-- Some reform measures have not truly been implemented as they should while for others progress has been slow.

-- The management of transfer payments is in urgent need of standardization as special transfer payments have yet to be overhauled to full effect, and progress in the reform of the transfer payment systems at and below the provincial level has been patchy.

-- In some localities, budgets and final accounts lack transparency, the use of government funds is not in line with standards and ineffective, and more funds are becoming idle.

-- Some localities are weak on government debt management and are guarantying debt or making borrowings in breach of regulations, thus increasing the hidden debt-related risks of local governments.

We view these problems as extremely important and will take measures to effectively resolve them.

II. Draft Central and Local Budgets for 2017

The year 2017 is an important year for implementing the 13th Five-Year Plan and continuing the supply-side structural reform. The new normal in China's economic development is becoming more evident, the fundamentals of the Chinese economy remain favorable for long-term growth, market dynamism is being unleashed, and new drivers of development continue to grow. On the other hand, factors causing instability and uncertainty in the global economy are growing markedly, and China's economy is confronted with many serious problems and difficulties.

On the fiscal front, the potential for increasing revenue exists together with factors that may cause revenue to decline. The divergence between regions in terms of revenue growth will continue. Pressure is mounting from demands for spending in key areas and on inflexible items. The imbalance between revenue and expenditure remains serious. All levels of government must tighten their belts, act as advocates for hard work, plain living, and thrift, and use more financial resources on things that bring tangible benefits to the people.

1.The thinking and principles guiding the preparation of the 2017 budgets and public finance work

Given the fiscal and economic situations we face, the thinking guiding the compilation of this year's budgets and public finance work is that we need to:

-- Follow the leadership of the Party Central Committee with Xi Jinping at its core

-- Uphold the great banner of socialism with Chinese characteristics

-- Put into practice the guiding principles from the 18th National Party Congress and the third through sixth plenary sessions of the 18th Party Central Committee

-- Follow the guidance of the Deng Xiaoping Theory, the Theory of Three Represents and the Theory of Sustainable and Balanced Development

-- Put into effect the guiding principles from President Xi Jinping's major policy addresses and his new concepts, thoughts, and strategies related to the governance of China

-- Move ahead with the plan for promoting balanced economic, political, cultural, social, and ecological progress

-- Implement the Four-Pronged Comprehensive Strategy*

-- Continue to make progress while working to keep performance stable

-- Embrace and apply China's new development philosophy

-- Understand, adapt to, and guide the new normal in economic development

-- Concentrate on raising the quality and efficiency of growth

-- Ensure that macro-level policy maintains economic stability, industrial policy is targeted, micro-level policy injects dynamism into the economy, reform policy delivers results, and social policy sees that basic needs are met

-- Focus on advancing supply-side structural reform

-- See that aggregate demand is appropriately expanded

-- Strengthen guidance over expectations

-- Ensure that development is more driven by innovation

-- Make fiscal policy more proactive and effective

-- Channel serious energy into cutting taxes and fees

-- Continue the reform of our fiscal and tax systems

-- Work hard to create a modern public finance system

-- Tighten our belts

-- Step up efforts to improve and integrate government expenditures, ensuring spending in key areas

-- See dormant budgetary funds put to good use

-- Use government funds to greater effect

-- Strictly implement the Budget Law

-- Raise capacity for legal compliance in the management of public finance

-- Strengthen management over local government debt

-- Prevent and defuse fiscal risks

-- Promote steady and healthy economic growth and social harmony and stability

This should ensure that we greet the 19th National Party Congress with brilliant achievements.

In line with this thinking, we make sure the following principles underpin our preparation of the 2017 budgets:

First, cutting taxes and fees

We should continue to implement and improve policies aimed at reducing taxes and fees -including the replacement of business tax with VAT- and introduce new measures to cut taxes and fees, further reducing the burden of businesses and making sure tax and fee cuts have positive effects on economic and social development.

Second, continuing the reform of our fiscal and tax systems

With a view to creating a modern public finance system, we should move faster to improve the way fiscal powers and expenditure responsibilities are shared between the central and local governments, appropriately determine how they share revenue, work on improving local tax systems, and work to establish fiscal and tax systems whereby the powers, responsibilities, and interests of the central and local governments are clearly defined so that full play is given to the initiative of both.

Third, continuing to adjust and improve our spending structure

On the basis of appropriate expenditure increases, we should work toward stopping spending on some items from constantly increasing and make a big push to cut general expenditures so that our limited funds are used for our priorities. We need to better meet the demands of moving ahead with supply-side structural reform and meeting the basic needs of the people.

Fourth, putting idle budgetary funds to use

We should be integrating special funds that share similar policy goals, investment directions, and modes of management, and transfer more funds from budgets for government-managed funds and state capital operations into general public budgets.

Fifth, guarding against and defusing fiscal risks

We need to keep the deficit-to-GDP ratio at a reasonable level, work to impose ceilings on government debt and bring it under budgetary management, and improve mechanisms for local governments to secure financing and respond to debt-related risk emergencies. We need to give stronger financial support to regions with extremely tough conditions and administrative areas at the provincial level facing particular difficulties to ensure steady operations in their public finance.(more)

*To make comprehensive moves to finish building a moderately prosperous society in all respects, deepen reform, advance the law-based governance of China, and strengthen Party self-governance.