Following is the full text of the Report on the Implementation of the Central and Local Budgets for 2003 and on the Draft Central and Local Budgets for 2004, delivered at the Second Session of the 10th National People's Congress on March 6, 2004.

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2003 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2004

By Jin Renqing, Minister of Finance

I. Implementation of the Central and Local Budgets for 2003

II. The Draft Central and Local Budgets for 2004

III. Working Diligently to Ensure Satisfactory Implementation of the 2004 Budgets

Fellow Deputies,

The State Council has entrusted me to report to this session on the implementation of the central and local budgets for 2003 and on the draft central and local budgets for 2004. I'm presenting this report to you for your examination and approval and also for comments and suggestions from members of the National Committee of the Chinese People's Political Consultative Conference.

I. Implementation of the Central and Local Budgets for 2003

The year 2003 was an unusual year. In the face of a complex and volatile international situation, the unexpected outbreak of the severe acute respiratory syndrome (SARS) and frequent natural disasters, the Party Central Committee and the State Council responded confidently with resolute decisions. All local authorities and government departments worked hard with one heart and one mind to conscientiously implement the principles and policies formulated by the central authorities and meet the requirements for financial and economic work set at the First Session of the Tenth National People's Congress (NPC). There was continued good momentum in economic and social development and the central and local budgets were implemented fairly well.

National revenue exceeded 2 trillion yuan in 2003 for the first time to reach 2.1691 trillion yuan (excluding revenue from generation of debt, both here and below). This was 278.7 billion yuan or 14.7 percent more than the previous year and 105.8 percent of the budgeted figure.

National expenditures totaled 2.4607 trillion yuan, an increase of 255.4 billion yuan or 11.6 percent year-on-year and 103.8 percent of the budgeted figure. Expenditures exceeded revenue by 291.6 billion yuan.

Total revenue in the central budget amounted to 1.2465 trillion yuan (after allowing for the additional 82.9 billion yuan used in export tax rebates), up 109.3 billion yuan or 9.6 percent over the previous year and 104.4 percent of the budgeted figure.

Total expenditures in the central budget came to 1.5663 trillion yuan (including 824 billion yuan in tax rebates and subsidies for local authorities), 119.5 billion yuan or 8.3 percent more than the previous year and 103.5 percent of the budgeted figure.

The deficit in the central budget was held to 319.8 billion yuan as approved at the First Session of the Tenth NPC.

Total revenue in local budgets amounted to 1.8082 trillion yuan (including tax rebates and subsidies granted by the central government), an increase of 221.5 billion yuan or 14 percent year-on-year and 105.7 percent of the budgeted figure.

Total expenditures in local budgets came to 1.78 trillion yuan (including 61.5 billion yuan turned over to the central government), 188 billion yuan or 11.8 percent more than the previous year and 104.1 percent of the budgeted figure. Local revenue exceeded expenditures by 28. 2 billion yuan which was to be used in the following year.

These figures may change a little when the consolidated final accounts are made.

The main characteristics of the implementation of the central budget and the financial work in 2003 are as follows.

1. Revenue continued to grow fairly fast.

The national economy got off to a good start in 2003, but was later affected by the SARS outbreak and natural disasters such as droughts, floods and earthquakes. Economic growth slowed down for some time and a rather large drop in revenue growth occurred in the second quarter.

In response to these changes, authorities of finance and tax and the Customs at all levels energetically implemented the principle set by the Party Central Committee and the State Council that called for unrelenting efforts to prevent and control SARS while unswervingly promoting economic development. They promptly tightened revenue supervision and regulation and strengthened tax collection and management in accordance with the law.

Thanks to a rapid recovery and development of the national economy, national revenue growth maintained a good momentum. First, there was strong growth in domestic demand and imports, which resulted in the following year-on-year revenue increase: domestic value-added tax (VAT) increased by 105.4 billion yuan or 17.1 percent; consumption tax, by 13.4 billion yuan or 12.8 percent; business tax, by 39.2 billion yuan or 16 percent; and import duties, by 111.1 billion yuan or 42.9 percent. Second, the quality of economic growth was raised and the economic performance of enterprises noticeably improved.

Corporate income tax rose by 39.9 billion yuan, or 15.9 percent over the previous year when calculated in comparable terms. Third, personal incomes continued to grow, leading to a year-on-year increase of 20.5 billion yuan or 16.9 percent in individual income tax, and 11.9 billion yuan or 34.2 percent in vehicle purchase tax.

Total central government revenue in 2003 exceeded the projected figure by 52.4 billion yuan (after allowing for an additional 82.9 billion yuan used in export tax rebates during the implementation of the budget).

This surplus included 7.8 billion yuan from increased vehicle purchase tax, which was incorporated into the calculation of revenue and expenditures in the central budget and was funded for special purposes according to the relevant regulations.

Another 7.8 billion yuan was used to increase tax rebates and general transfer payments to local governments in accordance with the relevant institutional rules.

The final 36.8 billion yuan was used during the year mainly for combating disasters and providing disaster relief, developing education, health, and science and technology, supporting enterprise reforms, improving social security, and upgrading the ecological environment. The State Council has reported all this to the NPC Standing Committee.

The revenue in excess of the projected figures in local budgets was used by local authorities mainly to increase expenditures for education, science and technology, culture and health and to pay overdue wages and salaries.

2. Finance played a greater role in macro-control and in safeguarding the economy.

The government continued to follow the proactive fiscal policy to promote sustained and rapid growth of the national economy. Treasury bonds issued to finance projects totaled 140 billion yuan. While exercising strict management over these funds, we improved the orientation and structure of their use by giving preference to rural areas, economic restructuring, the central and western regions, science and technology, education, improvement of the ecological environment and public health services.

Transfer payments were increased to promote balanced development among different regions. General transfer payments from the central budget to local governments in 2003 totaled 191.2 billion yuan, 17. 9 percent more than the previous year. Special transfer payments earmarked for social security, agriculture, science and technology, education, health and poverty alleviation amounted to 257.7 billion yuan, up 7.3 percent year-on-year.

In response to the State Council's directive to improve fiscal systems at and below the provincial level, local governments continued to strengthen the abilities of primary-level financial authorities to provide adequate financial resources. To appropriately increase the incomes of employees in government departments and institutions, we steadily implemented the policy of adjusting the wages and salaries of their employees and the pensions of their retirees.

The central authorities showed great concern for people's lives and enterprises' production and operations following the outbreak of SARS. First, 2 billion yuan was appropriated from the central budget to set up the Anti-SARS Fund, and a policy was clearly stipulated to provide free SARS treatment for rural and impoverished urban patients. This played a vital role in effectively curbing the spread of the outbreak, particularly to the countryside. Financial authorities at all levels allocated a total of 13.6 billion yuan for SARS prevention and treatment, including 2.8 billion yuan from the central budget. The central government appropriated an additional 1 billion yuan to improve the public health system in the second half of the year.

Second, we promptly introduced a range of preferential fiscal and tax policies to aid industries hard hit by the SARS outbreak, such as tourism, food and beverage service, civil aviation, railways, hotels and taxis, so that they could tide over difficulties to resume normal operations as soon as possible. Although the above- mentioned measures increased expenditures and reduced revenue, they protected the health of the people, ensured the normal operations of enterprises and promoted economic and social development.

3. New steps were taken to solve the problems facing agriculture, rural areas and farmers.

First, overall progress was made in the trial reform of rural taxes and administrative charges. The trial was extended from 20 provinces to the whole country, reducing the burden on farmers by over 30 percent on average. The central government earmarked a total of 30.5 billion yuan in 2003 to support this reform. Financial authorities at provincial level, as well as those at the city and county levels with adequate resources, also provided some funds to support the reform.

Second, we accelerated the pace of repealing the tax on special agricultural products on a trial basis. The tax was by and large rescinded in a dozen provinces and municipalities directly under the central government, including Beijing, Fujian, Guangdong, Jiangsu, Zhejiang, Anhui, Sichuan, Henan, Shanghai and Tianjin.

Third, the trial of providing subsidies directly to grain producers was implemented in the provinces of Anhui, Jilin, Hunan, Hubei, Henan, Liaoning, Hebei and Jiangxi and in the Inner Mongolia Autonomous Region. The trial promoted the reform of grain enterprises, and also won the heartfelt support of farmers in trial areas and boosted their enthusiasm for grain production.

Fourth, we implemented the policies of reducing or exempting agricultural taxes for crop failures due to natural disasters and of compensating areas designated for flood storage and retention. Funds were promptly appropriated to combat natural disasters and provide disaster relief. The central government allocated 10.8 billion yuan in 2003 to help various localities combat natural disasters, provide disaster relief and fund reconstruction after disasters, and 167 million people in disaster-afflicted areas received timely government relief.

Fifth, we vigorously pressed forward with agricultural restructuring to help farmers increase their incomes. In 2003, the central government allocated 44 billion yuan, a year-on-year increase of 13.9 percent, to support progress in agricultural science and technology, develop the quality and safety system for agricultural products, fund comprehensive agricultural development and promote development- oriented programs for alleviating rural poverty.

Sixth, the central government increased expenditures by 6.7 billion yuan on education, health and culture. They mainly went to rural areas to promote the development of social undertakings there.

4. More support was provided for work related to employment and social security.

First, greater support was given to work related to employment and reemployment. The scope and duration of preferential fiscal and tax policies to increase reemployment were extended, and laid- off workers who were reemployed were exempted from 17 administrative and institutional charges. A special fund of 4.7 billion yuan was established in the central budget for transfer payments to support reemployment programs, which resulted in the targets for employment and reemployment being exceeded.

Second, efforts were stepped up to ensure that living allowances for workers laid off from state-owned enterprises and basic old-age pensions for retirees from the same enterprises are both paid on time and in full and that low-income urban residents receive their subsistence allowances. The central government allotted 60.8 billion yuan to guarantee the payment of living allowances and basic old-age pensions, 13.1 percent more than the previous year, and 9.2 billion yuan to help pay subsistence allowances, double the sum for 2002.

These measures basically ensured that workers laid off or retired from state-owned enterprises received their living allowances or basic old-age pensions on time and in full and enabled 22.35 million low-income urban residents to receive subsistence allowances from the government.

Third, more work was done to help some people with special difficulties overcome problems in their production and lives. The central government began making annual allocation of 1.5 billion yuan in 2003 for a special fund to help local authorities solve problems in people's lives, especially ex-serviceman working in some enterprises. We again raised the allowances for those entitled to special government care and preferential treatment.

Fourth, we solved the longstanding problem of obligating relevant authorities to provide old-age insurance for employees of land reclamation enterprises. For this purpose, the central government allocated 730 million yuan in subsidies to the central and western regions and the land reclamation zones under its jurisdiction (it will allocate the same amount for the same purpose in 2004).

5. Investment in social undertakings increased significantly.

A total of 85.5 billion yuan was spent from the central budget on education, health, science and technology, culture and sports, 9.4 billion yuan or 12.4 percent more than the previous year. This solved a number of outstanding problems in the development of social undertakings. A special investment of 2 billion yuan was made to continue the renovation of dangerous primary and secondary school buildings in rural areas. We will continue working hard to basically eliminate this problem in around three years.

We energetically supported the reforms of the basic medical insurance system for urban employees, the systems for medical care and health service and for pharmaceutical production and distribution. We strongly supported improvement of the disease prevention and control networks and medical treatment systems for public health emergencies at the provincial, prefectural and county levels, and also strongly supported the pilot programs to set up a new type of rural cooperative medical care and health service system in the central and western regions.

More was invested in key areas and projects of science and technology. Two billion yuan was allocated for the State Natural Sciences Fund, 800 million yuan for key state basic research programs, 4.5 billion yuan for the state's March 1986 Hi-tech Program, and 3.3 billion yuan for the knowledge innovation pilot program of the Chinese Academy of Sciences. These efforts produced a large number of major scientific advances and promoted the development of science and technology.

The program to send books to the countryside, national programs to share cultural information and produce fine stage productions and other cultural programs were launched. A special fund was set up to ensure medical care and health service and other benefits for veteran athletes and coaches. All this promoted the development of culture and sports.

6. The plan for reforming the export tax rebate mechanism was smoothly introduced.

The Ministry of Finance worked with commerce, taxation and other government departments concerned to study the problem of unpaid export tax rebates in 2003, and proposed reasonable, effective measures to tackle the problem at its root.

The Party Central Committee and the State Council resolutely formulated the principle of "preventing new arrears, clearing up old arrears, improving the mechanism, sharing the financial burden, accelerating reform and intensifying development" to reform the export tax rebate mechanism. They adopted five clear-cut policies in this regard.

First, we will restructure export rebate rates, retaining some of them while lowering others, with an average reduction of around 3 percentage points.

Second, total export tax rebates verified for 2003 will be taken as the base figure, and payment for the portion of export tax rebates that exceed the base figure, if any, will be shared by the central and local governments at a ratio of 75:25 beginning in 2004.

Third, any increase in the VAT and consumption tax on imports collected by the central government will be used first to pay export tax rebates.

Fourth, the central government will pay the full sum of the aggregate arrears in export tax rebates due to enterprises before the end of 2003.

Fifth, the reform of the foreign trade system will be accelerated. The portion of the VAT and consumption tax on imports collected by the central government in 2003 that exceeded the pre-set targets, totaling 82.9 billion yuan, has all been used to pay export tax rebates.

7. Reform of the budget management system was further deepened.

First, we continued to deepen the reform to separate the management of revenue from the management of expenditures. We brought 118 administrative charges collected by 30 government departments and institutions, which included the former Ministry of Foreign Trade and Economic Cooperation and the Ministry of Personnel, under budgetary control.

Second, the reform was further deepened to introduce departmental budgets by requiring more departments to submit increasingly standardized budgets to the NPC. Trial reforms to set the level of basic expenditures and fix the allowed number of employees and funding were extended to 118 more secondary institutions under the central government.

Third, we intensified the reform to introduce the system of centralized treasury revenue and payments, expanding the trial implementation of the system of centralized treasury payments from the 42 central departments of 2002 to 82 in 2003.

Fourth, the scope of government procurement continued to expand, with total government procurement exceeding 150 billion yuan in 2003, 50 billion yuan more than the previous year.

Fifth, we further tightened the supervision and auditing of budgetary funds and funds amounting to 61.2 billion yuan were verified in 2003 as being obtained through acts that violated financial regulations and discipline. Deepened reform of the budget management system and tightened financial supervision made budgetary funds safer and their use more standardized and effective.

Fellow Deputies,

In general, we met with more difficulties than we had anticipated in implementing the 2003 budgets. The results, however, were better than we had expected. But we are clearly aware that there are still problems we cannot afford to ignore in implementing the budgets.

First, revenue is seriously stretched to meet expenditures and the problem is so severe that we lack the financial resources to do many things that need to be done.

Second, potential risks arising in the course of economic development constantly impinge on budget implementation. It is hence very difficult for us to prevent and defuse financial risks.

Third, the pattern of expenditures still needs to be adjusted and we do not yet give more financial support to the development of social undertakings. In some regions, especially in rural areas, people still do not have adequate access to schools, doctors, potable water and transportation.

Fourth, primary-level authorities in some areas still have financial difficulties, as is manifested in delayed wage payments there.

Fifth, falsification of accounts, tax evasion and fraud, and extravagance and waste remain serious problems. The financial and economic order has yet to be further standardized, and budgetary funds have to be used more efficiently.

We must deal with these problems conscientiously and solve them step by step by increasing our sense of urgency and mission, enhancing our sense of responsibility when handling financial affairs in the interest of our people, accelerating the development of the public finance system and working energetically to improve the socialist market economy.

II. The Draft Central and Local Budgets for 2004

The general guiding principles for formulating the budgets and arranging financial work for 2004 are as follows.

We should take Deng Xiaoping Theory and the important thought of Three Represents as the guide, and thoroughly implement the guidelines of the Sixteenth National Congress of the Party, the Third Plenary Session of its Sixteenth Central Committee and the Central Conference on Economic Work.

We should firmly establish a scientific approach for achieving all-round, well-balanced and sustainable development of the economy; properly balance reform, development and stability and do a better job of coordinating development in five areas (urban and rural development; development among different regions; economic and social development; development of man and nature; and domestic development and opening up to the outside world).

We should continue implementing the proactive fiscal policy, effectively strengthen macro-control, deepen the fiscal and taxation reforms, improve the public finance system, and further promote institutional innovation.

We should work hard to increase revenue and reduce expenditures, focus on solving outstanding problems in economic and social development, and constantly improve people's material and cultural lives and their health.

The major budgetary targets for 2004 are as follows:

Total revenue in the central budget is 1.3819 trillion yuan, an increase of 90.7 billion yuan or 7 percent over 2003 (The performance figure of 2003 has been adjusted using comparable terms.). Expenditures in the central budget total 1.7017 trillion yuan, a rise of 90.7 billion yuan or 5.6 percent. Expenditures exceed revenue in the central budget, leaving a deficit of 319.8 billion yuan.

Although the 2004 budget deficit is the same as for 2003, it drops to 2.5 percent of the GDP, or 0.4 percentage points less than the 2.9 percent for 2003.

The central budget funds for bond-financed projects in 2004 total 110 billion yuan, 30 billion yuan less than last year. This total includes 95 billion yuan listed in the central budget and 15 billion yuan to be issued by the central government for local governments. In addition, allocations from the central budget for investment in regular construction projects increases by 5 billion yuan.

The value of treasury bonds to be issued in 2004 totals 702. 2 billion yuan, which breaks down into 367.4 billion yuan to be used by the central government to repay the principal on domestic and foreign debts due in 2004, 319.8 billion yuan to cover this year's deficit, and 15 billion yuan worth of bonds issued by the central government for local governments.

Total revenue in the draft central and local budgets for 2004 is 2.357 trillion yuan, 187.9 billion yuan or 8.7 percent more than in 2003. Total expenditures in the draft central and local budgets amount to 2.6768 trillion yuan, an increase of 216.1 billion yuan or 8.8 percent.

The deficit in the central budget for 2004 remains the same as in 2003. Here are the main factors contributing to this decision.

Uncertainties exist in global economic development. The foundation for sustained growth of the Chinese economy is not yet solid enough. Follow-up investment in ongoing bond-financed projects is needed. There are a large number of accounts in arrears in certain areas of social development.

Keeping our proactive fiscal policy stable and consistent while working to improve it will help protect, consolidate and increase the current good momentum in economic development, increase everyone's confidence in accelerated development and stabilize overall reform and development.

In addition, as sources of investment become more diversified and nongovernmental investment keeps increasing, efforts to appropriately reduce the funding for bond-financed projects and further improve the structure of bond fund utilization will help us improve the guidance and utilization of nongovernmental investment and release more financial resources to support institutional innovations such as the reform of the tax system.

In using funds for bond-financed projects, we will give priorities to the following areas. We will develop rural infrastructure, public health, elementary education, primary-level governments, and infrastructure for people's courts and public security, procuratorial and judicial organs. We will support the development of the western region and the restructuring and transformation of northeast China and other old industrial bases. We will strengthen ecological conservation and environmental protection. We will accelerate the construction of major water control projects such as the project to harness the Huaihe River, and ensure the development of bond-funded projects that are under construction, especially such major projects as the Qinghai-Tibet railway line, the south-to-north water diversion and the west-to- east electricity transmission.

The projected revenue growth for the whole country in 2004 is slightly higher than the expected economic growth. Here are the main factors contributing to this decision. On the one hand, the sustained, rapid growth of the national economy and improved tax collection and management will lay a solid foundation for revenue growth.

On the other hand, we will continue implementing or introducing a range of preferential fiscal and tax policies in 2004 to promote all-round, balanced and sustainable economic and social development, support restructuring efforts and safeguard social stability. We will further reduce the overall tariff level, increase the quotas for export tax rebates, and implement policies to support employment and reemployment, develop the western region, reinvigorate northeast China and other old industrial bases, encourage the development of new and high technology industries and reduce the burden on farmers.

These policies will reduce revenue. In addition, the base figure for revenue growth keeps increasing and has been higher than the rate of economic growth for many years in succession. All this, plus possible difficulties in keeping imports growing at a rate as high as for 2003, will make it even harder for us to increase revenue significantly. Therefore, the revenue projected for 2004 is proactive, sound and realistic.

Expenditures in the central budget for 2004 will give priority to the following areas:

1. Investment will be increased for agriculture, rural areas and farmers.

We must establish a mechanism that will effectively ensure a sustained increase in farmers' incomes for a long time to come and a mechanism for guaranteeing a steady increase in the budgetary funds for supporting agriculture and work hard to address the problems facing agriculture, rural areas and farmers; this is an important part of our financial work. Once again, investment has been substantially increased in the 2004 central budget to address these problems, with total expenditures increasing by around 30 billion yuan, or 20 percent over last year.

First, the reform of rural taxes and administrative charges will be deepened and the agricultural tax system will be improved. Except for tobacco, the tax on special agricultural products will be rescinded in 2004 and the overall agricultural tax rate will be reduced by over 1 percentage point, with a greater reduction for major grain producing areas and grain producers. This may reduce the burden on farmers by as much as 11.8 billion yuan. Agricultural taxes will be rescinded in five years.

In light of the specific difficulties in local budgets, the central government will provide appropriate transfer payments to offset revenue decreases in local budgets, especially in budgets of major grain producing areas and the central and western regions, brought about by eliminating the tax on agricultural specialty products and decreasing the agricultural tax rate.

Funds totaling 39.6 billion yuan in the form of transfer payments from the 2004 central budget will be set aside for the reform of taxes and administrative charges in rural areas, a year- on-year increase of 9.1 billion yuan. In addition, more support will be given for efforts to reduce rural debts, promote institutional reforms in town and township governments and improve the system of compulsory education in rural areas.

Second, we will promote the reform of the system of grain distribution to make it more commercial. We will give subsidies directly to grain producers in the major grain producing areas instead of subsidizing them indirectly through grain distribution links. Ten billion yuan from the grain risk fund will be given directly to grain producers in 13 major grain producing provinces in 2004.

Third, more budgetary funds will be used to develop agricultural infrastructure, develop forests for ecological conservation, make advances in agricultural science and technology, train farmers, develop the system of quality and safety standards for agricultural products, expand overall grain production capacity, provide relief for agricultural disasters and fight poverty.

2. Investment will be increased for employment work and social se curity.

Employment and social security affect the vital interests of the people, the stability of society and the country's overall development. More support will be given to employment work and social security in the 2004 central budget.

First, employment and reemployment work will be strongly supported. While conscientiously carrying out the preferential fiscal and tax policies formulated by the central authorities to promote employment and reemployment, we plan to increase reemployment assistance funds by 3.6 billion yuan, 76.6 percent more than last year.

Second, we will energetically support efforts to guarantee that living allowances for workers laid off from state-owned enterprises and basic old-age pensions for retirees from these enterprises are paid on time and in full and ensure that low- income urban residents receive their subsistence allowances. To achieve these goals, we plan to allocate 77.9 billion yuan from the 2004 central budget.

In addition, we will continue to improve the social security system and raise funds for social security through diversified channels. We will better coordinate the implementation of the reemployment policy and social security programs, including the "three-stage guarantee" for laid-off workers. On the basis of a review of the pilot program to improve urban social security systems in Liaoning Province, we will improve its contents and methods and extend it to Jilin and Heilongjiang provinces.

Third, in order to promote economic restructuring, a number of enterprises will be closed down or declared bankrupt in accordance with the law. We will work harder to free enterprises from the obligation to operate social programs and allocate 17 billion yuan in subsidies for enterprises that close or go bankrupt. We will also provide active support and assistance to people having special difficulties.

3. Investment will be increased for education, health, science and technology, culture and sports.

We will improve compulsory education, especially in rural areas. We will accelerate the program to basically make nine-year compulsory education available throughout the western region and basically eliminate illiteracy among young and middle-aged people there.

We will improve the system under which most responsibility for managing rural compulsory education goes to county governments, increase transfer payments to support compulsory education in poor counties, continue to carry out the second phase of the program to renovate dangerous primary and secondary school buildings in rural areas and the program to promote modern distance education, and distribute free textbooks in more areas.

We will speed up the development of systems for disease prevention and control and for medical treatment in public health emergencies, raise the level of public health services and our ability to cope with public health emergencies, and improve medical and sanitation conditions in the countryside.

We will support efforts to successfully carry out trials to develop a new type of system for rural cooperative medical care and health services. We will support the development of a state system for scientific and technological innovation and the formulation of the state medium- and long-range plan for developing science and technology.

We will facilitate reform of the management system of science and technology, and promote innovation in mechanisms and the implementation of key science and technology projects and the application of scientific results in production.

We will vigorously develop undertakings in advanced culture and develop culture-related industries. We plan to allocate 95.5 billion yuan from the 2004 central budget for education, health, science and technology, culture and sports, a year-on-year increase of 10 billion yuan, giving priority mainly to rural areas.

4. Transfer payments to local governments will be increased. The central government will again increase transfer payments to local governments in 2004, especially to governments in the central and western regions. In addition to 427.7 billion yuan in tax rebates and structural subsidies, the central government plans to grant local governments 513.3 billion yuan in transfer payments, an increase of 64.4 billion yuan over last year in comparable terms. Of this amount, 223.8 billion yuan will come in the form of general transfer payments, a rise of 32.6 billion yuan compared to last year.

In addition, a special task force will be organized to thoroughly investigate and study the causes of financial difficulties at the lower levels of government, and propose specific measures to eliminate them as soon as possible on a type- by-type and step-by-step basis.

5. Support will be given to promote the reform of the tax and other systems.

First, we must ensure that reform in the mechanism of export tax rebates is carried out smoothly. The target for export tax rebates set in the 2004 central budget is 210.8 billion yuan, and revenue from the increase in the VAT and the consumption tax on imported goods will be used first to pay export tax rebates.

Local governments also need to set adequate targets for export tax rebates. Financial and taxation authorities at all levels must closely watch for any new developments and problems that may arise and promptly take appropriate steps to better manage export tax rebates to avoid the reoccurrence of arrears. The central government will first pay the interest on the amount of export tax rebates in arrears accumulated over the years before formulating measures to fundamentally eliminate them.

Second, we will actively and appropriately work to change the "production VAT" to a " consumption VAT." We will work conscientiously to ensure success in the trials of this change currently under way in some industries in northeast China. The results of these trials will be promptly analyzed to improve the plan for the change and create the conditions for carrying it out throughout the country.

Third, we will accelerate the formulation of policies and plans to make the corporate income tax the same for both Chinese and foreign enterprises and to reform other tax systems.

Fourth, we will support the reform of the financial system to prevent and reduce financial risks, focusing on introducing a shareholding system in the Bank of China and the China Construction Bank and increasing subsidies for losses incurred by rural credit cooperatives due to inflation-proof deposits.

Fifth, we will support reforms in the investment system and in power, telecommunications, civil aviation, railways, postal service and urban public utilities.

6. We will guarantee normal operation of governments at all levels.

In order to strengthen government authority and ensure that government employees are paid on time and in full, we plan to allocate an extra 11.8 billion yuan to cover pay raises for employees of government organs and institutions. We will allocate an extra 3 billion yuan to increase benefits for retired army officers who are taken care of by governments at all levels and to cover the additional expenses resulting from policy changes involving those entitled to special government care and preferential treatment. An additional 1.58 billion yuan in subsidies will be allocated from the central budget to people's courts and local public security, procuratorial and judicial organs.

Expenditures for national defense will rise by 21.83 billion yuan, 11.6 percent more than last year, in order to improve the defensive combat readiness of the armed forces under hi-tech conditions and to raise the salaries of army personnel and the pensions for ex-servicemen.

In addition, we must work hard to ensure adequate funding for other expenditures that have a direct overall bearing on reform, development and stability.

III. Working Diligently to Ensure Satisfactory Implementation of the 2004 Budgets

Success in the financial work and satisfactory implementation of the budgets for 2004 are essential to deepening reform, opening wider to the outside world and promoting development. To attain this goal, we will concentrate on the following tasks.

1. We will strengthen revenue collection and management in accordance with the law to ensure steady revenue growth.

First, we will resolutely safeguard the uniformity, authority and sanctity of tax laws. We will resolutely stop introduction of unauthorized preferential taxation treatment or preferential tax policies in disguised forms. Collection of taxes must be promptly resumed when any preferential tax policy expires.

Second, we will tighten tax collection and management in accordance with the law. We will severely crack down on smuggling, tax evasion and fraud and all other tax-related crime. We will ensure that taxes are collected in accordance with the law and that all taxes due are collected without exception. On the other hand, we will on no account collect taxes that are not yet owed.

Third, we will standardize non-tax revenue management. In particular, non-tax revenue such as income obtained from land-use fees will be put under budgetary control or in special accounts. We will continue to rectify unauthorized collection of fees.

2. We will tighten management of expenditures and hold down expenditures.

We will vigorously promote the work style of hard work, plain living and building the country through diligence, and continue to follow the policy of zero-growth for all general expenditures budgeted for 2004.

We will voluntarily safeguard the sanctity and authority of the budgets and diligently implement the budgets as approved by the people's congresses at all levels. We must strictly tighten control over the construction of office buildings and training centers built for Party and government departments, and intensify efforts to solve the root causes of the problems of overdue construction funding on government-funded projects and unpaid wages for migrant rural workers.

No budgetary funds should be allocated for the wide variety of inconsequential festivals, ceremonies and forums. We will work to speed up development of the Government Financial Management Information System and make full use of modern management methods to strengthen management and oversight, reduce loss and waste and standardize the financial order.

We will energetically promote the reform to commercialize support services in government organs. We will improve the system of receptions for government employees on official business, and scientifically set the allowed range for operating expenses of institutions.

3. We will deepen the reform of the budge management system and perform our official duties in accordance with the law.

We will continue to expand the scope of the reform, improve reform methods and deepen the reform. We will work out a scientific system for classifying government revenue and expenditures as soon as possible and continue standardizing administrative charges. In order to effectively improve the performance of budgetary expenditures, we will conduct studies on how to set up a scientific evaluation system for performance budget, standardize methods for determining the proper number of employees and funding, and improve the way project expenditures are managed.

We will conscientiously carry out the Administrative Permission Law and further review, standardize and streamline administrative examination and approval procedures. We will improve fiscal and tax laws and regulations. We will consciously subject ourselves to the oversight of all sectors of society so that fiscal management constantly becomes more standardized and transparent.

4. We will improve our work style to serve overall development.

Financial authorities at all levels should be realistic and pragmatic and work to effectively improve their style of work. First, we must always keep firmly in mind the overall situation. In considering issues and handling matters, especially in determining revenue and expenditures, we must always keep the overall situation in mind and bring our thinking and action in line with all decisions and plans of the central authorities.

Second, we should always maintain a proactive attitude. We must give top priority to development in governing and rejuvenating the country and take full advantage of the role of public finance. We must address the concerns of the people and the pressing needs of development, deal with urgent problems quickly, and take special measures when needed.

Third, we must be fully aware of the need to be realistic and pragmatic. We must speak the truth, actually do our work, make calculations accurately, strive for effective results, and never do things for show or just go through the motions. Fourth, we must foster an attitude of public service. We must actively communicate and coordinate with others to sincerely serve the people, lower level organizations and government departments. Fellow Deputies,

Implementing the budgets and carrying out the financial work for 2004 will be an arduous task and a great responsibility 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 Three Represents, follow the guidelines set down at the Sixteenth National Congress of the Party and the Third Plenary Session of its Sixteenth Central Committee and the requirements for our economic and financial work set at the Second Session of the Tenth NPC, consciously subject our financial work to the oversight and direction of the people's congresses, earnestly seek and heed the comments and suggestions of the committees of People's Political Consultative Conference, lift up our spirits, handle financial affairs in accordance with the law, be realistic and pragmatic, and work diligently to attain the magnificent goal of building a moderately prosperous society in all respects.

(Xinhua News Agency March 17, 2004)