III. Deepening Financial Reform, Strengthening Financial Management, Handling Financial Affairs in Strict Accordance with the Law and Promoting Economic and Social Development

The year 2001 is the first year of the new century as well as the first year for the implementation of the Tenth Five-Year Plan. All financial work must be successfully carried out to ensure satisfactory implementation of the central and local budgets for 2001. This is of great importance to ensuring smooth fulfillment of the Tenth Five-Year Plan and sustainable, rapid and sound development of the national economy, promoting all-round social progress and making a good start in the new century.

1. Properly managing and utilizing funds raised through the sale of government bonds and making good use of the role of a pro-active fiscal policy. The Conference on Economic Work held by the Party Central Committee requires us to guard against and prevent inflation while suppressing deflation. Overheating in economic growth and construction of redundant projects are to be avoided, but efforts to boost domestic demand should continue. With this in mind, construction funds raised through the sale of government bonds in 2001 will be mainly used to supplement funding for projects under construction which cannot be completed without additional funds. All such funds allocated from the central budget, with the exception of subsidies for interest payments on loans for technological transformation projects, will be used for uncompleted projects. No new projects will be launched with the use of these funds. We must properly manage and utilize money earned through the sweat and blood of people by conscientiously implementing the responsibility system for key projects using funds from the sale of government bonds and tightening management of budgets and final accounting for projects. A unified treasury receipt and payment system will be implemented on a trial basis for projects using funds from the sale of government bonds, and the supervision and examination for such projects will be strengthened in a serious effort to solve a number of problems that have arisen in the use of such funds in some areas and government departments over the last two years. These problems include filing fraudulent reports for projects, obtaining funds from the sale of government bonds by fraudulent means and diverting such funds to other purposes, lax project management, low-quality projects and serious loss and waste. Efforts must be made to raise the performance of these funds, promptly solve such problems when they are uncovered and severely punish offenders. At the same time, we must continue to implement such pro-active fiscal policy measures as increasing the wages and salaries of employees in government departments and institutions and working to readjust income distribution for people, ensuring that these policy measures are carried out.

2. Improving the taxation system, collecting and managing taxes according to the law and striving to increase revenue. Taxation is a major source of state revenue as well as an important macro-control measure for the government. In light of China’s imminent entry into the World Trade Organization and changes in China’s social and economic situation, the current tax system will be improved and preferential tax policies will be reviewed and standardized by following a principle of “unifying tax laws, equalizing tax burden, optimizing taxation system, expanding tax base and rationally dividing authority.” The business tax policy will be revised in an effort to better regulate spending on recreational activities. The individual income tax system will be reformed and improved, and a new comprehensive individual income tax system with different rates will be established. Uniform taxation policies will be formulated for collecting income tax on enterprises with Chinese and foreign investment to make taxation uniform across the nation. At the same time, we will continue to follow a working principle of “strengthening collection and management, plugging up loopholes, punishing corruption and clearing up overdue taxes” and resolutely work to safeguard the uniformity and authority of tax laws. We will conscientiously review any policy of first collecting taxes and then refunding taxes formulated by local authorities, improve the means of tax collection and management and fully develop the Golden Tax Project as quickly as possible. We must resolutely combat tax evasion, tax fraud and refusal to pay taxes. In particular, efforts must be made to continue to severely crack down on tax fraud involving exports or smuggling. We must vigorously review and reduce taxes in arrears, take practical measures to solve the problem of falsified tax reports and gradually establish a new model of tax collection and management with sound management, advanced collection and management means, separation of collection, management and examination that combines enforcement of the law with good service, promoting a steady increase in revenue.

3. Readjusting and optimizing the pattern of expenditures to guarantee funding for key projects. First, we must conscientiously implement the unified wage policy formulated by the central authorities, following a principle of “first feed the people, then develop the country.” We must ensure that employees in government departments and institutions are paid on time and in full. This is the duty of governments at all levels and an important way of seeking truth from facts and adhering to the mass line. When preparing budgets, financial departments at all levels must first allocate sufficient funding to pay the wages of employees in government departments and institutions as required by the government and put all such funds into special financial accounts for wages in the state treasury. These funds will be used to pay wages to employees and must not be diverted to other purposes to ensure that wages for the current year are paid on time. According to the principles formulated at the Conference on Economic Work held by the Party Central Committee, to solve the problem of overdue wages, local authorities are allowed to use special funds in the form of transfer payments which were recently increased in the central budget for the purpose of funding wage readjustments to pay overdue wages to employees, resulting in postponement of this year’s wage readjustments. At the same time, we must step up efforts to unify the way financial departments pay the wages of personnel in Party and government departments and to turn over responsibility for paying the salaries of teachers in rural primary and secondary schools to financial departments at county level. Second, the proportion of total expenditures for social security in the budget must be increased to ensure that the basic pensions of retirees from state-owned enterprises and the basic living allowances for workers laid off from state-owned enterprises are distributed on time and in full and to support the reorganization and restructuring of state-owned enterprises and industrial restructuring. Third, we must strive to guarantee funding for developing the national strength, science and technology, education, culture and other key fields and projects. Fourth, we must strengthen the role of agriculture as the foundation of the economy and vigorously support development of agricultural infrastructural facilities, establishment of a disaster prevention and control system and projects designed to protect natural forests, restore cultivated land to forests or grassland and prevent and control desertification. We must support efforts to deepen reform of the grain distribution system and rural taxes and fees and step up anti-poverty efforts to truly lighten the financial burden on farmers. To guarantee funding for key projects, we must keep in mind the requirements of public finance, work hard to readjust and optimize the pattern of expenditures and take further steps to standardize the scope of government funding so that the state no longer has to support so many people and so many projects. In conjunction with the effort to restructure local government departments, we must do a good job in setting the number of departments, the number of positions and the number of employees and strictly control administrative expenses. Government funding should be gradually reduced for institutions that have the capability of entering the market and generate a stable income. Direct government investment in competitive industries should also be gradually reduced. At the same time, we should energetically uphold and carry on our fine tradition of hard work and frugality and resolutely put a stop to extravagance, waste and squandering, striving to improve the performance of government funding.

4. Promoting reform of a system of expenditure management and strengthening budgetary management. This is a requirement for improving the performance of government funds as well as a means to root out corruption. First, we must speed up the reform of departmental budgeting. There was an increase in the number of individual budgets for departments at the central level submitted to the National People’s Congress for examination and approval this year. All organs responsible for preparing budgets at the provincial level should formulate departmental budgets and 30-50% of prefectures and cities should compile departmental budgets on a trial basis. Departmental budgets must be detailed, and revision of quota standards and preparation of budgets for projects on a trial basis should be given close attention. We will continue reforming the classification of government revenue and expenditures and establish a new classification system in which government revenue and expenditures are categorized by department, function or economic sector. Second, we will experiment with introducing a unified treasury receipt and payment system to more areas. Under the present treasury system, government funds are distributed in various departments at different levels and have to be “transferred” through numerous accounts of different departments and organs. As a result, revenue does not find its way into the state treasury in a timely manner and expenditures are not promptly sent to the departments that are designated to receive the money. There are too many links in the transfer of funds where money may be misappropriated or diverted to other purposes. A unified treasury receipt and payment system will incorporate all government funds into one account to ensure that revenue goes directly into the state treasury or special accounts and that expenditures go directly to the commodity or labor supplier or department that is supposed to receive the funds through the single account system. One or two departments under the central authorities and a few provinces will be selected this year to participate in experimentation with a unified treasury receipt and payment system. Third, we will take the initiative to promote the implementation of the government procurement system. We need to further expand the scope and scale of government procurement. Where public bidding is possible, it should be used for government procurement in accordance with the proper procedures to increase the transparency of this work. A unified treasury receipt and payment system should be applied to government procurement funds.

5. Stepping up efforts to establish a social security system and improving social security. A social security system suited to China’s conditions is of vital importance to efforts to establish a socialist market economy and a system of public finance. It is also an important measure for safeguarding the fundamental interests of the people and supporting the reform and development of state-owned enterprises. We need to ensure that the basic living allowances for workers laid off from state-owned enterprises and pension benefits for retirees from state-owned enterprises are paid in full and on time, and we must not allow more such payments to fall in arrears. We need to extend the scope of old-age, medical care and unemployment insurance and raise the premium collection rate. We need to readjust the pattern of expenditures, increase funds for social security and ensure that funding is adequate. We should take the initiative to explore, standardize and increase channels for raising funds for social security, strengthen management of social security funds and make it more standardized and transparent. We need to effect a rational division of responsibilities for social security between the central authorities and local governments and establish a strong and efficient social security system with a clear division of rights and responsibilities. Great efforts should be made to promote experimentation with the reform of the social security system in towns and cities.

6. Prudently promoting the reform of taxes and fees and standardizing the distribution of government revenue. The reform of taxes and fees is of great significance to our efforts to standardize revenue distribution, improve the financial system, lighten the burden on enterprises, farmers and society, promote the performance of official duties in accordance with the law, fight corruption in terms of sources and systems and improve the government’s macro-control functions. In 2001 we need to accelerate the reform of taxes and fees in rural areas throughout the country. The reform should be introduced across provinces where conditions permit, and experimentation with the reform should be carried out in more areas in other provinces to prepare for overall reform. To ensure that the objectives of reform are attained, the central government will transfer 20 billion yuan every year from its budget to local budgets to make up shortfalls in normal expenditures at the grass-roots level after the reform. Provincial authorities are also required to transfer more funds from their budgets to support reform of taxes and fees in rural areas. We must tighten supervision and management of funds transferred from governments at higher levels to local authorities to ensure that they reach the grass-roots level and are used for the designated purpose. At the same time, we need to speed up the supporting reforms designed to streamline government departments and reduce the number of personnel. We should lose no time in doing a good job in the collection and management of the vehicle purchase tax and begin levying a tax on gasoline at an appropriate time. We will continue to review fees related to transportation and vehicles to eliminate unreasonable fees and ensure that fees that have been cancelled are no longer collected. We will continue to review and eliminate unreasonable or illegal administrative fees and government fund contributions to truly lighten the burden on all sectors of society. At the same time, we should take the initiative to prepare for the reform of taxes and fees in some departments that have drawn strong criticism from the people because these departments levy too many taxes or fees.

7. Handling financial affairs in accordance with the law, strengthening financial supervision and standardizing the financial and economic order. This is an important aspect of efforts to rectify and standardize order in the market economy as well as an important part of efforts to improve the laws governing public finance. First, we need to further improve the system for supervising financial affairs and improve a mechanism for financial supervision. We need to shift our focus from the micro-management of enterprises to the supervision of government departments responsible for revenue collection and budget implementation and financial and intermediary institutions, gradually improving a non-government system for supervising the financial affairs of enterprises. We need to strengthen supervision of the way budgetary funds are used and establish a system for overseeing budget implementation that will allow financial departments, other competent departments, organs that utilize funds and auditing departments to restrain and help each other. Second, we need to implement the Accounting Law in earnest and improve the accounting system. Basic accounting work and the quality of accounting data need to be improved. We need to severely deal with those who falsify bills, accounts and audit reports. By reviewing the results of experimentation with the accountant assignment system and introducing it to more organs, we should strengthen supervision of accounting work for society at large. Third, we need to establish a system for keeping track of funds and reporting on their performance. Fourth, we need to strengthen supervision and management of financial affairs in financial institutions and especially local financial institutions, to guard against and reduce financial risks. Fifth, internal supervision over the financial affairs of financial departments should be strengthened. Sixth, the rectification of public accounting and auditing firms and other intermediary organs should be continued, and a management system and a highly efficient operating mechanism should be set up for public accounting and auditing firms and other intermediary organs which adapt to China’s socialist market economy.

Fellow Deputies,

The financial work this year is arduous. Let us rally closely around the Party Central Committee with Comrade Jiang Zemin at its core, hold high the great banner of Deng Xiaoping Theory, adhere to the Party’s basic line, acquire a clear understanding of the situation and our tasks, focus on priorities, forge ahead and work hard with great confidence to ensure the successful implementation of the budget for this year.