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

The policy on income distribution was further revised and great efforts were made to pay overdue wages to employees of local government departments. The state has been appropriately revising its policy on income distribution over the past few years, resulting in increases in the wages and salaries of employees in government departments and institutions year after year and in social security benefits. Some county and township governments, however, failed to pay all the wages owed to their employees on time during implementation of the state policy on wage readjustment. According to statistics submitted by local authorities, by the end of 2001 a total of 6.5 billion yuan, or 1. 8 percent of the wages payable during the year as prescribed in accordance with the national unified wage policy, had not been paid to their employees. Wages fall in arrears mainly in county and township governments in the central and western regions. In light of their local financial resources as a whole, their total revenue has been growing fairly rapidly in recent years. In 2001, it came to 779.3 billion yuan, an increase of 138.7 billion yuan over that of the previous year. However, increases in revenue and in transfer payments from provincial budgets to governments at lower levels have been uneven between regions and the number of government-paid employees has increased rapidly. Although local financial departments have made great efforts to solve the problem of overdue wages, it is still hard to ensure that wages are paid in full and on time in some counties and townships. Over the past few years, transfer payments from the central budget to local budgets have been increased by a large margin. The central government's expenditures in the form of subsidies for local authorities rose from 332.1 billion yuan in 1998 to 601.5 billion yuan in 2001, an average annual increase of 21.9 percent. This rate of increase is 5.2 percentage points higher than the average annual growth rate of expenditures in the central budget. A total of 89.2 billion yuan in transfer payments used exclusively for wages was included in the central budget for 2001 despite great pressure to increase expenditures in many other areas. To help county and township governments in underdeveloped areas of the central and western regions to overcome difficulties in meeting their payroll demands, the central budget has provided most or all of the funding needed to implement the state policy on readjustment of income distribution in these areas since 1999. With the exception of nine coastal provinces and municipalities directly under the central government, the other 22 provinces, autonomous regions and municipalities directly under the central government have begun increasing the wages of employees in government departments and institutions with funds from the central budget according to a relevant policy adopted in October 2001. In addition, 5 billion yuan of the working capital from the central budget has been earmarked every year to solve the problem of seasonal occurrence of overdue wages in major grain-producing provinces.

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

Social security expenditures continued to increase and the social security system was gradually improved. In recent years, expenditures in the central budget for social security programs have increased considerably to implement policy decisions made by the Party Central Committee. Expenditures in the central budget for social security programs in 2001 totaled 98.2 billion yuan, 5. 18 times the figure for 1998. This figure includes 34.9 billion yuan to subsidize the old-age insurance fund, 13.6 billion yuan for subsidies to provide basic living allowances for laid-off workers from state-owned enterprises, 2.3 billion yuan for subsistence allowances for urban residents, 31 billion yuan to replenish the national social security fund and 8.4 billion yuan for benefits for some disabled servicemen and family members of revolutionary martyrs and for social welfare and relief funds. In addition to providing more funding for social security programs, a special social security account has been set up in the budget to provide extra funding for special purposes. Liaoning and other provinces are prudently promoting experimentation with the reform to improve the social security system. According to statistics, as of the end of 2001, over 47 million persons received social security subsidies from the central budget. In addition, a fund of 13.5 billion yuan to subsidize the shutdown and bankruptcy of enterprises was earmarked in the central budget for 2001 to help phase out outmoded industrial production capacity and reduce surplus production capacity. This fund was also used to support the shutdown and bankruptcy of enterprises according to the law and ensure the placement of laid-off employees and social stability.

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

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

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

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. (more)

(Xinhua News Agency March 18, 2002)