I. Satisfactory Implementation of the Central and Local Budgets for 2002, with the Deficit in the Central Budget Being Smaller Than the Budgeted Figure
The year 2002 was a tremendously significant one in the history of China's development. The successful convocation of the 16th National Congress of the Communist Party of China greatly encouraged the Chinese people of all ethnic groups to build a well-off society in an all-round way. All local authorities and government departments worked hard with one heart and one mind, conscientiously put into practice the important thought of the Three Represents and strove to carry out the principles for economic work formulated by the Party Central Committee and meet the requirements for financial and economic work set at the 5th Session of the 9th National People's Congress. The national economy continued to grow rapidly, all social undertakings progressed and the living standards of the people further rose despite the adverse effects of a notable slowdown in the growth of the world economy. The central and local budgets were satisfactorily implemented. Total revenue for the whole country in 2002 (excluding revenue from generation of debt, both here and below) amounted to 1.8914 trillion yuan, 89.9 billion yuan over the budgeted figure and an increase of 252.8 billion yuan or 15.4% over that of the previous year. Expenditures for the whole country totaled 2.2012 trillion yuan, 89.9 billion yuan over the budgeted figure and an increase of 310.9 billion yuan or 16.4% over that of the previous year. Total expenditures exceeded revenue, leaving a deficit of 309.8 billion yuan. Total revenue in the central budget for 2002 totaled 1.102 trillion yuan, 37.4 billion yuan over the budgeted figure and an increase of 124.8 billion yuan or 12.8% over that of the previous year. This figure includes 1.039 trillion yuan in revenue collected by the central government, 34.8 billion yuan over the budgeted figure and an increase of 120.8 billion yuan or 13.2% over that of the previous year, and 63 billion yuan turned over to the central government by local authorities, 2.6 billion yuan over the budgeted figure. Total expenditures in the central budget for 2002 amounted to 1.4118 trillion yuan, 37.4 billion yuan over the budgeted figure. This figure includes 675.6 billion yuan of expenditures for the central government, 34.3 billion yuan over the budgeted figure, and 736.2 billion yuan in tax rebate and subsidies for local authorities, 3.1 billion yuan over the budgeted figure. Expenditures in the central budget exceeded revenue, leaving a deficit of 309.8 billion yuan, the same as the figure approved at the 5th Session of the 9th National People's Congress. Total revenue in local budgets for 2002 came to 1.5886 trillion yuan, 58.2 billion yuan over the budgeted figure and an increase of 208.1 billion yuan or 15.1% over that of the previous year. This figure includes 852.4 billion yuan in revenue collected by local authorities, 55.1 billion yuan over the budgeted figure and an increase of 132 billion yuan or 18.3% over that of the previous year, and 736.2 billion yuan in revenue from tax rebate and subsidies granted to local authorities by the central government, 3.1 billion yuan over the budgeted figure. Total expenditures in local budgets amounted to 1.5886 trillion yuan, 58.2 billion yuan over the budgeted figure. This figure includes 1.5256 trillion yuan of expenditures for local governments, 55.6 billion yuan over the budgeted figure, and 63 billion yuan turned over to the central government, 2.6 billion yuan over the budgeted figure. Revenue and expenditures were balanced in the local budgets. In addition, central revenue from generation of debt in 2002 totaled 567.9 billion yuan, the same as the budgeted figure. This figure includes 256.3 billion yuan for servicing domestic and foreign debt, 309.8 billion yuan to cover the deficit for 2002 and 1.8 billion yuan for replenishing the central budget debt repayment fund. Total revenue from the funds controlled by the central government in 2002 came to 99.9 billion yuan and total expenditures by the central government taken from the above funds amounted to 99.9 billion yuan. There may be a few minor changes in these figures when the final calculations are made for the central and local budgets.
Under the correct leadership of the Party Central Committee and the State Council, in 2002 all local authorities and government departments focused on the budget and the objectives for the financial work defined at the 5th Session of the 9th National People's Congress and worked hard in a pioneering spirit. The proactive fiscal policy was conscientiously carried out, the financial legal system was improved, and the financial and economic order was rectified. All aspects of the financial work proceeded smoothly. This promoted the sound development of the economy and all social undertakings. Efforts to increase revenue and reduce expenditures were intensified to ensure satisfactory implementation of the budgets. At the 5th Session of the 9th National People's Congress, I reported that there were a fairly large number of uncertainties in the process of the implementation of the budgets for 2002. Special factors leading to revenue growth were fewer than expected, and there were more factors leading to revenue decrease. For example, to fulfill the commitments for China's entry into the World Trade Organization (WTO), we lowered the general tariff level from 15.3% to 12%. Stamp tax rates on stock transactions dropped from 4 for A shares and 3 for B shares to 2 for both. The business tax rate for the banking and insurance industries fell from 7% to 6%. Implementation of the policy of reducing the number of shares held by the state was ceased. With regards to expenditures, some key projects required additional funding that had to be guaranteed. In implementing the budgets, we found it more difficult than expected at the beginning of 2002 to fulfill some items of revenue. For a time, the situation was pregnant with grim possibilities for budgetary revenue and expenditures, especially those in the central budget, with revenue growth far lower and expenditure increases much higher than budgetary projections. To reverse this situation, in May 2002 the State Council held a national videophone conference on increasing revenue and reducing expenditures, at which a series of requirements and measures were put forward. To consolidate and maintain the momentum of gradual improvement in revenue and expenditures across the country, in September 2002 the State Council held another national conference on increasing revenue and reducing expenditures, at which effective measures and additional requirements were put forth to intensify efforts in this regard. The Ministry of Finance paid close attention to implementation of the budgets, organized financial departments to analyze and study changes in central and local revenue and expenditures in many ways, increased exchange and communication and supervised and inspected increase in revenue and reduction in expenditures in all localities. All local authorities and government departments paid great attention to this work and promptly formulated and implemented effective measures to plug loopholes in the management of revenue and expenditures and eliminate some factors leading to revenue decrease and expenditure increase. The revenue and expenditure situation further improved through out the country. In the first quarter of 2002, revenue for the whole country rose by 3.4%, and expenditures for the whole country, by 23.9%. In the second, third and fourth quarters of 2002, revenue increased by 14.4%, 14.3% and 27.3% respectively, while the growth of expenditures went down to 13.6%, 17.3% and 14.7%. This helped ensure satisfactory implementation of the budgets for the whole year.
In accordance with relevant provisions of the Decision of the Standing Committee of the National People's Congress on Strengthening Examination and Supervision of the Central Budget, the revenue of 37.4 billion yuan in excess of the projected figure in the central budget for 2002 was used to increase funding for highway construction and to replenish the national social security fund in light of the actual needs for social and economic development. This was reported in writing to the Standing Committee of the National People's Congress according to regulations. Local authorities used revenue in excess of the projected figures in the local budgets mainly for the purpose of increasing social security expenditures and paying overdue wages and salaries. The pattern of expenditures was adjusted to ensure funding for the development of key social undertakings. In view of the overall interests of reform, development and stability, all local authorities and government departments pooled their financial resources to guarantee funding for key projects while keeping general spending under strict control. First, more funds were allocated to help low-income groups and people in straitened circumstances solve essential problems in their production and lives. While continuing to ensure that the living allowances for workers laid off from state-owned enterprises and basic pensions for retirees were paid on time and in full and the subsistence allowances were provided to those living below the poverty line, we raised basic pensions for retirees from state-owned enterprises again as of July 1, 2002. We paid special attention to workers, army officers transferred to civilian jobs and former industrialists and merchants who had retired a long time ago and whose basic pensions were low. Benefits were again increased for older ex-service persons living in rural areas and for retired veteran cadres who joined the revolutionary ranks in the early days of New China. Subsidies were provided in a timely manner to support the closedown and bankruptcy of 87 state-owned enterprises according to law and to guarantee the working and living needs of the 380,000 affected employees. Expenditures for social security programs from the central budget for 2002 came to 136.2 billion yuan, an increase of 38.6% over that of the previous year. In addition, financial authorities cooperated with competent government departments to tighten collection, management and supervision of social security funds and improve the method of making special transfer payments for social security and the system for managing the special financial accounts for subsidies under social security programs. Experimentation with the reform of social insurance fees collected by tax organs was extended to 16 provinces. In addition, financial authorities took an active part in and gave support to the reform of the basic medical insurance system for urban employees and experimentation with the reform to improve the urban social security system in Liaoning and other provinces. All this promoted smooth implementation of the reforms. Statistics show that basic pensions for retirees from state-owned enterprises and living allowances for workers laid off from state-owned enterprises who had registered with reemployment service centers were basically paid on time and in full as of the end of 2002. The number of urban residents who received subsistence allowances increased from 1.84 million at the end of 1998 to 20.6 million at the end of 2002. This helped maintain social stability. Second, more funds were allocated to agriculture, rural areas and farmers to promote rural development and stability. Experimentation with the reform of taxes and administrative charges in rural areas was extended to 20 provinces (autonomous regions and municipalities directly under the central government). The burden on farmers was lightened by an average of 30% in areas where the reform was carried out, with even greater reduction in some areas. This reform was praised by farmers as a "project of governance by virtue." In 2002 subsidies totaling 24.5 billion yuan were allocated from the central budget as transfer payments to areas where the reform was carried out. This guaranteed the normal operation of political power at lower levels in those areas, supported the development of compulsory education in rural areas, and played a vital role in stabilizing and reducing the burden on farmers and rationalizing rural economic relationships. A total of 108.8 billion yuan from the central and local budgets for 2002 was used to support rural production and integrated agricultural development and provide operating expenses for departments in charge of agriculture, forestry, water conservancy and meteorology, an increase of 18.6% over that of the previous year.
In addition, more funds were allocated to programs to fight poverty in rural areas, transform rural power grids and build water conservancy infrastructural facilities. These measures promoted agricultural development, raised the incomes of farmers, improved the living conditions and the ecological environment in rural areas and helped maintain stability there. Third, more funds were allocated to science, technology and education to promote the implementation of the strategy of developing the country through science and education. A total of 7.2 billion yuan was allocated from the central budget for 2002 to support key state projects for basic research, the Knowledge Innovation Project and the March 1986 High-Tech Program. Numerous achievements in scientific research were made and the overall level of China's science and technology was raised. We continued to implement the policy of increasing the proportion of educational spending to total expenditures in the central budget by one percentage point each year. Local financial departments also increased educational funds. In 2002 educational expenditures for the whole country amounted to 264 billion yuan, an increase of 19.6% over that of the previous year. The state program to make compulsory education universal in impoverished areas was carried out, primary and secondary school buildings in poor condition were renovated and higher and vocational education further expanded. Funding for other key projects was also guaranteed. Effective measures were taken to ensure smooth progress in the reform to share income tax revenue. The State Council decided to implement the reform to share income tax revenue from January 1, 2002 to further implement Deng Xiaoping's strategy for developing the coastal areas first and then the interior and the important thought of the Three Represents, improve the fiscal and tax systems, narrow the gap between regions in terms of financial strength, promote coordinated development of different regions and push forward the reform of state-owned enterprises. To this end, the Ministry of Finance solicited opinions from local authorities on many occasions, examined and determined the base figures, improved supporting measures and gave guidance and supervision to implementation of the decision. Government departments in all regions, especially the developed eastern region, stressed political awareness, took the overall interests of the country into consideration and adopted effective measures to conscientiously implement the decision of the State Council, making great contributions to the smooth implementation of the reform. Thanks to this reform, revenue increased by about 12.4 billion yuan in the central budget for 2002. According to regulations, this entire amount was used as transfer payments to local authorities, especially those in the central and western regions. In conjunction with the reform to share income tax revenue, central financial authorities, on the basis of increasing transfer payments to local authorities, further standardized and improved the transfer payment system and helped local financial authorities raise their capability to manage funds. In many regions, the financial systems at the provincial level and below were adjusted and standardized, and more financial resources were put at the disposal of financial authorities at the county, township and other lower levels. These measures eased the financial difficulties of county and township authorities and helped pay overdue wages and salaries of employees in government departments and institutions. As of the end of 2002, 25 of the 36 provinces (autonomous regions and municipalities directly under the central government) and cities specially designated in the state plan were paying wages and salaries on time and in full. Although the remaining 11 delayed payment of wages and salaries due for the year as prescribed by the state, the amount in arrears dropped to 1.7 billion yuan. This amount accounted for 0.4% of the total payable during the year, 4.8 billion yuan less than that of the previous year.
Reform was further deepened to ensure constant improvement in the budgetary management system. The fiscal reform is highly policy-related and technical and has a direct bearing on the adjustment and standardization of the relationship between different interests. Under the correct leadership of the Party Central Committee and the State Council, Party committees and governments at all levels paid great attention to the fiscal reform. The people's congresses at all levels gave more supervision and guidance to the reform. Financial authorities at all levels continued to improve their services, worked hard to organize implementation of the reform of the budgetary management system and promoted further deepening of the reform. In 2002, 34 departments of the central government including the Ministry of Public Security, the Supreme People's Court and the General Administration of Customs took the lead in experimentation with deepening the reform for separate management of revenue and expenditures. This was done in compliance with the requirements for cutting ties between revenue and expenditures and separating the collection of administrative charges and fines from the use of those funds. Local authorities also worked hard to carry out this reform. The departments of the central government which carried out the reform took the initiative to meet the requirements of the reform and alter their functions and improved their capacity to perform their official duties according to law. This resulted in a notable decrease in the number of cases involving unauthorized administrative charges and fines. In 2002, all departments of the central government and those directly under provincial governments compiled their departmental budgets in two parts, one for basic expenditures and the other for project expenditures. Governments of some cities (prefectures) and counties (county-level cities and city districts) have been working conscientiously to carry out there form for preparing departmental budgets. This ensures that budget compilation will be fair, just and open. On the basis of promoting and standardizing experimentation in six departments of the central government, the pilot reform for a centralized treasury payment system was extended to 38 departments of the central government in 2002, and the number of regions involved increased from two in 2001 to nine. In addition, the reform to implement a centralized treasury revenue system was carried out in 15 departments of the central government with a view to incorporating all of their revenue and expenditures into a single treasury account system. This guaranteed safe and efficient use of budgetary funds, reduced the number of links in the transfer of funds, ensured that revenue went directly into the state treasury and that expenditures went directly to suppliers of goods and labor services, resulting in improved efficiency of budgetary funds. In 2002, total government procurement exceeded 100 billion yuan, an increase of more than 34 billion yuan over that of the previous year, with savings on each item generally exceeding 10%. Since the Law on Government Procurement was promulgated, the management of government procurement has become increasingly statutory and standardized. In addition, the pace of applying IT in financial management has been notably accelerated, and the Government Financial Management Information System (GFMIS) designed for timely control of the use of budgetary funds entered the stage of implementation. These reforms have further promoted the standardization and modernization of financial management under the socialist market economy.
Over the past five years, new achievements were scored in our financial work, as in all other fields of endeavor in the country, and great changes have taken place in state finance. First, we have established a sound mechanism to ensure a steady increase in revenue and the national financial strength has increased notably. Revenue for the whole country in 2002 amounted to 1.8914 trillion yuan, an increase of 1.0263 trillion yuan or 119% over that of 1997, with an annual average rise of 205.3 billion yuan. The ratio of total revenue to GDP rose from 11.6% in 1997 to 18.5% in 2002, an annual average rise of 1.4 percentage points. Second, transfer payments have increased rapidly to promote coordinated economic and social development. Expenditures in the central budget in 2002 came to 675.6 billion yuan, accounting for 30.7% of the expenditures for the whole country. If the expenditures for payment of interest on treasury bonds are taken out of the regular expenditures in the central budget, which is an incomparable factor, the percentage would be 28.5%, calculated in comparable terms. This was 1.8 percentage points below the 1994 figure of 30.3% when the reform of the financial management system was first introduced. This shows that since the reform was carried out, the increased revenue in the central budget has been allocated mainly to local authorities. Apart from the 301.4 billion yuan of tax rebate and 32.3 billion yuan of institutional subsidies, transfer payments from the central budget to local authorities in 2002 amounted to 402.5 billion yuan, an increase of 610% over that of 1997, representing an annual average growth of 43.4%. Transfer payments were mostly used in the central and western regions. This has played and will continue to play an important role in supporting the implementation of the strategy for developing the western region, accelerating the development of the central and western regions and safeguarding ethnic unity and long-term stability of the country. Third, the pattern of expenditures has been further improved to better serve the overall interests of national economic and social development. In particular, investment in social security, science, technology and education, agriculture, infrastructure and other public works has increased by a large margin. This has ensured smooth progress in the restructuring of state-owned enterprises and major economic systems, including the social security, grain distribution and monetary systems. Expenditures for the whole country for social security, for science, technology and education and for agriculture in 2002 were 9.5, 2.3 and 1.9 times as much as the respective figures for 1997, representing annual average growths of 56.9%, 17.7% and 14.2% respectively. Per capita basic monthly salary of employees in government departments and institutions at the end of 2002 doubled that of 1998.
As required by the Party Central Committee and the State Council, in the past five years the central financial authorities took into consideration the long-term interests of the country and accumulated 124.2 billion yuan in the national social security fund despite a great strain on revenue and expenditures. This has provided an important financial means to prepare the country for emergency. Fourth, the macro-control function of finance has been improved notably to promote sustained, rapid and sound development of the national economy. To firmly implement the policy of expanding domestic demand formulated by the Party Central Committee and conscientiously follow the proactive fiscal policy, we have issued a total of 660 billion yuan of treasury bonds for construction. At the same time, we have transformed the methods for financial macro-control. We have made use of treasury bonds for construction, taxation, discount interest and other financial policy instruments in coordination with the monetary policy, increased investment while stimulating consumption, and expanded the economic aggregate while readjusting the economic structure. Deficit and debt have increased in the central budget, but they are bearable and within our control. It is essential and worthwhile to do this. If we had not done this, it would have been impossible for us to maintain the steady growth of the national economy, constantly optimize the economic structure and improve the people's lives notably. In particular, treasury bonds for construction have effectively boosted investment from various channels. Total investment in projects amounted to 3.28 trillion yuan. This has laid a solid foundation for China's long-term economic and social development. Facts show that the decision on implementation of the proactive fiscal policy made by the Party Central Committee is entirely necessary and correct. Fifth, financial management has become increasingly standardized and our capacity to handle financial affairs according to law has been on the increase. Over the past five years, we have carried out a series of financial reforms in accordance with relevant decisions and resolutions made by the Party Central Committee and the State Council and the requirements for reforms set by the National People's Congress and its relevant organs. We have constantly extended these reforms, improved relevant measures and enriched their content. We have preliminarily established the framework of public finance which meets the requirements for developing the socialist market economy. At the same time, the pace of improving the financial legal system has been accelerated. We have formed a framework of financial laws and regulations including the Budget Law, the Accounting Law, the Law Concerning Certified Accountants as well as administrative rules and regulations on finance. We have strictly enforced financial laws as required by the Law on Administrative Reconsideration and the Administrative Procedure Law. The reform of public finance and improvement in financial legislation complement each other, so that the principles of justice, fairness and openness required under a market economy are gradually implemented in all aspects of our financial work. This has further standardized financial management and helped raise our capacity to handle financial affairs according to law. It will have a great impact on efforts to change the functions of the government, expedite the pace of running the country by law and promote all-round social progress.
Although we have scored achievements in our financial work, we are fully aware that there are some pressing problems in our financial operations. First, low increase in revenue and high growth of expenditures remain a fairly serious problem. Since the scale of revenue is enlarged, it will be very hard to continue increasing revenue by a large margin. Expenditures, however, are rigid. We have entered a peak period for debt payment and economic and social development makes more demands on public finance. All this puts a great pressure on both revenue and expenditures. Second, chaotic financial and economic order has not been improved fundamentally. Falsification of accounts, tax evasion and tax fraud, extravagance and waste in the use of funds and other problems are still serious. Third, progress in financial reform is uneven. Improving measures, resolving difficulties and deepening the reform are still arduous tasks. Fourth, governments at lower levels in some regions are in financial straits. Although the central government has taken measures such as increasing transfer payments, governments at lower levels in some regions still find it difficult to implement their budgets and cannot pay wages and salaries in full and on time as required by the central government. We will pay close attention to these problems, take effective measures to solve them by deepening the reform and standardizing management and do everything possible to achieve notable results as quickly as possible.