Reporting on the Implementation of the Central and Local Budgets for 2001 and on the Draft Central and Local Budgets for 2002 to the current session of the Ninth National People's Congress here Wednesday, the finance minister said that the reform is of great and far-reaching political, economic and social significance.

He listed the following measures for carrying the reform into depth according to the general requirements for 2002:

-- The extra-budgetary funds collected by five government departments, namely, 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 to the central treasury in full.

Their expenditures will be fixed through consultation with these departments according to the actual needs for performing their duties.

-- The extra-budgetary funds of 28 other central government departments will be subject to management by declining receipts and expenditure, with the extra-budgetary receipts entering into special accounts, and all the departments are required to make a unified arrangements for annual expenditure and compile their comprehensive financial budgets according to the prescribed comprehensive standards.

-- To reform the current system of collecting and turning over extra-budgetary funds, subjecting collection and turnover to separate management. No department will be allowed to collect the money and spend it all by itself.

-- To change the practice of revenue collection and management departments to tie their overhead expenses to revenue collection and introduce the budget system.

-- To further standardize and promote the reform of separating the management of revenues and expenditures in localities.

The reform of budgetary management is of great importance in standardizing financial management, improving the efficiency of the use of fiscal funds, standardizing the government behavior, and in preventing and controlling corruption from the roots and institutionally, the finance minister said.

In 2002, he noted, the central finance will expand the scope of direct payments and increase the number of units for experimenting in the reform to about 40 from 6 in 2001.

In addition, the ministry will experiment with the reform of the receipts collection and turn-over system and standardize the methods of collecting and turning over such receipts, institute the government procurement system and expand the scope of goods subject to government procurement and tighten procurement management and supervision and standardize its procedures. All departments covered by the central budget are required to prepare their own budgets on government procurement.

Beginning from January 1 this year, the finance minister said, the central and local finances began to share the revenues from income tax of most of the enterprises and all personal income tax according to a fixed ratio.

The year 2001 will be taken as the base for the reform. Revenues below the base figure will be retained by local finances in order to protect their reasonable immediate interests.

All income tax revenues above the base figure in 2001 will be shared 50-50 between the central and local finances. The ratio for 2003 will be sixty-forty. The ratio for 2003 onward will be determined separately in the light of actual conditions.

Additional income tax revenue due to the central finance will entirely be used as transfer payments to localities, chiefly the central and western parts of the country. The reform of the method of sharing income tax revenues is another major reform in the financial management system following the revenue-sharing system reform introduced in 1994 and an important policy decision taken by the central authorities by taking into full consideration China 's political, economic and social development. It represents a major measure to ensure inter-regional support and coordinated development, achieve common prosperity and reflect the superiority of the socialist system.

The government 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, the government will further improve the financial system below the provincial level, increase transfer payments from provincial budgets to governments at lower levels and help them overcome their financial difficulties.

The official stressed that the problems of falsified vouchers, compiling false financial statements, producing false reports and providing false accounting information are still quite serious at present, gravely disrupting the normal economic order.

He called for further efforts to tighten accounting work and resolutely deal with acts of falsifying accounts.

He urged efforts to further improve the accounting system and associated laws and regulations according to WTO rules, strengthen regulation of accounting operations and financial affairs, tighten oversight of certified public accountants firms and severely punish their malpractice.

China's economic and social development is in for a crucial period, Xiang said. China's economy is not developed enough; the people's standards of living is not high; there are still financial difficulties; and there are many things of major important and urgency to be accomplished.

However, there is still a great deal of extravagance and waste in production, construction and consumption, he noted.

The finance minister urged the financial departments to take the lead and set a good example in working hard and living simply and to come down severely on acts of squandering money in violation of the regulations so as to reduce financial losses and waste to the minimum.

(People's Daily March 6, 2002)