The main situation during the implementation of the central budget and financial work in 2004 is as follows.

    1. Implementing the central budget in accordance with the law and properly utilizing revenue in excess of the projected figure.

    Under the correct leadership of the Party Central Committee andthe State Council, the people of all our ethnic groups worked hardto carry out the principles and policies set by the central authorities. As a result, major national economic indexes were noticeably better than expected. The sustained, rapid and sound development of the national economy and greatly improved performance of enterprises laid a solid foundation for the large increase in revenue. Taxpayers paid their taxes honestly and in accordance with the law, and financial, tax and customs departments tightened management. All this effectively guaranteed good revenue growth. National revenue increased by 464.063 billionyuan. If the additional 127.532 billion yuan used to clear up overdue payments on export tax rebates is included, national revenue would increase by 591.595 billion yuan, a 27.2 percent year-on-year increase. The main taxes collected in 2004 are as follows. Domestic value added tax (VAT) increased by 178.118 billion yuan over the previous year, or 100.231 billion yuan over the projected figure. Import tax collected by customs agencies was90.079 billion yuan more than last year's figure, all of which is in excess of the projected figure. Corporate income tax grew by 103.078 billion yuan, 71.03 billion yuan more than the projected figure. Personal income tax increased by 31.787 billion yuan, 11.591 billion yuan over the projected figure. Domestic consumption tax rose by 31.905 billion yuan or 25.131 billion yuan in excess of the projected figure; business tax, 73.616 billion yuan, or 35.061 billion yuan more than the projected figure. The revenue increase resulted from the collection of these six taxes totaled 508.583 billion yuan, accounting for 86 percent of the total revenue increase of 591.595 billion yuan.

    At the same time, it should be noted that around 200 billion yuan of the surplus was due to special and one-time factors. First,part of the revenue increase for 2004 occurred due to overheated investment in some industries and price rises. A total of 70 to 80 billion yuan more was collected in the form of VAT than in most years due to the introduction of the "production-side VAT", which increased in line with the overheated growth of investment and added value of industry, where the new VAT is mainly collected. Second, the reform of the export tax rebate mechanism resulted in the loss of a quarter from the fiscal year of 2004 and reduction of export tax rebates by 3 percentage points on average, thereby cutting expenditures by nearly 100 billion yuan in the budget. Third, nearly 30 billion yuan in additional revenue was generated when the tax departments cleared up transitional accounts.

    The revenue in the central budget was 253.771 billion yuan (including the additional amount used to pay export tax rebates) inexcess of the figure projected for 2004. We acted in accordance with the directive of the Party Central Committee and the State Council to adopt a scientific outlook on development, with the Decision of the NPC Standing Committee on Strengthening Examination and Oversight of the Central Budget and with related resolutions formulated at the Second Session of the Tenth NPC. Moreover, since a large part of the surplus was due to special andone-time factors, we deemed it inappropriate to use the surplus toincrease regular expenditures. The surplus was therefore mainly used to clear up payments in arrears and to increase spending to balance economic and social development. Specifically, the additional 127.532 billion yuan that was to be spent on export taxrebate payments was used to clear up overdue payments. The 3.57 billion yuan from increased collection of the vehicle purchase taxwas used for special purposes as required by relevant regulations.An additional 32.103 billion yuan was spent on education and science, on tax rebates and general transfer payments for local authorities and on transfer payments for ethnic minority regions as required by relevant laws and regulations and by the regulations governing the system of public finance. Another 15.604billion yuan was used to support the reform of rural taxes and administrative charges as well as grain production. A total of 40.485 billion yuan was spent to pay overdue grain compensation for returning cultivated land to forests. A further 3.25 billion yuan was used to pay basic old-age pensions for workers retiring from state-owned enterprises and fund subsistence allowances for urban residents. A total of 14.856 billion yuan was paid into the national social security fund, 3 billion yuan was used for subsidies to support the closing down or bankruptcy of enterprises,and an additional 13.371 billion yuan was spent to fight disastersand provide relief. In making these arrangements, we looked in alldirections to prevent risks and adhered to a scientific outlook ondevelopment that requires putting people first and striving for well-rounded, balanced and sustainable development. We brought general expenditures under control and supported macroregulation and balanced economic and social development. The State Council has reported these arrangements and uses for the surplus in the central budget to the NPC Standing Committee. The revenue in excess of the projected figures in local budgets was used by localauthorities mainly to alleviate financial difficulties in countiesand townships, fund expenses for science, education, culture and health, support agriculture and clear up overdue debts.

    2. Following a scientific outlook on development while taking all issues into consideration.

    1) Adopting a series of policies and measures to promote increases in grain production and rural incomes. When compiling its budget for 2004, the central government gave top priority to supporting agriculture, rural areas and farmers through increased investment and preferential policies. Responding to new developments in macroeconomic operation, particularly changes in grain production, the Party Central Committee and the State Council in late March decided to intensify efforts to solve the problems facing agriculture, rural areas and farmers by adopting more effective measures. Taking into consideration the overall interests of the country, the Ministry of Finance did everything possible to secure funding for this effort in spite of all the difficulties and increased spending to support agriculture by 15.604 billion yuan. Financial authorities at all levels adopted concrete measures on their own initiative to fully implement the policy of "two reductions or exemptions, and three subsidies" [exempting all taxes on native agricultural products except for tobacco, exempting or basically exempting the agricultural tax, directly subsidizing grain producers and subsidizing the purchase of improved crop strains and large agricultural machinery and tools, tr.]. Besides repealing all taxes on native agricultural products except for tobacco, the central government exempted or basically exempted Jilin and seven other provinces from paying theagricultural tax. In addition, the tax rate was reduced by three percentage points in Henan and ten other major grain-producing provinces as well as Guangdong Province, in some cases through local initiative, and the rate was reduced by one percentage pointin another 11 provinces, including Shanxi. Subsidies were given directly to grain producers in 29 provinces, autonomous regions and municipalities directly under the central government; the purchase of improved strains of rice, wheat, corn and soybeans wassubsidized in Hebei and 12 other major grain-producing provinces; and the purchase of large agricultural machinery and tools was subsidized in 66 major grain-producing counties and in the land reclamation zones under the jurisdiction of the central government. A total of 31.32 billion yuan was allocated from the central budget to fund this policy. In addition, the central government also adopted the following policies and measures to support agriculture. First, funding for bond-financed agriculture projectswas increased by 38 billion yuan in 2004, representing 34.5 percent of the total increase in funds for bond-financed projects.Second, to ease the impact on social security recipients of price rises for grain and other basic foodstuffs, beginning in the second half of 2004, an additional 2.25 billion yuan was spent to increase basic old-age pensions for workers retiring from state-owned enterprises and 1 billion yuan more was allotted to fund subsistence allowances for urban residents. Third, increased funding for overall agricultural development mainly went to major grain-producing areas, and the 6.316 billion yuan for improving agricultural production conditions was changed from interest-bearing loans to non-interest-bearing loans. Fourth, we conscientiously implemented the preferential policy requiring thatincreased spending on education, health and culture be concentrated on rural areas and on the effort to stabilize prices for the means of agricultural production. Fifth, around a dozen agriculture-related administrative and institutional charges were canceled, exempted or reduced. Sixth, we funded the training of more than 2 million rural workers in urban areas, about 80 percentof whom have found jobs. All in all, support for agriculture, rural areas and farmers from the central budget in 2004 was the largest in many years. Thanks to these sound policies, favorable weather and our hard work, grain output was good, farmers benefited, and the rising trend in prices was weakened. All this has laid a solid foundation for the central authorities to improvemacroregulation by starting with support for agriculture, rural areas and farmers.

    2) Effectively slowing the overheated growth of investment in some industries by adjusting the orientation and strength of government investment. Taking into consideration the necessity of maintaining the "five balances" [balancing urban and rural development, development among regions, economic and social development, development of man and nature, and domestic development and opening wider to the outside world, tr.], we took the initiative to adjust the orientation of funds for bond-financed projects, expanding investment in some sectors and reducing it in others. The focus of our efforts was to ensure adequate funding for key ongoing projects and projects in agriculture, forestry, water conservancy, science and education, culture and health, energy and road building in counties and townships. We put off other investment projects where possible, and in particular, suspended funding for projects in certain overheated industries. These changes allowed us to strengthen the management of budgets for bond-financed projects by improving the examination and approval process and allocating funds in strict accordance with construction progress. A total of 45.692 billion yuan was left over for use in bond-financed projects in 2005. In addition, we adjusted some policies related to tax reduction or exemption in the real estate industry as needed and increased support for agriculture while controlling the pace of urban expansion through measures such as adjustment of the structure of funds from land-use fees to use some of them to develop agricultural land. These measures played an active role in ensuring effective macroregulation and balancing economic and social development.