¡¡¡¡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 Conferenceon 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 Conferenceon 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 ensureits 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 revenueand 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 revenuefrom 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. Althoughthis 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, rapidand 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 torural 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 budgetfor 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 forcesin 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. (More)

Part Three