implementation of the strategy for developing the western region, accelerating the development of the central and western regions and safeguarding ethnic unity and long-term stability of the country. Third, the pattern of expenditures has been further improved to better serve the overall interests of national economic and social development. In particular, investment in social security, science, technology and education, agriculture, infrastructure and other public works has increased by a large margin. This has ensured smooth progress in the restructuring of state-owned enterprises and major economic systems, including the social security, grain distribution and monetary systems. Expenditures for the whole country for social security, for science, technology and education and for agriculture in 2002 were 9.5, 2.3 and 1.9 times as much as the respective figures for 1997, representing annual average growths of 56.9%, 17.7% and 14.2% respectively. Per capita basic monthly salary of employees in government departments and institutions at the end of 2002 doubled that of 1998.

As required by the Party Central Committee and the State Council, in the past five years the central financial authorities took into consideration the long-term interests of the country and accumulated 124.2 billion yuan in the national social security fund despite a great strain on revenue and expenditures. This has provided an important financial means to prepare the country for emergency. Fourth, the macro-control function of finance has been improved notably to promote sustained, rapid and sound developmentof the national economy. To firmly implement the policy of expanding domestic demand formulated by the Party Central Committee and conscientiously follow the proactive fiscal policy, we have issued a total of 660 billion yuan of treasury bonds for construction. At the same time, we have transformed the methods for financial macro-control. We have made use of treasury bonds for construction, taxation, discount interest and other financial policy instruments in coordination with the monetary policy, increased investment while stimulating consumption, and expanded the economic aggregate while readjusting the economic structure. Deficit and debt have increased in the central budget, but they are bearable and within our control. It is essential and worthwhile to do this. If we had not done this, it would have been impossible for us to maintain the steady growth of the national economy, constantly optimize the economic structure and improve the people's lives notably. In particular, treasury bonds for construction have effectively boosted investment from various channels. Total investment in projects amounted to 3.28 trillion yuan. This has laid a solid foundation for China's long-term economic and social development. Facts show that the decision on implementation of the proactive fiscal policy made by the Party Central Committee is entirely necessary and correct. Fifth, financial management has become increasingly standardized and our capacity to handle financial affairs according to law has been on the increase. Over the past five years, we have carried out a series of financial reforms in accordance with relevant decisions and resolutions made by the Party Central Committee and the State Council and the requirements for reforms set by the National People's Congress and its relevant organs. We have constantly extended these reforms, improved relevant measures and enriched their content. We have preliminarily established the framework of public finance which meets the requirements for developing the socialist market economy. At the same time, the pace of improving the financial legal system has been accelerated. We have formed a framework of financial laws and regulations including the Budget Law, the Accounting Law, the Law Concerning Certified Accountants as well as administrative rules and regulations on finance. We have strictly enforced financial laws as required by the Law on Administrative Reconsideration and the Administrative Procedure Law. The reform of public finance and improvement in financial legislation complement each other, so that the principles of justice, fairness and openness required under a market economy are gradually implemented in all aspects of our financial work. This has further standardized financial management and helped raise our capacity to handle financial affairs according to law. It will have a great impact on efforts to change the functions of the government, expedite the pace of running the country by law and promote all-round social progress.

Although we have scored achievements in our financial work, we are fully aware that there are some pressing problems in our financial operations. First, low increase in revenue and high growth of expenditures remain a fairly serious problem. Since the scale of revenue is enlarged, it will be very hard to continue increasing revenue by a large margin. Expenditures, however, are rigid. We have entered a peak period for debt payment and economic and social development makes more demands on public finance. All this puts a great pressure on both revenue and expenditures. Second, chaotic financial and economic order has not been improved fundamentally. Falsification of accounts, tax evasion and tax fraud, extravagance and waste in the use of funds and other problems are still serious. Third, progress in financial reform is uneven. Improving measures, resolving difficulties and deepening the reform are still arduous tasks. Fourth, governments at lower levels in some regions are in financial straits. Although the central government has taken measures such as increasing transfer payments, governments at lower levels in some regions still find it difficult to implement their budgets and cannot pay wages and salaries in full and on time as required by the central government. We will pay close attention to these problems, take effective measures to solve them by deepening the reform and standardizing management and do everything possible to achieve notable results as quickly as possible.

II. Acquiring a Clear Understanding of the Situation, Serving the Overall Interests of the Country and Taking the Initiative to Prudently Compile Central and Local Budgets for 2003

The year 2003 is a very important one for putting into practice the spirit of the Sixteenth National Party Congress in an all-round way and for creating a new situation in building socialism with Chinese characteristics. At present, China enjoys political stability and social progress. The institutional climate for economic development has improved notably. China has opened even wider to the outside world, and economic development continues to gain momentum. In particular, the successful convocation of the Sixteenth National Party Congress has further rallied the will of the Party and the people. All this will give an enormous impetus to the economic and social development in 2003 and beyond. However, we must be aware that there are still outstanding contradictions and problems in our economic development. Quite a lot of uncertainties are affecting the world economy, and it is difficult to accurately forecast the adverse effects of tensions in some regions of the world on international oil prices and the global economy. The effective domestic demand is insufficient, the supply structure is irrational, and the internal mechanism for driving economic growth is not sound. It is very hard to maintain the rapid growth of exports. The incomes of farmers still increase slowly and the situation of employment is grim, bringing more pressure on the reemployment of laid-off workers. The deep-seated problems in the reform of state-owned enterprises are yet to be solved, and the order of the market economy remains to be rectified and standardized.

In light of the above circumstances and in accordance with the spirit of the Sixteenth National Party Congress and the Conference on Economic Work held by the Party Central Committee, the guiding principles for formulating the 2003 central budget are as follows: Taking Deng Xiaoping Theory and the important thought of the Three Represents as the guide, we will conscientiously implement the spirit of the Sixteenth National Party Congress and the Conference on Economic Work held by the Party Central Committee, uphold the policy of expanding domestic demand and continue to implement the proactive fiscal policy in a bid to promote the sustained, rapid and sound development of the national economy in light of the requirements for building a well-off society in an all-round way; we will tighten the collection and management of revenue to ensure its steady increase; we will continue to adjust and improve the pattern of expenditures, further guarantee key expenditures for agriculture, science, technology and education, social security, development of the western region and improvement in the people's lives, with zero growth in general expenditures; and we will deepen the financial and taxation reform, rectify the financial and economic order and handle financial affairs effectively according to law. The State Council has prepared the draft central budget for 2003 by following the above guiding principles and taking into full account the major factors that may affect revenue and expenditures. Total revenue in the central budget is 1.194 trillion yuan, an increase of 57.5 billion yuan or 5.1% over that of the previous year. (Both here and below, the figures for 2002 have been adjusted for convenient comparison according to the plan for sharing income tax revenue between the central and local authorities, on the basis of a sixty-forty ratio.) This figure includes 1.1333 trillion yuan of revenue collected by the central government, an increase of 59.8 billion yuan or 5.6%; and 60.7 billion yuan turned over to the central government by local authorities, 2.3 billion yuan less than that of the previous year. Expenditures in the central budget total 1.5138 trillion yuan, a rise of 67.5 billion yuan or 4.7%. A total of 720.1 billion yuan of these expenditures will be incurred at the central level, an increase of 44.5 billion yuan or 6.6%, and 793.7 billion yuan in tax rebate and subsidies will be granted to local authorities by the central government, a rise of 23 billion yuan or 3%. Expenditures exceed revenue in the central budget, leaving a deficit of 319.8 billion yuan, an increase of 10 billion yuan. Expenditures to cover the deficit and repay domestic and foreign debt due in 2003 amount to 295.6 billion yuan, and central revenue from generation of debt in 2003 is 615.4 billion yuan, a rise of 47.5 billion yuan.

In addition to 25 billion yuan of bonds issued by the central government for the local authorities, the total debt is 640.4 billion yuan. Total revenue in the local budgets for 2003 as complied by the central government amounts to 1.7105 trillion yuan, an increase of 121.9 billion yuan or 7.7% over that of the previous year. The figure includes 916.8 billion yuan in revenue collected by local governments, a rise of 98.9 billion yuan or 12.1%. Revenue from tax rebate and subsidies granted by the central government amounts to 793.7 billion yuan. Total expenditures in the local budgets come to 1.7105 trillion yuan, an increase of 121.9 billion yuan or 7.7%. This figure includes expenditures of 1.6498 trillion yuan incurred by local governments, a rise of 124.2 billion yuan or 8.1%; 60.7 billion yuan to be turned over to the central government, 2.3 billion yuan less than that of the previous year. Total revenue in the draft central and local budgets for 2003 is 2.0501 trillion yuan, an increase of 158.7 billion yuan or 8.4%. Total expenditures in the draft central and local budgets amount to 2.3699 trillion yuan, a rise of 168.7 billion yuan or 7.7%. The following are the major factors we have taken into consideration in drafting the central budget for 2003. We need to be totally modest, prudent and free from arrogance and rashness in our work and to maintain the style of plain living and hard work. General spending should, in principle, register zero growth. Funding has to be guaranteed or increased for many items of expenditures in 2003, leading to a pronounced strain on central revenue and expenditures. At the same time, the phenomenon of extravagant and wasteful spending is still common in some government departments and institutions. This has aroused strong resentment among the people. To further carry forward the fine tradition of plain living and hard work and in accordance with the spirit of the Conference on Economic Work held by the Party Central Committee, except for key expenditures, other general expenditures (not including the increase for wage and salary adjustments) in the budget for 2003 should, in principle, remain at the level of the budget for 2002 and register zero growth. This is a major policy for compiling the 2003 central budget and a concrete embodiment of the effort to thoroughly carry forward the tradition of hard work in handling financial affairs. Revenue will be reduced according to relevant policies to support economic and social development. To faithfully fulfill its commitments to the WTO, China will cut tariff rates again on its own initiative. We will reduce the business tax rate for the banking and insurance industries by one more percentage point to promote their reform and development. We will further implement relevant preferential financial and tax policies to support the development of the western region and promote reemployment. These policies will affect the growth of revenue. In addition, the amount of tax turned over by enterprises may be affected by the fall in the prices of taxable products as well as other factors. It would be difficult to maintain a high growth rate for certain taxes that fluctuate according to product prices. Some special factors contributing to tax revenue growth over previous years will be notably reduced or lost. On the basis of an analysis of increases and reductions in all revenue items of the central budget for 2002 and the reasons for those changes, we have set a target of 5.1% for the growth of revenue in the central budget for 2003. Although this target is lower than the expected rate of economic growth in 2003, it is proactive and sound.

We will continue to issue treasury bonds for construction to promote steady growth of the national economy. We should maintain the stability and consistency of the proactive fiscal policy and take advantage of the macro-control function of finance. This conforms to the objective requirements for coping with current international and domestic situations, further expanding domestic demand, ensuring steady economic and social development and raising the people's standards of living. A total of 140 billion yuan of treasury bonds for construction will be issued in 2003, with 115 billion yuan to be included in the central budget and 25 billion yuan to be issued for local governments. Treasury bond funds will be used mainly to continue and complete projects under construction. We will continue to adjust and improve the orientation and structure of the utilization of treasury bond funds and concentrate on creating better production and living conditions in rural areas, economic restructuring, improving the ecological environment and developing the central and western regions.

The total amount of money held in savings deposits by individual Chinese citizens has been growing rapidly and domestic funds available for use are ample. There is an adequate supply of commodities on the market and retail prices are relatively low. We have enjoyed a favorable balance of international payments for years on end and held a fairly sufficient foreign exchange reserve. Both the deficit and the total amount of debts for 2003 will remain bearable. Therefore, another issue of treasury bonds will not incur great risks within a short time. We will continue to pay close attention to any problems that may arise and take precautionary and effective measures to control fiscal risks through development.

We will further increase transfer payments to local authorities to coordinate economic and social development of different regions.In 2003 the central government will increase transfer payments to local authorities to improve the macro-control function of the central budget, constantly narrow the gap in financial strength, meet the basic needs for social and public services and promote coordinated development of different regions. A total of 420.7 billion yuan in transfer payments from the central budget will be allocated to local authorities, in addition to 340.4 billion yuan in tax rebate and 32.6 billion yuan in institutional subsidies, representing an increase of 14 billion yuan over that of the previous year, calculated in comparable terms. More funds will be allocated and guaranteed for key expenditures to safeguard the overall interests of reform, development and stability. First of all, great support will be given to agricultural and rural economic and social development. Accelerating agricultural and rural economic and social development is essential to building a well-off society in an all-round way, maintaining sustained, rapid and sound development of the national economy and ensuring long-term stability of the country. The central authorities have decided that in addition to allocating more treasury bond funds to rural areas, experimentation with the reform of taxes and administrative charges will be extended to all rural areas in 2003. Funds totaling 30.5 billion yuan will be specially transferred from the central budget to subsidize this reform, an increase of 6 billion yuan over that of 2002. In addition, the central financial authorities will continue to increase the budgetary funds for construction of infrastructural facilities, ecological improvement, rural anti-poverty endeavor, spread of improved strains of crops, establishment of a quality and safety standard system and an inspection system for agricultural products, and the strategic restructuring of agriculture. We will further increase funding for agriculture and rural areas. Second, expenditures for social security programs will be increased. Spending on social security programs will be increased to help urban residents in straitened circumstances meet their basic living needs and safeguard the immediate interests of the general public.

An additional 8.4 billion yuan will be used to increase the basic pensions for retirees from state-owned enterprises, the retirement benefits of veteran cadres who joined the revolutionary ranks in the early days of New China and pensions for older ex-service persons in rural areas. An extra 4.6 billion yuan will be allocated to implement the policy of doubling the subsistence allowances for those urban residents living below the poverty line, and an extra 4.7 billion yuan to implement the policy of subsidizing reemployment programs. In addition, we will continue to allocate 11 billion yuan to subsidize the bankruptcy of enterprises according to law. Third, funding for key projects in education, science and technology and other areas will be guaranteed. Education, science and technology play a leading role in building a well-off society in an all-round way and have a direct bearing on the overall interests of the country. In allocating funds for key projects in these areas (including additional spending for salary and wage increases) from the central budget, we will continue to comply with the laws and polices which stipulate that the increase in these expenditures should be higher than the growth of the regular revenue. In addition, more subsidies will be allocated to local authorities from the central budget to ensure that public security and procuratorial organs and people's courts strictly enforce the law,to improve public health in rural areas and to reform the prison administration system. Fourth, salaries and wages of employees in government departments and institutions will be increased. Since 1999, the central government has increased wages and salaries three times for employees in government departments and institutions. This has played an important role in effectively raising their low salaries and wages, stimulating consumption, expanding domestic demand and promoting economic growth. The central government has decided to postpone the wage and salary increases planned for 2002 until July 1, 2003 in consideration of the need to give priority to resolving the difficulties of low-income urban residents and balancing the interests of all sectors of society, and funding has been earmarked in the central budget for the purpose. Fifth, expenditures for national defense will be increased. Expenditures for national defense in the central budget for 2003 amount to 185.3 billion yuan, an increase of 9.6%, with aview to adapting to changes in the international situation, safeguarding national security and sovereignty and territorial integrity and raising the combat effectiveness of the armed forces in fighting wars to defend the country with the use of high technology. Sixth, expenditures for payment of interest on debts will come to 96.6 billion yuan, an increase of 28.4 billion yuan over that of the previous year.

III. Working Hard in a Pioneering Spirit and Ensuring Successful Implementation of the Budget

At the Conference on Economic Work held by the Party Central Committee, clear requirements for economic and financial work in 2003 have been set to put into practice the spirit of the Sixteenth National Party Congress. Under the correct leadership of the Party Central Committee and the State Council, we must bestir ourselves, have great confidence, seize opportunities, make use off avorable conditions and take the initiative to cope with difficulties and challenges. We must work out all measures carefully and do solid work. While conscientiously implementing the proactive fiscal policy, we will concentrate on the following aspects of work to ensure successful implementation of the budget for 2003 and promote the sound development of the national economy and all social undertakings: We must strengthen revenue collection and administration according to law and ensure the steady growth of revenue. An important financial task for 2003 is to work hard to collect revenue and provide adequate financial support to the operation of political power, economic development and social stability. First, we must resolutely safeguard the uniformity, authority and strictness of the tax laws. We will continue to review preferential tax policies currently in force in strict accordance with the tax laws. Collection of taxes must be promptly resumed when any of such policies expires. Introduction of unauthorized tax preferential treatment or preferential tax policies in disguised forms must be resolutely stopped, and on no account can any local authority or government department be allowed to overstep the limit of its authority in granting tax reductions or exemptions. Second, we should constantly standardize and improve the tax system. We will establish more supporting systems and concentrate on solving the problems of tax evasion including the listing of personal expenses as business costs by owners of a small number of private enterprises and the falsification of the amount of losses by foreign-funded enterprises. We must improve the tax system, plug up tax loopholes and standardize the order of income distribution. Third, we will improve the mechanism for export tax refunding to strengthen management in this regard. We must crack down on the criminal acts of obtaining export tax refunds by deception and increase practical results in implementation of the policy on export tax refunding. Fourth, we will conscientiously carry out the State Council's policy of "strengthening tax collection and administration, plugging up loopholes, punishing corruption and clearing up overdue taxes." We must strengthen tax collection and administration and improve the methods of collecting personal income tax. We must work hard to ensure that enterprises pay overdue taxes. We must effectively strengthen the administration of all kinds of non-tax revenue and further tap the potential to increase revenue. We will severely punish cases of holding back tax that should be paid and ensure collection of any due tax.

We will improve the function of finance and promote coordinated economic and social development. In line with the principle of "reducing general spending and guaranteeing key expenditures," we must not only earmark sufficient expenditures for wages and social security programs as well as for science, technology and education, agriculture and environmental protection, but also ensure that such funds are fully allocated through effective implementation of relevant policies and measures. First, we will uphold the principle of "feeding the people first, then building the country" and ensure payment of wages and salaries. The central government will continue increasing transfer payments and subsidies to regions in financial straits and financial authorities at lower levels. Local financial departments, on their part, need to further improve their financial systems and increase transfer payments to financial authorities at the county and township levels. At the same time, they should improve the system of unified payment of wages and salaries and establish and improve an effective mechanism for guaranteeing payment of wages and salaries. In particular, they must concentrate on solving the problem of payment of wages and salaries for teachers in rural primary and secondary schools. Second, we will ensure that living allowances for laid-off workers from state-owned enterprises and basic pensions for retirees are paid on time and in full. We will do a good job of providing subsistence allowances for poor urban residents and further coordinate the "three-stage guarantee". Social security programs will be carried out among more people according to law. Living allowances will be provided to all eligible employees working in enterprises in financial difficulties which have operated at a loss or have partially or entirely suspended production for a long time. Policies on reduction and exemption of relevant taxes and administrative charges must be fully carried out to promote employment and reemployment. In addition, we will help solve the practical problems of those entitled to special care and preferential treatment, including Red Army veterans, old ex-servicepersons, wounded and disabled service persons and families of revolutionary martyrs, as well as model workers, advanced workers and rural "households entitled to the five guarantees." We will ensure that families of compulsory service persons truly benefit from preferential policies, and we will continue to help place demobilized soldiers and army officers transferred to civilian jobs. Third, we will conscientiously implement preferential fiscal and taxation policies that support the development of the western region, and we will strengthen supervision and inspection and accelerate its development.

We must practice strict economy and resolutely stop extravagance and waste. In the great process of building a well-off society in an all-round way and accelerating the socialist modernization drive, we must always adhere to the principle of hard work, plain living and building the country through diligence and thrift. We must meticulously plan the use of our financial resources, practice strict economy and manage and use all budgetary funds properly. First, we must strengthen budgetary management and keep budgetary expenditures under strict control. Except for key expenditures for which funding must be increased in accordance with the relevant state laws, statutes and policies, all general expenditures planned for 2003 will register zero growth. As required by the central government, local governments will also take effective measures to bring their general expenditures under strict control. In particular, they must work hard to reduce meetings, study tours abroad, business fairs and forums and symposiums which produce no practical results. Second, we must continue to tighten control over the construction of office buildings and training centers for Party and government departments, and we must stop all forms of financial support for projects for "image shaping" or "showing off achievements of officials" that are banned by the state. Third, we will work hard to support all government departments and institutions in efforts to further improve and strictly implement the financial management system, help them tap their potential to reduce expenditures for energy and furnishings and lower their operating costs. Fourth, financial departments need to take the lead in observing financial and economic discipline and boldly exercise management. They must support and cooperate with discipline inspection, supervision and auditing departments in efforts to severely punish all acts of squandering budgetary funds. We will continue to deepen the financial reform and effectively promote innovation in the financial management system. We will make use of the reform to improve the function of public finance and do a better job of surmounting difficulties and solving problems arising in our financial work. First, we will further review experience, improve policies and experiment with the reform of rural taxes and administrative charges across the country. We will take the initiative to promote the reform of the tax system for special agricultural products and explore effective ways of subsidizing agriculture and farmers. Second, we will continue to deepen the reform of separate management of revenue and expenditures, standardize the management of non-policy subsidies and bank accounts step by step, and reform and improve the system of collection and transfer of non-tax revenue. Third, we will implement departmental budgets in more government departments, continue to deepen the reform to institute a centralized treasury receipt and payment system, conscientiously carry out the Law on Government Procurement and continue to increase the range and scale of government procurement. Fourth, we will continue to carryout the reform to share income tax revenue. Income tax revenue for 2003 will be divided between the central and local authorities according to a sixty-forty ratio. Fifth, we will further standardize the transfer payment system, with the focus on improving the financial system at the provincial level and below, raising the financial strength of counties and townships and easing the financial difficulties of governments at lower levels.

Sixth, we will speed up the establishment of the Government Financial Management Information System (GFMIS) and promote the application of IT in financial management. Seventh, we will work hard to support and coordinate the reform of the major systems for state property management, rural economy, banking and administrative management. Financial departments at all levels should be keenly aware of the importance of service and improve services in pushing forward the reform. We will rectify and standardize the financial and economic order and work hard to handle financial affairs according to law and improve social credibility. Rectifying and standardizing the financial and economic order according to law is one aspect of the effort to rectify the order of the market economy and an important part of the effort to ensure that financial departments perform their administrative duties according to law. This has a direct bearing on the sound development of the national economy and the protection of the people's interests, and this is also of great significance to cultivating and increasing the awareness of the importance of law among the general public and improving social credibility. First, we will rectify the order in revenue and expenditures. We will continue to examine tax collection and management, the levying of administrative charges and the pooling and transfer of government fund contributions to rectify the order in revenue and plug up revenue loopholes. We will strengthen supervision over the use of transfer payments from the central budget, special subsidies and government fund contributions, keep a close watch on its results, severely deal with diversion and misappropriation of these funds and other acts in violation of the relevant regulations, and ensure the use of funds according to regulations. Second, we will conscientiously implement the Accounting Law and the Law Concerning Certified Accountants, work hard to rectify and standardize the order in accounting work in compliance with the requirements for "making honesty a cardinal principle, paying close attention to moral integrity, adhering to the principles and never falsifying accounts," conduct random examinations of the quality of accounting information and strengthen basic accounting management. We will continue to rectify and standardize the work of certified public accountants and other intermediate services, gradually establish credibility files for certified public accountants and promote credibility in the accounting industry and the whole society. Third, we will improve the financial supervision mechanism and raise the level of financial supervision. Fourth, we will strengthen financial legislation. Financial departments should continue to raise their capacity to perform their administrative functions according to law.

Fellow Deputies,

Implementing the budget for 2003 will be an arduous task for us. Under the leadership of the Party Central Committee with Comrade Hu Jintao as General Secretary, we will hold high the great banner of Deng Xiaoping Theory, fully implement the important thought of the Three Represents, unify our thinking according to the spirit of the Sixteenth National Party Congress and the requirements set at the Conference on Economic Work held by the Party Central Committee and the Tenth National People's Congress, devote ourselves to the reform and work diligently and confidently to attain the magnificent goal of building a well-off society in an all-round way.

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Minister Reports on 2002 Budget, Draft Budget for 2003

10 Billion Yuan More Deficit Budgeted for 2003

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