The following is the full text of the Report on the Implementation of the Central and Local Budgets for 2008 and on the Draft Central and Local Budgets for 2009, which was submitted for review on March 5, 2009 at the Second Session of the Eleventh National People's Congress and was adopted on March 13: 

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2008 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2009 

Second Session of the Eleventh National People's Congress March 5, 2009 

Ministry of Finance of the People's Republic of China 

Fellow Deputies, 

The Ministry of Finance has been entrusted by the State Council to report on the implementation of the central and local budgets for 2008 and submit the draft central and local budgets for 2009 for your deliberation and approval, and also for comments and suggestions from the members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC). 

I. Implementation of the Central and Local Budgets for 2008 

In the face of the grim and complex situations at home and abroad, the people of all our ethnic groups under the correct leadership of the Communist Party of China and the guidance of Deng Xiaoping Theory and the important thought of Three Represents, thoroughly applied the Scientific Outlook on Development and comprehensively implemented the principles and policies of the central leadership and the decisions and resolutions of the First Session of the Eleventh National People's Congress (NPC) in 2008. As a result, we made major continued achievements in reform, opening up and socialist modernization. The central and local budgets were satisfactorily implemented and fresh progress was made in reform and development of the public finance system. 

National revenue reached 6.13169 trillion yuan, an increase of 999.512 billion yuan or 19.5% over 2007 (both here and below), equivalent to 104.8% of the target. This consists of 3.267199 trillion yuan collected by the central government and 2.864491 trillion yuan collected by local governments. Added to the 110 billion yuan taken from the central budget stabilization fund, total revenue came to 6.24169 trillion yuan. National expenditures amounted to 6.242703 trillion yuan, an increase of 1.264568 trillion yuan or 25.4%, equivalent to 101.7% of the target. This figure consists of 1.337431 trillion yuan used by the central government and 4.905272 trillion yuan used by local governments. Added to the 19.2 billion yuan set aside for the central budget stabilization fund, total expenditures amounted to 6.261903 trillion yuan. 

Revenue in the central budget totaled 3.361192 trillion yuan, an increase of 499.997 billion yuan or 17.5%, equivalent to 103.3%of the target. This consists of 3.267199 trillion yuan directly collected by the central government and 93.993 billion yuan turnedover by local governments. Added to the 110 billion yuan from the central budget stabilization fund, total revenue came to 3.471192 trillion yuan. Expenditures in the central budget totaled 3.631992 trillion yuan, an increase of 673.997 billion yuan or 22.8%, equivalent to 102.5% of the target. This figure consists of 1.337431 trillion yuan used by the central government and 2.294561trillion yuan in tax rebates and transfer payments to local governments. A total of 19.2 billion yuan was set aside for the central budget stabilization fund. Total expenditures thus added up to 3.651192 trillion yuan. Expenditures exceeded revenue, leaving a deficit of 180 billion yuan, which was within the target approved at the First Session of the Eleventh NPC. The outstanding balance of government bonds in the central budget at the end of 2008 totaled 5.327076 trillion yuan, which was under the set limit of 5.518585 trillion yuan. 

The central government's tax rebates and transfer payments to local governments. The central government turned over 2.294561 trillion yuan in tax rebates and transfer payments to local governments in 2008, an increase of 480.772 billion yuan or 26.5%, representing 106.1% of the target. This total consists of 428.219 billion yuan in tax rebates, up 3.9%, 869.649 billion yuan in fiscal transfer payments including general transfer payments, a 22% increase, and 996.693 billion yuan in special transfer payments, a 44.6% increase. The large increase in this last item was mainly due to the huge increase in expenditures required to subsidize key local programs such as education and medical and health care. Tax rebates and transfer payments turned over to local governments became part of the revenue of local governments, which made arrangements for their utilization. Transfer payments from the central government accounted for an average of 38% of local government spending nationwide and 54.4% in the central and western regions. 

Revenue of local governments totaled 5.159052 trillion yuan, an increase of 988.001 billion yuan or 23.7%, equivalent to 106.4% of the target. This consists of 2.864491 trillion yuan collected by local governments and 2.294561 trillion yuan in tax rebates and transfer payments from the central government. Local government expenditures totaled 4.999265 trillion yuan, an increase of 1.079057 trillion yuan or 27.5%, equivalent to 103.1% of the target. This total consists of 4.905272 trillion yuan spent by local governments and 93.993 billion yuan turned over to the central government. Revenue exceeded expenditures, leaving a surplus of 159.787 billion yuan, which mainly came from the surplus revenue in the central and local budgets that was not spent and will be rolled over into local budgets this year. 

In addition, revenue from government-controlled funds nationwide totaled 1.563635 trillion yuan, an increase of 446.72 billion yuan or 40%. Expenditures from these funds came to 1.49847trillion yuan, representing an increase of 530.026 billion yuan or 54.7%. 

Revenue from the funds controlled by the central government reached 252.566 billion yuan, an increase of 78%. This large increase was mainly attributable to profits from the sale of lottery tickets coming under budgetary control and strong growth in revenue from the foreign exchange funds controlled by the central government. Total revenue includes 20.259 billion yuan from the fund for developing the Three Gorges Project, 55.504 billion yuan from the fund for developing railways, 9.621 billion yuan from civilian airport administration and development fees, 9.148 billion yuan from port development fees, 14.87 billion yuan from the fund for providing continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs, 34.814 billion yuan in profits from the sale of lottery tickets, and 68.491 billion yuan from operations of the foreign exchange funds controlled by the central government. Added to the 55.987 billion yuan from 2007, total revenue came to 308.553 billion yuan. Expenditures by the central government from funds under its control totaled 205.672 billion yuan, an increase of 94.5%. This includes 20.456 billion yuan from the fund for developing the Three Gorges Project, 62.1 billion yuan from the fund for developing railways, 5.313 billion yuan from civilian airport administration and development fees, 10.185 billion yuan from port development fees, 20.547 billion yuan taken from profits from the sale of lottery tickets to support social welfare programs, sports, education and other public service programs, and 68.287 billion yuan from operations of the central government foreign exchange fund. Added to the 46.489 billion yuan in subsidies for local governments from the fund for providing continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs and the 56.392 billion yuan rolled over into this year, total expenditures amounted to 308.553 billion yuan. 

Revenue from funds controlled by local governments reached 1.311069 trillion yuan, up 34.5%. This huge increase was mainly the result of the incorporation of all the income from the transfer of land-use rights into local budgets. Total revenue includes 1.037528 trillion yuan from the transfer of land-use rights and compensation for the use of new land for construction and 118.488 billion yuan from road maintenance fees. Total expenditures by local governments taken from the funds they control increased by 49.9% to reach 1.292798 trillion yuan. This figure includes 1.01725 trillion yuan in land-related expenditures which consists of 377.815 billion yuan as compensation for land requisition, housing demolition and resident relocation and subsidy grants to farmers for land expropriations, a large increase of 113% primarily attributable to the widespread increase in the level of compensation paid to farmers dispossessed of their land; and 128.622 billion yuan for developing and protecting farmland; 14.165 billion yuan for building low-rent housing; 36.988 billion yuan for developing rural infrastructure and developing and protecting primary farmland; 303.532 billion yuan for promoting urban development; and 156.128 billion yuan generated from the transfer of the land-use rights of bankrupt state-owned enterprises and those converted into joint stock companies and used to provide for their laid-off employees. A total of 117.344 billion yuan was spent in financing road maintenance. 

Revenue from government-controlled funds was used exclusively for its intended purposes. The discrepancy between revenue and expenditures from these funds in 2008 arose primarily as a consequence of the requirement to roll over a portion of this revenue into this year in accordance with the measures for managing these funds.

Following is an overview of budget implementation and financial work in 2008: 

1. Budgetary revenue growth and use of surplus revenue 

Thanks to intensified efforts in revenue collection and management by tax, customs and public finance departments in addition to economic development, overall revenue growth was fairly rapid, though growth in the second half of the year was noticeably more sluggish. Thanks to rapid economic growth and good corporate performance in the first half of the year, plus special factors such as the 2007 surge in corporate profits, increase in corporate income tax receipts and the effect of tax policy adjustments, national revenue grew by 33.3%. None of these special factors were present in the second half of the year. Due mainly to the impact of the global financial crisis, economic growth slowed and corporate profits weakened. Following a big cut in the corporate income tax rate in 2008, a series of policies to reduce or exempt taxes and fees were introduced to strengthen and improve macro-control through management of public finance and promote steady and rapid economic growth. This led to the slower growth in national revenue. National revenue grew by 5.2% in the second half of the year, while revenue collected by the central government dropped by 0.9%. 

Main revenue items in the central budget. Domestic VAT reached 1.349742 trillion yuan, up 16.3% and equivalent to 100.7% of the target. Domestic sales tax reached 256.78 billion yuan, a rise of 16.4% and equivalent to 104% of the target. VAT and sales tax on imports amounted to 739.107 billion yuan, up 20.1% and equivalent to 107.8% of the target. VAT and sales tax rebates for exports totaled 586.59 billion yuan, up 4.1% and equivalent to 102% of the target, which represents a decrease in revenue by the same amount. Business tax totaled 23.21 billion yuan, an increase of 14.5% and equivalent to 103.2% of the target. Corporate income tax registered 717.34 billion yuan, a rise of 27% and equivalent to 111.6% of the target, with the high increase mainly due to the large increase in corporate income tax in 2007. Individual income tax reached 223.418 billion yuan, up 16.9% and equivalent to 110.1% of the target, with the large increase mainly due to the growth of per capita disposable income for urban residents and improved collection and management. The securities transaction stamp tax reached 94.968 billion yuan, down 51.2% and equivalent to 48.8% of the target, with the shortfall due to a large decline in revenue triggered by the sluggish stock market, the reduction of the securities transaction stamp tax rate and the scrapping of the stamp tax on stock purchases. Tariffs hit 176.995 billion yuan, an increase of 23.6% and equivalent to 110.6% of the target, mainly due to the rapid growth of general imports. Non-tax revenue hit 170.451 billion yuan, up 23.6% and equivalent to 118.4% of the target, with the high increase mainly due to the increase in fees for mineral prospecting and mining rights and resource consumption charges as well as mineral resource compensation fees following reform of the system for paid use of resources. 

The use of surplus revenue. National revenue exceeded the budget target by 283.09 billion yuan, including a 108.02 billion yuan surplus in the central budget. The main reasons for the surplus are as follows: increases in real terms in economic indexes directly related to tax revenue, including the value-added of industry and commerce, total fixed asset investment, total volume of imports and exports and total retail sales of commodities, exceeded the projected figures. In addition, the increase in corporate income tax added to national revenue by a large margin due to the considerable increase in corporate profits in 2007. Surplus revenue in the central budget was used in the following areas in accordance with relevant laws and regulations as well as resolutions and decisions of the First Session of the Eleventh NPC. A total of 18.5 billion yuan was used to increase tax rebates and transfer payments to local governments. Two billion yuan was spent on education, the bulk of which went to students in the quake zone in need of special temporary assistance. Another 500 million yuan went to science and technology for independent research and development work on major scientific research equipment. Four billion yuan of surplus revenue from vehicle purchase tax receipts was transferred to the central government fund for post-earthquake recovery and reconstruction to rebuild damaged roads through expenditures from vehicle purchase tax receipts. Another 29.1 billion yuan was used to increase subsidies for agriculture, fisheries, forestry and other industries to offset the increases in the prices of refined petroleum products in June. An additional 4.7 billion yuan went to providing disaster relief, handling public emergencies and providing further relief for victims of massive natural disasters, the earthquake and the baby milk formula scandal. In response to the global financial crisis and in order to further boost domestic demand, the central government increased spending by 30 billion yuan mainly to build low-income housing and major infrastructure facilities. Finally, 19.2 billion yuan was added to the central budget stabilization fund to be incorporated into the budget in the years ahead. The State Council has reported the use of the surplus in 2008 to the Standing Committee of the Eleventh NPC.

2. Implementation of major expenditure items in the central budget 

In compiling the budgets in early 2008, we implemented the relevant decisions and plans of the central leadership by improving the structure of expenditures to increase funding in key areas such as agriculture, rural areas, farmers, education, the social safety net, medical and health care, housing, independent innovation, energy and resource conservation, and protection of the ecosystem. All key expenditure items received guaranteed funding. In light of the objective requirements for economic and social development, surplus revenue and some reserve funds were primarily applied to increase spending on agriculture, education and disaster relief during the implementation of the budget (all expenditures on major items consist of funds actually spent by the central government and transfer payments granted to local governments). 

1) Expenditures for agriculture, forestry and water conservancy totaled 182.174 billion yuan, an increase of 43.6% and equivalent to 125.6% of the target, with the large excess mainly due to the increase in agricultural subsidies during the implementation of the budget. A total of 16.34 billion yuan was spent to increase subsidies for planting superior crop varieties and purchasing agricultural machinery and tools, subsidize all rice producers in the country planting superior rice varieties, raise the level of subsidies for planting superior late rice varieties by more than 100%, increase acreages sown to superior wheat and corn seeds with government subsidies by 100% and 570% respectively, and extend subsidies for the purchase of agricultural machinery and tools to all agricultural counties across the country. Expenditures for developing agricultural infrastructure totaled 113.76 billion yuan and were mainly used to develop large and medium-sized reservoirs, harness major rivers, reinforce 2,505 dilapidated large and medium-sized and key small reservoirs, and provide safe drinking water for more than 48 million rural residents. A total of 12.7 billion yuan was spent for overall agricultural development to support the improvement of 1.67 million hectares of low and medium-yield farmland and increase overall grain production capacity by 2.866 million tons. The number of counties conducting soil testing to determine appropriate fertilizer formulas increased from 1,200 to 1,861. Trials to subsidize insurance premiums for crops were extended from 6 to 16 provincial-level administrative areas, and 75 million rural households are now covered. A total of 16.73 billion yuan was disbursed to alleviate poverty through development, focusing on developing infrastructure and industry in poor rural areas and providing job training for poor rural residents. The area of key public forests funded by the central government with the forest ecological conservation fund expanded to 46.67 million hectares. 

2) Spending on education reached 159.854 billion yuan, a 48.5% gain and equivalent to 102.4% of the target. A total of 61.81 billion yuan went to making free compulsory education available in both urban and rural areas. We stopped collecting tuition and miscellaneous fees from all urban students receiving compulsory education starting last autumn, raised the level of funding for operating expenses for rural compulsory education, provided free textbooks required by the state to rural students receiving compulsory education, and raised the school heating subsidies for rural primary and secondary schools in northern China. A total of 5.31 billion yuan was used to step up development of new schools with improved sanitation facilities as part of the developing new countryside and construction of primary and secondary school buildings in the central and western regions and improve the living facilities in rural schools there. A total of 22.3 billion yuan was used to grant financial assistance to students from poor families at regular undergraduate institutions, vocational colleges and secondary vocational schools. Secondary vocational school students from poor urban families and rural areas received financial aid of 1,500 yuan per student a year, a policy benefiting 90% of the student population. We supported development of three groups of state-level demonstration vocational colleges totaling 100 schools, resulting in improvement in the quality of their teachers and operating conditions. A total of 43.243 billion yuan was spent to raise the quality of higher education and begin full-scale development of the third phase of the 211 Project for Higher Education. 

3) Expenditures for medical and health care amounted to 82.68 billion yuan, a 24.5% growth and equivalent to 99.4% of the target. We established a new type of cooperative medical care system in all rural areas across the country, covering more than 800 million residents. We increased the number of pilot cities making basic medical insurance available to their non-working residents from 88 to 317, with the number of participating residents increasing from 42.91 million to over 100 million. The central government raised the level of financial aid to 40 yuan per person a year in the central and western regions, and granted a certain level of subsidies to the eastern region. These measures claimed expenditures totaling 27.868 billion yuan. Eight billion yuan was used to expand the basic medical insurance program for urban workers to include all retirees from state-owned enterprises subject to policy-mandated closure or bankruptcy in all localities of the country. We increased funding for public health in areas such as prevention and control of major diseases, as well as for oversight and supervision of food and drugs and development of traditional Chinese medicine, improved medical treatment procedures for public emergencies, stepped up public health and epidemic prevention efforts, and screened infants and pre-school children potentially exposed to melamine-tainted milk power free of charge. These measures claimed expenditures by the central government totaling 12.614 billion yuan. A total of 3.4 billion yuan went to increasing medical assistance in both urban and rural areas, and providing assistance for medical care for urban and rural residents receiving cost of living allowances and rural childless and infirm residents who receive subsidies to cover food, clothing, medical care, housing and burial expenses to enable them to obtain medical insurance and reduce the burden on them from medical expenditures. We spent 6.6 billion yuan to step up development of public health facilities in counties and townships and equip them with basic medical equipment. We expanded the area of the country covered by the policy granting allowances to rural women giving birth in hospitals so that it now covers the entire central and western regions, and the central government raised the allowances to 300 yuan per person for the central region and 400 yuan for the western region. 

4) Expenditures for the social safety net and employment work reached 274.359 billion yuan, up 19.2% and equivalent to 99.3% of the target. A total of 36.31 billion yuan was used to improve all aspects of the cost of living allowance system for both urban and rural residents and raise the monthly allowances for urban dwellers by 15 yuan per person and for rural residents by 10 yuan per person on January 1 and again on July 1. The central government allocated 112.743 billion yuan in subsidies for old-age insurance to continue to increase basic old-age benefits for retirees from state-owned enterprises by 110 yuan per person a month, with the focus on the central and western regions and northeast China and other old industrial bases. Twenty billion yuan was spent to support policy-mandated closures or bankruptcies of 80 state-owned enterprises and provide for 320,000 of their laid-off employees. The central government spent 25.208 billion yuan to support the implementation of policies to secure employment for people experiencing difficulty in finding employment by granting them subsidies for subscribing to social security and working in low-paying public service positions. We improved the policies on charges and fees and on guaranteed small loans to encourage business startups in order to expand employment. 

5) Expenditures to develop low-income housing totaled 18.19 billion yuan, an increase of 114.3%. More families were made eligible for low-rent housing and rent subsidies for such housing became available to more people. We made steady progress in renovating shantytowns (old and dilapidated housing). A total of 2.95 million low-income urban families across the country benefited from the low-rent housing program. This included 2.29 million families enjoying rent subsidies, 260,000 households renting government-managed housing, and 340,000 families paying discounted rent.

6) Expenditures on culture reached 25.281 billion yuan, up 20% and equivalent to 99.9% of the target. Admission to 1,007 museums and memorial halls across the country was offered free of charge to the public. We supported the project to build a national shared database for cultural information and resources; this has proceeded ahead of schedule and now covers all counties in some provinces and municipalities directly under the central government. Grant of subsidies to enable villages to show movies has been extended to all incorporated villages in the central and western regions. We supported 46,434 incorporated villages in the central and western regions in purchasing suitable books and rewarded those provinces and municipalities directly under the central government in the eastern region that did well in setting up rural reading rooms. 

7) Spending on science and technology reached 116.329 billion yuan, up 16.4% and equivalent to 102.6% of the target. This included 90.391 billion yuan applied to step up basic and applied research and 6 billion yuan to launch and carry out all the 16 key state science and technology projects. Funds were used to enable key state laboratories to allow outside personnel to use their facilities and design, manufacture and upgrade their instruments and equipment, and undertake independent innovation and research. Funds were also used to develop a system of industrial technologies for modern agriculture involving 50 major farm products. 

8) Spending on environmental protection totaled 104.03 billion yuan, up 33% and equivalent to 101.2% of the target. Included in this total is 42.3 billion yuan used to promote development of the ten major energy conservation projects and the circular economy, control water pollution in key river valleys, and improve urban water supply and wastewater pipe networks in the central and western regions, and 49.96 billion yuan used to support the project to protect natural forests and implement policies for returning farmland to forests and returning grazing land to natural grasslands. Funds were used to finance the trial of a compensation and credit trading system for the right to release pollutants in the Tai Lake basin and the Binhai New Area of Tianjin. Funds were also spent to promote comprehensive utilization of resources and develop new and renewable energy sources. 

9) Spending on industry, commerce and banking totaled 387.135 billion yuan, an increase of 59.4% and equivalent to 114.8% of the target. This figure includes 86.7 billion yuan in direct subsidies to grain farmers and general subsidies for purchasing agricultural supplies, representing an increase of 103%, which benefited 728 million farmers. Another 46.169 billion yuan was used to raise the minimum grain purchase prices three times by a significant accumulative of more than 20%, implement a short-term policy for purchasing and storing major agricultural products, and maintain grain and edible oil reserves. A total of 36.538 billion yuan in subsidies was granted to the fishery industry and four other major industries seriously affected by adjustments in prices of refined petroleum products. Another 2 billion was used to extend to 12 provincial-level administrative areas the program to grant subsidies to enable rural residents to buy home appliances. A total of 89.5 billion yuan was used to support reform of the banking system. Finally, 36.969 billion yuan was spent to promote industrial upgrading and restructuring and accelerate industrial application of new and high technologies. 

10) Spending on public security came to 87.577 billion yuan, up9.3% and equivalent to 102.1% of the target. We intensified our efforts to ensure adequate funding for procuratorial, judicial and public security organs, with the focus on guaranteeing sufficient operating expenses to carry out their major duties and improve their infrastructure. We made funds available for reforming the method for collecting court fees for bringing suits. We supported key areas of the country in responding to emergencies. 

11) Expenses for national defense totaled 409.943 billion yuan, up 17.7% and equivalent to 100% of the target. 

12) Expenditures for transportation amounted to 129.077 billion yuan, an increase of 3.4% (or 22.6% if not including the one-time expenditures in 2007 for railway construction financed with the proceeds from the sale of state assets held by railway enterprises) and equivalent to 122.4% of the target. The large amount over the target was mainly due to increase in expenditures from vehicle purchase tax receipts and in expenditures for developing highways, railways, and other transport facilities during implementation of the budget. Included in this total is 49.5 billion yuan used to strengthen transportation infrastructure such as expressway networks, railways, inland channels, and airports, and 49.2 billion yuan spent to increase support for construction of rural roads, resulting in 391,000 kilometers of newly built or upgraded roads. 

13) Expenditures for providing general public services totaled 252.299 billion yuan, up 8.7% and equivalent to 95% of the target. This consists of 1) 127.233 billion yuan for basic public administration and services, such as operation of government offices, down 4.3% and equivalent to 89.6% of the target (expenditures were under the budgeted amount for this item mainly because the budget compiled early last year included transfer payments to administrations of industry and commerce in compensation for the fees they used to collect from sole proprietors and fair trade markets, but during actual implementation this item was incorporated into fiscal transfer payments, and regular budgeted expenditures of state organs were reduced to make more funds available to fight the earthquake and provide disaster relief); and 2) 125.066 billion yuan was used to pay interest on national debt, an increase of 26.2% and equivalent to 101.2% of the target. 

Total spending by the central government on the above items in areas such as education, medical and health care, the social safety net, employment, low-income housing and culture that directly affect the people's lives came to 560.364 billion yuan, an increase of 29.2%. Central government expenditures for agriculture, rural areas and farmers totaled 595.55 billion yuan, an increase of 163.7 billion yuan or 37.9%. This figure includes 226.01 billion yuan for agricultural production; 103.04 billion yuan, an increase of 100%, for direct subsidies to grain producers, general subsidies for purchasing agricultural supplies, subsidies for planting superior crop varieties and subsidies for purchasing agricultural machinery and tools; 207.28 billion yuan for social programs such as education, medical and health care, the social safety net, employment, low-income housing and culture in rural areas; and 57.62 billion yuan for expenses and interests related to stockpiles of major agricultural products. The central government's tax rebates and fiscal transfer payments to local governments totaled 1.255932 trillion yuan, the bulk of which went to the people's wellbeing, agriculture, rural areas, and farmers.

3. Public finance's active effect in macro-control 

The central leadership made major adjustments in the orientation of macro-control on two occasions in light of developments and changes in the domestic and international economic situations. The primary task for macro-control shifted mid-year from preventing overheated economic growth and significant inflation to maintaining steady and rapid economic development and preventing prices from rising too fast. In September, the central leadership resolutely shifted the focus of macro-control to preventing economic growth from slowing down too quickly. Even more proactive fiscal and taxation policies and measures were adopted mid-year in line with the orientation of central government macro-control while the government continued to pursue a prudent fiscal policy. An even more proactive fiscal policy was implemented in and after October by reducing and exempting taxes and fees by an appropriate amount, raising export rebate rates several times and increasing the spending and key expenditures of the central government. These moves played an important role in promoting steady and rapid economic development. 

We maintained an appropriate increase in central government spending. At the beginning of the year, we reduced the central government deficit and funding for bond-financed projects and increased spending on capital construction in the central budget. The scale and structure of expenditures were adjusted during implementation of the budget to provide relief for quake-hit areas. We set up a central government fund for post-earthquake recovery and reconstruction to give full support for recovery and reconstruction efforts. In the fourth quarter, we energetically raised funds and increased central government spending by 104 billion yuan to ward off the impact of the global financial crisis, accelerate recovery and reconstruction efforts in quake-hit areas, construct low-income housing and carry out other measures to improve the people's wellbeing, and strengthen agricultural infrastructure. 

We promoted price stability and alleviated price irrationality. We increased general subsidies for purchasing agricultural supplies and subsidies for planting superior seed varieties by a large margin. We raised minimum grain purchase prices significantly three times, imported a greater volume of agricultural products and important raw materials in short supply on the domestic market, strictly controlled the export of grain and chemical fertilizers and improved regulation of reserves of important commodities. Subsidies were granted to the fishery industry and four others that were greatly affected by changes in the prices of refined petroleum products. We assisted producers of resource products because prices became irrational and were not likely to see correction in the near future. Subsidies for the low-income population were raised promptly as needed. Junior and regular college students in full-time programs received temporary meal allowances. 

We reduced the load on enterprises and individuals. The new Law on Corporate Income Tax was implemented, reducing the tax load on enterprises. The salary threshold for the individual income tax was increased and the individual income taxes on interest earnings from savings and stock account balance were suspended. Fiscal and taxation policies were adopted to support development of low-rent housing, affordable housing and the rental housing market. Taxes on housing sales were reduced. The securities transaction stamp tax rate was reduced and the stamp tax on stock purchases was scrapped. We adjusted policies for the sales tax on vehicle purchases. Financially-strapped enterprises were temporarily allowed to suspend their payment of social security contributions, and the required contributions to medical, unemployment, worker's compensation and maternity insurance funds were decreased. According to preliminary statistics, the tax load on enterprises and individuals was reduced by about 280 billion yuan in 2008 due to policies requiring tax reductions and exemptions. 

We supported development of small and medium-sized enterprises. The central government and governments at the provincial level allocated 28.64 billion yuan to assist small and medium-sized enterprises in innovating technology, upgrading products and expanding into international markets. Trials were carried out in investment of venture capital. We improved the credit guarantee system for small and medium-sized enterprises, and granted rewards and subsidies to agencies providing guarantees for them. More enterprises became eligible for guaranteed small loans, the central government raised subsidies for interest on guaranteed small loans, and a mechanism for rewarding lending institutions and a mechanism for risk sharing and compensation in the event of losses from nonperforming loans were set up. Preferential taxation policies were adopted to promote development of small and medium-sized enterprises. 

We supported efforts to stabilize exports. We increased export rebate rates for textiles, garments and other labor-intensive products, as well as high value added products with high technology content four times. Export tariffs on some steel and chemical products and grain were rescinded, and export tariffs on some chemical fertilizers were lowered and collection methods adjusted.

4. A powerful effort to fight natural disasters and provide disaster relief 

The government allocated relief funds totaling 47.91 billion yuan in a strong response to low temperatures and snow and ice storms that occurred in some areas of the south at the beginning of the year. The level of assistance to disaster victims rose to help them with the temporary difficulties they had in their lives and ensure their basic living conditions. We provided strong support to efforts to resume agricultural production, rebuild collapsed housing and repair infrastructure facilities such as power grids, transportation and education. After the devastating earthquake hit Wenchuan in Sichuan Province on May 12, we quickly launched a contingency fiscal plan for the earthquake and promptly took effective measures to arrange adequate relief funds. The central government allocated 38.437 billion yuan in rescue and relief funds and local governments, 24.328 billion yuan. A fund of74 billion yuan was allocated to the central government fund for post-earthquake recovery and reconstruction, of which 69.87 billion yuan was actually spent, including 38 billion yuan for rebuilding urban and rural housing, 9.749 billion yuan for repairing infrastructure, 4.8 billion yuan for rebuilding industry and 2.436 billion yuan for preventing and reducing disasters. We cut general public spending in state organs by 5%, and all of the savings were used to provide disaster relief. Nineteen provinces and municipalities directly under the central government now set aside at least 1% of their annual regular revenue each year to aid designated quake-hit areas. Fiscal and taxation policies were implemented to support disaster relief and post-earthquake recovery and reconstruction. Donations were closely monitored and tightly managed to ensure their effective use. 

5. Steady progress in fiscal and taxation reforms 

The income tax systems for domestic and overseas-funded enterprises were unified. The trial VAT reform underway in the three northeastern provinces and 26 old industrial cities in the central region expanded to include eastern Inner Mongolia as well as areas seriously hit by the Wenchuan earthquake, and the plan to carry out the reform nationwide beginning January 1, 2009 was released. The new provisional regulations for tax on farmland used for nonagricultural purposes and detailed rules for their implementation were instituted. The real estate tax systems for domestic and overseas-funded enterprises and Chinese and foreign individuals were unified. We worked out a plan for the reform of taxes and fees for refined petroleum products. A preliminary plan was formulated for setting up a mechanism to ensure adequate basic funding for county-level governments in line with the requirement to set up a sound public finance system whereby the financial resources of governments are commensurate with their responsibilities. Progress was made in the initiative to place county finances directly under the management of provincial governments and township finances under the management of county governments. Reform was enacted on taxes and fees for state-owned farms. We supported trial reduction of debt incurred in rural nine-year compulsory education in 14 provincial-level administration areas. Trials to set the allowable number of employees, level of funding and limits for spending for goods within basic expenditures expanded. The number of departments required to submit their budgets to the NPC for approval increased from 40 in 2007 to 50 in 2008. We carried out the reform to set up a centralized treasury payment system in all central government departments, over 12,000 of their subsidiary agencies responsible for preparing their own budgets, and more than 280,000 local departments that prepare their own budgets. Reform of the system for collecting non-tax revenue was conducted in most central government departments and all provincial-level governments. The scope and scale of government procurement expanded. Trials of the budget system for state capital operations were carried out, and budgets were compiled on a trial basis for state capital operations by the central government. 

6. Constantly strengthening management of public finance 

In accordance with the decisions and resolutions of the First Session of the Eleventh NPC and guidelines of the Financial and Economic Affairs Commission of the NPC, we strengthened budgetary management and improved collection and management of revenue, adjusted the structure of expenditures and deepened reform of the fiscal and taxation systems. Local governments received advance notice of the estimated size of general and special transfer payments from the central government to become able to compile more comprehensive budgets. Budgets were made more detailed to ensure that implementation was more on track at the beginning of the year. We set up a notification and inspection system to improve budget implementation. Trials to disburse official business expenses with credit cards continued. We expanded the trial evaluation of the performance of budgetary expenditures of 2007 from 6 to 108 items and from 4 to 74 departments in 2008. We thoroughly screened fees and funds and stopped collecting administration fees from sole proprietors and fair trade markets nationwide. We worked out guidelines for improving management of non-tax revenue and a plan to bring it under budgetary management by 2011. Oversight and examination were tightened for the funds for natural disaster recovery and relief and improvement of the people's lives, as well as for the implementation of major fiscal and taxation policies. Continued progress was made in rendering fiscal operations more transparent. 

In general, the budgets for 2008 were implemented satisfactorily, thereby effectively promoting steady and rapid economic development and social harmony and stability. This is attributable to the firm leadership and scientific decision making of the Party Central Committee and the State Council and to the strong support and close cooperation of all regions, departments, and particularly tax and customs administrations. However, we are clearly aware that problems persist in budget implementation and fiscal work, including the following: The impact of our economic downturn on public finance is mounting, as are factors reducing revenue and increasing expenditures, thus rendering it ever more difficult to balance revenue and expenditures. The structure of expenditures needs to be optimized and more support is required for weak links in economic and social development. The structure of taxes and fees needs to be made more rational, the taxation system needs further improvement, and the government's role in the distribution of national wealth needs further standardization. The transfer payment system and the fiscal systems at and below the provincial level need further improvement, and some county and township governments lack adequate financial resources. Budgets are not prepared precisely enough, and budget implementation needs to become more uniform. There is still serious loss, waste, and diversion of budgetary funds, and thus our budgetary oversight and supervision need improvement. We must pay close attention to these problems, continue working to find more effective measures and successfully solve them.

II. Draft Central and Local Budgets for 2009 

1. Current national economic and financial situations 

The year 2009 presents both severe challenges and important opportunities to China's economic development. The still spreading global financial crisis and global economic slowdown, coupled with cyclical adjustments in the domestic economy, as well as the interaction between short-term difficulties and long-term problem shave made it even harder for us to maintain steady and rapid economic development. Public finance is a composite reflection of national economic performance. The year 2009 will be a very difficult one for public finance, and it will prove extremely difficult stretching revenue to cover all expenditures. Viewed from the standpoint of revenue, the problems facing national economic development have become more numerous, enterprise profits are down and revenue sources have significantly decreased due to the impact of economic slowdown. In addition, we must follow a proactive fiscal policy and carry out structural tax reductions in order to ensure continued steady and rapid economic development. In recent years, special factors have fueled the rapid increase in government revenue, but these factors will either diminish or be entirely absent in 2009, thus it will become even more difficult to increase revenue. Viewed from the standpoint of expenditures, greater financial support will be required to increase the scale of government spending, maintain and improve the wellbeing of the people, support key areas in economic and social development - such as agriculture, rural areas and farmers, education, the social safety net and employment, medical and health care, energy conservation and emissions reduction - alleviate the operating difficulties experienced by some industries and enterprises and support post-disaster reconstruction efforts. The base figure for total government expenditures is fairly large and there is little leeway. This also puts pressure on government spending. While acknowledging our difficulties, we must also recognize that China is now in an important period of strategic opportunities, and that neither the fundamentals of its economic and social development nor its positive long-term trend has changed. Carrying out reform and opening up over the last three decades has established an excellent material, technological and institutional base. Industrialization and urbanization are proceeding rapidly, creating a huge demand potential. There is more than ample capital in society and plentiful labor resources. The series of policies and measures the central leadership has introduced to boost domestic demand have effectively promoted, and will continue to promote, steady and rapid economic development, thus laying a solid foundation for increasing government revenue. 

2. Overall requirements for compiling the budget and doing financial work 

Taking into consideration developments and changes in global and domestic economic situations, the central leadership has decided that we must set maintenance of steady and rapid economic development as our first priority for economic work in 2009, follow a proactive fiscal policy, and concentrate on the requirements of boosting domestic consumption, maintaining economic growth, carrying out economic restructuring, raising the overall quality of economic growth, implementing reforms, making the economy more vibrant, and stressing the people's wellbeing and promoting harmony. The guiding ideology for compiling the budget and doing financial work in 2009 has been set as follows: We should fully implement the guiding principles set out at the Seventeenth National Party Congress, the Third Plenary Session of the Seventeenth Central Committee and the Central Economic Work Conference, take Deng Xiaoping Theory and the important thought of Three Represents as a guide, and thoroughly implement the Scientific Outlook on Development. Furthermore, we need to follow a proactive fiscal policy, increase government spending, carry out structural tax reductions, adjust the pattern of national wealth distribution, improve the structure of government expenditures, effectively maintain and improve the people's wellbeing, carry out reform of the fiscal and taxation systems, support scientific and technological innovation, energy conservation and emissions reduction, and promote economic growth, economic restructuring and balanced regional economic development. We also need to make financial management more scientific, more effectively utilize government funds, make full use of the role of public finance and work for both sound and rapid economic and social development.

We must focus on the following five areas in following a proactive fiscal policy: 

One is to expand government spending while striving to focus on key areas. This is an important measure for boosting domestic consumption and maintaining steady and rapid economic development. In addition to increasing its public spending by 104 billion yuan at the end of 2008 to develop low-income housing and support post-earthquake recovery and reconstruction, the central government in 2009 will allocate 908 billion yuan in public spending, an increase of 487.5 billion yuan. This includes 208.1 billion yuan to develop agricultural infrastructure and improve the wellbeing of rural residents, 49.3 billion yuan to develop low-income housing, 71.3 billion yuan to finance education, medical and health care and other social programs, 130 billion yuan for post-earthquake recovery and reconstruction, 68 billion yuan for energy conservation, emissions reduction and ecological conservation, 45.2 billion yuan to make independent innovation and technological upgrading in enterprises and develop service industries, and 231.7 billion yuan to develop infrastructure such as railways, highways, airports and ports. 

Two is to carry out reform of taxes and fees and implement structural tax reductions. While carrying out reform and improving the taxation system, we will implement structural tax reductions to lighten the tax load on enterprises and the people, encourage enterprises to increase their investment and boost consumer spending power. We need to fully implement a consumption VAT, reduce the tax load on enterprises and encourage them to increase spending on independent innovation and technological upgrading. We will carry out reform of taxes and fees for refined petroleum products, make the distribution of the tax and fee load fairer and promote energy conservation and emissions reduction. We will rescind and cease collecting 100 items of administrative fees. We will continue to carry out a series of policies for tax and fee reduction or elimination that were introduced in 2008 to increase the salary threshold for the individual income tax, raise the export tax rebate rates for some products, eliminate or reduce customs tariffs for some exports, reduce the securities transaction stamp tax rate, scrap the stamp tax on stock purchases, suspend the individual income taxes on interest earnings from savings and stock account balance, and reduce taxes on home sales. This should reduce the load on enterprises and individuals by about 500 billion yuan in 2009. 

Three is to increase the income of the low-income population and strongly promote consumption demand. We will adjust the distribution of national wealth and increase the proportion of individual incomes in national income distribution and the proportion of the primary distribution of income that goes directly to wages and salaries to increase the consumption capacity of residents and strengthen the effect consumption has in promoting economic growth. We need to give full play to the role of fiscal and taxation policies and increase the government assistance, focusing on increasing the income of the low- and middle-income population. We will further increase subsidies to farmers. The central budget for 2009 earmarks 123.08 billion yuan for direct subsidies to grain producers, general subsidies for purchasing agricultural supplies, subsidies for growing superior crop varieties and subsidies for the purchase of agricultural machinery and tools, an increase of 20.04 billion yuan or 19.4%. In addition, we will support a large increase in the minimum purchase price for grain in order to increase rural incomes. We will also allocate 220.833 billion yuan to increase subsistence allowances for both urban and rural families, grant them and other families in financial hardship a one-time subsidy before Spring Festival, increase basic pension payments for retirees from state-owned enterprises and increase support for entitled groups. We will carry out reform of the income distribution system in institutions. In addition, we will increase government spending to encourage and guide consumer demand. We will allocate 103.341 billion yuan to implement a policy subsidizing rural residents' purchase of home appliances and vehicles and increase reserves of important materials such as grain, petroleum, nonferrous metals and specialty steel products. 

Four is to improve the structure of budgetary expenditures and maintain and improve the people's wellbeing. We will support rural reform and development. The central government will allocate 716.14 billion yuan, an increase of 120.59 billion yuan or 20.2%, to assist agriculture, rural areas and farmers. We will focus on efforts to maintain and improve the people's wellbeing. The central government will allocate 728.463 billion yuan, an increase of 165.334 billion yuan or 29.4% in comparable terms, for education, medical and health care, the social safety net, employment, low-income housing and culture that are directly related to the people's wellbeing. Regular expenditures will be strictly controlled and administrative overhead further reduced. 

Five is to strongly support innovation in science and technology, energy conservation and emissions reduction, and promote economic restructuring and transformation in the pattern of economic development. We will increase spending on science and technology. The central government will allocate 146.103 billion yuan for science and technology, an increase of 29.774 billion yuan or 25.6%. Twenty billion yuan in subsidies on the interest payments of bank loans will be allocated to accelerate technological upgrading and advances in enterprises and encourage banks to increase loans in this respect with the focus on projects designed to invigorate industries. Spending on energy conservation and emissions reduction will increase with a special allocation of49.5 billion yuan to support efforts to retrofit energy-conserving technology and retire backward production facilities. We will make steady progress in the reform to institute a system of compensation for the use of resources and a mechanism of compensation for degradation of the ecosystem. The system of taxes on resource use will be reformed and improved to promote the reasonable utilization of resources. A total of 9.6 billion yuan will be allocated to support development of small and medium-sized enterprises. We will accelerate improvement of the industrial structure, strengthen the ability to engage in independent innovation and promote the transformation of the pattern of economic development. 

Planning for the aggregate level of budgetary revenue and expenditures and the budget deficit for 2009. In accordance with the growth in GDP of approximately 8% projected for 2009 and other anticipated economic development targets, and further factoring in the proactive fiscal policy and policies for instituting structural tax reductions and exemptions, such as the VAT reform and the increase in export tax rebates, various factors that will tend to reduce revenue and increase expenditures, such as increasing the scale of public spending and increasing expenditures to boost consumer demand and improve the people's wellbeing, in addition to the conversion of the road maintenance fee to a sales tax pursuant to reform of taxes and fees for refined petroleum products, and specifically analyzing how these factors will affect all revenue and expenditure items in the central budget, we have set the following major targets for the 2009 budget: Total revenue in the central budget should reach 3.586 trillion yuan, an increase of 318.801 billion yuan (including the increase in sales tax receipts following reform of taxes and fees for refined petroleum products) over the actual figure for 2008 (same below), an increase of 9.8%. An amount of 50.5 billion yuan will be added from the central budget stabilization fund, bringing total revenue for 2009 up to 3.6365 trillion yuan. Total expenditures in the central budget total 4.3865 trillion yuan, an increase of 848.501 billion yuan, up 24%. These consist of 1.4976 trillion yuan incurred at the central government level, an increase of 160.169 billion yuan or 12%, and 2.8889 trillion yuan paid out as tax rebates and transfer paymentsto local governments, an increase of 688.332 billion yuan or 31.3%. Expenditures exceed revenue in the central budget, resulting in a deficit of 750 billion yuan. With a corresponding increase in the volume of government bonds issued, the limit for the outstanding balance of government bonds in the central budget stands at 6.270835 trillion yuan. Revenue collected by local governments should reach 3.037 trillion yuan, up 6%. Added to the 2.8889 trillion yuan in tax rebates and transfer payments from the central government, total revenue in the local budgets should total 5.9259 trillion yuan, an increase of 860.841 billion yuan or17%. Expenditures in the local budgets should total 6.1259 trillion yuan, an increase of 1.220628 trillion yuan or 24.9%. The State Council will allow local governments to issue 200 billion yuan worth of government bonds through the Ministry of Finance, which will go into provincial budgets. Preliminary provisions for the central and local budgets indicate that total national revenue should reach 6.623 trillion yuan (not including the 50.5 billion yuan from the central budget stabilization fund), an increase of 8%, and total national debt should reach 7.6235 trillion yuan, an increase of 22.1%. Total expenditures should exceed total revenue, yielding a deficit of 950 billion yuan to be offset by bond issues. 

The increase in the deficit and volume of government bonds for 2009 is an important measure initiated in response to the global financial crisis and is therefore imperative. On the one hand, the slowdown in economic growth and reduction in the tax load on enterprises and individuals are bound to brake the growth in budgetary revenue. On the other hand, we need to make full use of the role of public finance and significantly increase government investment and spending in order to promote steady and rapid economic development, maintain and improve the people's wellbeing and deepen reform. The budget deficit must increase by a wide margin and with a corresponding increase in the volume of government bonds in order to make up for the shortfall created by the slowdown in revenue growth and increase in expenditures. The deficit has been falling over the past several years, and although the deficit for 2009 has increased somewhat, it accounts for less than 3% of GDP and the balance of outstanding government bonds accounts for around 20% of GDP. The overall strength of the country can tolerate these levels, which are overall within the margin for safety. 

We must note that: if the 220 billion yuan in sales tax revenue recouped by local governments following reform of taxes and fees for refined petroleum products to replace the road maintenance fee with a sales tax on refined petroleum products is deducted from the total revenue as provided for in the central budget set forth above, the total revenue in the central budget would be 3.366 trillion yuan, an increase of 98.801 billion yuan or 3% over the figure for 2008. If this added expenditure, post-earthquake recovery and reconstruction expenditures and additional government spending to boost domestic demand are excluded, the increase in the central government's regular expenditures would then be 10.4%. 

Status of the central budget stabilization fund. The fund stood at 62.4 billion yuan after 19.2 billion yuan was added to it from surplus revenue in 2008. After 50.5 billion yuan is taken from the fund for the 2009 budget, it will still contain 11.9 billion yuan for use as circumstances may from time to time require.

3. Main revenue items provided for in the central budget 

Domestic VAT should total 1.4563 trillion yuan, an increase of 106.558 billion yuan or 7.9%. Factors taken into consideration in reaching this total are the ratio of the growth rate of VAT to that of the value added of industry and commerce, as well as the fact that VAT reform will result in a reduction of about 100 billion yuan in revenue. 

Domestic sales taxes should reach 443.4 billion yuan, an increase of 186.62 billion yuan or 72.7%. This figure rests primarily on the increase in sales tax revenue generated by the increase in the tax on refined petroleum products following reform of taxes and fees for refined petroleum products to replace the road maintenance fee, as well as on projected sales volume for commodities such as cigarettes, alcoholic beverages and vehicles. 

Total import tariffs should reach 989.5 billion yuan, an increase of 73.398 billion yuan or 8%. Calculation of this figure relies mainly on the ratio of the growth rate of import tariffs tothat of regular import trade, taking into consideration a drop in the price of major commodities. 

Corporate income taxes should total 760.5 billion yuan, an increase of 43.16 billion yuan, or 6%. This figure is mainly based on the following factors. Corporate profits saw a downturn in growth in 2008 and corporate income taxes are expected to drop in the first half of 2009. In addition, increases in corporate profits are expected to decline significantly in 2009, with increases in corporate income taxes witnessing a corresponding drop in the same period. 

Total individual income taxes should reach 239 billion yuan, an increase of 15.582 billion yuan, or 7%. The main considerations used to compile this figure are the higher earnings threshold for the individual income tax effective as of March 1, 2008, temporary scrapping of individual income taxes on interest from savings and stock account balance instituted on October 9, as well as the projected increase in per capita disposable income of urban residents. 

Total revenue from the stamp tax on securities transactions should reach 24.5 billion yuan, a drop of 70.468 billion yuan or 74.2%. The main factors behind this figure are the projected daily trade volume for securities plus the large reduction in the stamp tax rate and the scrapping of the stamp tax on stock purchases, and changes instituted in 2008 that will reduce revenue. 

Export tax rebates should total 670.8 billion yuan, an increase of 84.21 billion yuan or 14.4%, which will result in a corresponding decrease in government revenue. The main factors taken into consideration were the projected growth in ordinary export trade and the series of increases in export tax rebate rates for some products instituted in the last half of 2008, which will result in a large margin of increase in total export tax rebates in 2009. 

The vehicle purchase tax should reach 97 billion yuan, a decline of 1.975 billion yuan or 2%. This figure is mainly based on projected growth in vehicle sales and a reduction in the tax rate for the purchase of passenger vehicles with engine displacements at or under 1.6L to 5%.

4. Main expenditure items as provided for in the central government budget 

We will further adjust the structure of expenditures, take into consideration all factors and maintain some expenditures while reducing others in accordance with the central government's policy of expanding domestic demand, sustaining growth, carrying out restructuring and improving the people's wellbeing. Expenditures will focus on agriculture, education, medical and health care, the social safety net, employment, low-income housing, science and technology, environmental protection and post-earthquake recovery and reconstruction. Main expenditure items are as follows. 

1) A total of 344.659 billion yuan has been allocated for expenditures related to agriculture, rural areas and farmers, forest projects and water conservancy projects, an increase of 74.439 billion yuan or 27.5%. We will stabilize and develop grain production to increase rural incomes. An allocation of 75.6 billion yuan has been earmarked for general allowances for agricultural supplies, an increase of 5.6%. The total allowances for the purchase of agricultural machinery and tools have increased by a large margin. The allocation for 2009 is 13 billion yuan, a 2.25-fold increase, to expand the types of allowances from9 to 12 and to cover all agricultural and animal husbandry counties throughout the country. We will increase funding for allowances for planting superior seed varieties. A total allocation of 15.48 billion yuan, an increase of 25.4%, will be used to grant such allowances to more farmers who plant superior varieties of crops such as wheat and corn as such allowances are now to be granted to all farmers planting superior paddy rice strains. We will support efforts to add 50 million tons of grain growing capacity across the country step by step and in accordance with plan. We will institute a new poverty line and implement a new policy for providing support to the low-income rural population with a total appropriation there for of 19.73 billion yuan, an increase of 17.9%. We will promote agricultural restructuring. We have allocated 6.5 billion yuan for development of modern agricultural production, an increase of 20.4%, and we will support different areas in growing those crops that are best suited to their local conditions, have distinctive local characteristics and increase agricultural safety and efficiency. We will improve low-cost lending and assistance to promote the industrialization of agriculture. Overall agricultural development funds will total 14.7 billion yuan, an increase of 15.7%, and we will accelerate efforts to improve average and poor-yield farmland to increase overall agricultural production capacity, concentrating on the main grain-producing areas. We will formulate a suitable increase in the ratio for the cultivation allowance based on efforts to stabilize the current policy of allowances for paying agricultural insurance policy premiums and gradually expand the number of varieties eligible for the allowance. These steps will be financed by an allocation of 7.98 billion yuan, an increase of 31.9%. A total of 129.51 billion yuan has been allocated to develop agricultural infrastructure, provide strong support for the efforts to accelerate the reinforcement of dilapidated large and medium-sized and key small reservoirs, improve irrigated areas and build small water conservancy facilities. We will increase spending on projects for supplying safe drinking water and methane to rural areas by providing safe drinking water to another 60 million people and methane to an additional 5 million families. 

2) The total allocation for education is 198.062 billion yuan, an increase of 38.208 billion yuan or 23.9%. Funds totaling 66.25 billion yuan have been allocated to increase support for expenses incurred in operating compulsory education in rural areas, an increase of 16.1%. On the basis of the policy of exempting rural students from paying tuition and miscellaneous fees, supplying them with free textbooks, and providing poor on-campus students with living expenses, the public spending per primary and secondary school student will reach the levels specified by the central government, i.e. 300 yuan for a primary school student, and 500 yuan for a junior secondary school student. We will carry out a project to improve the safety of the buildings in rural primary and secondary schools providing compulsory education. An allocation of 5.77 billion yuan has been earmarked to exempt urban students in compulsory education from tuition and other education-related expenses, an increase of 44.9%. We will assist migrant workers in urban areas in ensuring their children receive school education. The central government has allocated 12 billion yuan to implement the performance-based salary system for teachers in compulsory education. A total of 13.7 billion yuan has been allocated to develop county-level vocational education centers and demonstration secondary vocational schools, accelerate renovation of the buildings in rural junior secondary schools in the central and western regions, and improve the auxiliary facilities in ruralschools with student dormitories. Subsidies totaling 4.5 billion yuan, an increase of 115.3%, will be used to continue supporting development of state-level demonstration vocational colleges and practical workshops for vocational education and to gradually make secondary vocational education free in rural areas. Twenty-four billion yuan has been allocated for assistance to students from poverty-stricken families and for state education assistance loansand subsidies. Expenditures in higher education will total 50.255 billion yuan to continue developing high-quality universities and key disciplines. 

3) Spending on medical and health care will total 118.056 billion yuan, an increase of 32.611 billion yuan or 38.2%. We will deepen reform of the pharmaceutical and health care system. Beginning in 2009, we will carry out five major tasks in the next three years to establish systems for guaranteeing basic medical services. We will improve the new rural cooperative medical care system, complete the establishment of a basic medical insurance system for non-working urban areas, and raise the level of both central and local government assistance to 80 yuan per capita. The central government has allocated 30.4 billion yuan for this purpose. The central government will help resolve the problem of retirees from local state-owned enterprises closed or forced into bankruptcy pursuant to policy in participating in basic medical insurance for urban workers, and further help resolve the problem of retirees from state-owned enterprises that are or used to be under the central government and have been closed or forced into bankruptcy pursuant to policy and from local state-owned enterprises forced into bankruptcy pursuant to policy in participating in such insurance. Subsidies totaling 6.45 billion yuan have been allocated to provide better medical assistance services for urban and rural residents. The basic framework will be set up for a national system for basic drugs so that patients have access to safe and affordable drugs. Subsidies totaling 16.53billion yuan have been allocated to improve the community-based medical and health service system, focusing on support for the establishment of 29,000 town and township hospitals and the improvement, expansion or construction of 5,000 central town and township hospitals, and to support urban community health clinics and town and township hospitals in purchasing medical equipment. An allocation of 24.6 billion yuan in subsidies will be used to improve prevention and control of major communicable diseases and other public health work. Local governments will receive support in providing certain basic public health services for urban and rural residents free of charge. The trial reform of publicly established hospitals will be extended. 

4) Expenditures for the social safety net and employment will total 335.069 billion yuan, an increase of 60.71 billion yuan or 22.1%. Improving the social safety net is an important basis for improving the people's wellbeing as well as an important measure for responding to the difficulties currently facing the country and expanding consumer demand. Spending on the social safety net will total 293.049 billion yuan, an increase of 43.898 billion yuan or 17.6%. A total of 54.08 billion yuan, an increase of 48.9%, has been allocated to raise the per capita monthly cost of living allowance by 15 yuan for urban residents and 10 yuan for rural residents. Ten billion yuan has been set aside so the government can award a one-time subsidy before Spring Festival to the more than 75.7 million urban and rural residents who receive subsistence allowances, as well as childless and infirm rural residents who receive subsidies for food, clothing, medical care, housing and burial expenses throughout the country. A total of 139.241 billion yuan has been allocated to raise the level of basic pension benefits for retirees from state-owned enterprises by about 10% of the average monthly per capita benefits of 2008, with a focus on special groups, and the central and western regions and northeast China and other old industrial areas will receive assistance from the central government as required. A total of 17.512 billion yuan has been allocated to raise allowances for some entitled groups as needed and to provide allowances and living subsidies for entitled groups. We will continue to support the policy-mandated closure and bankruptcy of state-owned enterprises, promote the pilot project for reforming collectively owned factories in northeast China, the central region and some central government enterprises, and support improvements in working and living conditions for people relocated to build reservoirs. 

A total of 42.02 billion yuan of employment assistance has been earmarked to support our vigorous employment policy, an increase of 16.812 billion yuan or 66.7%. We will give full play to the role government spending and major public projects play in creating jobs for migrant workers and substitute work for relief through government financing of public works projects in agriculture, forestry and water conservancy. Employment assistance will increase, focusing on finding employment for persons who have real difficulty finding it, zero-employment families and workers in disaster-hit regions, and policy support will be provided for migrant workers returning to the countryside to set up businesses. A favorable government policy will be instituted to encourage college graduates to work in urban and rural community-level organizations, the central and western regions and small and medium-sized enterprises. Support will be provided to make more training available to improve the vocational abilities of laid-off and unemployed persons and migrant workers, a special training program will be instituted, and enterprises will be encouraged to provide on-the-job training. We will support small and medium-sized enterprises and service industries in providing more employment opportunities, and encourage people to start up their own businesses or find jobs on their own through a fiscal policy of reducing or exempting taxes and fees, and providing guaranteed, small-sum, low-interest loans, social security allowances, allowances for public service work and subsidies for vocational training. 

5) Expenditures to build low-income housing will total 49.301 billion yuan, an increase of 31.111 billion yuan or 171%. Greater financial support will go to building low-rent housing and upgrading shantytowns, and the amount of subsidies will be appropriately raised for the central and western regions. The problem of finding housing for the 2.6 million low-income urban families and relocating, repairing or upgrading housing for the 800,000 families living in shantytowns in forest areas, wasteland areas and adjacent to coalmines will be addressed mainly by providing housing, coupled with rent subsidies. Efforts to upgrade dangerously dilapidated rural housing will be intensified and projects to build permanent housing for pastoral nomads in ethnic minority areas implemented. 

6) Spending on cultural programs will total 27.975 billion yuan, an increase of 2.694 billion yuan or 10.7%. Cultural programs of a public service nature will be vigorously developed to open up more areas of consumption. Support will be forthcoming to provide free admission to public museums, memorial halls and national patriotic education demonstration bases under cultural and relics departments at all levels across the country. Projects will be carried out to protect major cultural and historical sites to strengthen protection of the country's important national heritage. Support will go to extending coverage of national wireless radio and television programs in rural areas, expanding sharing of cultural information and resources across the country, promoting digital movie displays in rural areas, developing small rural reading rooms and carrying out other cultural projects that benefit the people. We will promote reform of the culture system, promote the conversion of profit-making cultural institutions into enterprises, and develop the culture industry. 

7) A total of 178.045 billion yuan will be spent on grain, edible oil and materials reserves, an increase of 67.535 billion yuan or 61.1%. Nineteen billion yuan has been set aside for direct subsidies to grain producers, an increase of 25.8%. In order to stimulate domestic demand, 78.341 billion yuan has been earmarked to expand reserves of important materials such as grain, edible oil, petroleum, nonferrous metals and specialty steel products and develop storage facilities. We will support a large increase in the minimum grain purchase prices and make allocations in full and on time for the purchase and storing of grain and associated expenses and interests. A subsidy of 13% of the purchase price will be granted to rural residents buying motorcycles and home appliances such as color TV sets, refrigerators, washing machines, cell phones, computers, water heaters and air-conditioners, for which 20 billion yuan has been set aside, a 9-fold increase. Five billion yuan has been allocated in one-time government subsidies for rural residents who scrap their three-wheeled vehicles and slow-speed trucks for light-duty trucks and those who buy passenger vehicles with engine displacements at or under 1.3L. A total of 7.4 billion yuan will be used to improve logistics and develop modern services in rural areas. 

8) Expenditures for science and technology will total 146.103 billion yuan, an increase of 29.774 billion yuan or 25.6%. A totalof 93.801 billion yuan will apply to speed up advances and independent innovation in science and technology, promote strategic economic restructuring, and increase financing for basic research and application research. Another 32.8 billion yuan has been earmarked to ensure the success of major science and technology projects. We will support efforts to improve research conditions and capacity in (key) national laboratories, scientific research institutes and universities. We will promote technological upgrading and independent innovation in enterprises, speed up development of new- and high- technology industries and the equipment manufacturing industry, and promote the conversion of advances in new and high technology into actual production. We will support development of small and medium-sized enterprises and technological innovation. We will promote development of regional science and technology innovation systems and organic integration of enterprises, universities and research institutes. 

9) A total of 123.662 billion yuan has been set aside for environmental protection, an increase of 19.632 billion yuan or 18.9%. A total of 49.5 billion yuan for energy conservation and emissions reduction, an increase of 17%, will be spent on retrofitting energy-conserving technology, retiring backward production facilities, increasing application of efficient, energy-conserving products and alternative-fuel vehicles, controlling and preventing water pollution in the areas around the Huai, Hai, Liao and Songhua rivers and Tai, Chao and Dianchi lakes, and developing the pipelines to complete urban wastewater and garbage treatment facilities and major emissions reduction projects in the central and western regions. We will improve the compensation system for the exploitation of coal and other mineral resources and the mechanism for compensation for damage to the ecosystem. We will promote development of new energy resources and renewable energy sources. Another 52.096 billion yuan will go to work on key projects such as those to protect natural forests, return farmland to forest and restore pasturage to natural grassland. 

10) Expenditures for public security will total 116.131 billion yuan, an increase of 28.554 billion yuan or 32.6%. The funding mechanism for procuratorial, judicial and public security departments will be reformed to implement a policy of budgeting expenses according to the type of department, financial assistance for local procuratorial, judicial and public security departments, especially lower-level departments in the central and western regions, will be increased, a mechanism for regular increases in allocations for ordinary expenses will be set up and efforts will be made to strengthen public security and armed police forces and make them more informationized. 

11) A total of 108 billion yuan has been earmarked to finance post-earthquake recovery and reconstruction. Another 14 billion yuan has been contributed from income from state capital operations, 5 billion from the state lottery fund and 3 billion from the central government's portion of land-use fees for new land for construction. All this adds up to 130 billion yuan in the central government fund for post-earthquake recovery and reconstruction, which will be used to build and repair housing and infrastructure, rebuild industry, and restore the ecosystem in the urban and rural areas hit by the earthquake in accordance with the plan. 

12) Expenditures for national defense will total 472.867 billion yuan, an increase of 62.726 billion yuan or 15.3%. These funds will be used to improve the living conditions and benefits of military officers and enlisted personnel, render the army more informationized, increase the amount of equipment and support facilities by an appropriate amount, improve the ability of the army to respond to emergencies and disasters and support the repair and rebuilding of military infrastructure facilities in and around Wenchuan, Sichuan hit by the earthquake. 

13) A total of 188.72 billion yuan has been set aside for transportation, an increase of 28.691 billion yuan or 17.9%. A total of 54.86 billion yuan will be spent on accelerating construction of the Beijing-Shanghai Expressway, trunk railway lines for developing resources in the western region, inland channels and feeder-line airports in the central and western regions. More funding will be given to building rural highways, assistance levels will be raised for ethnic minority areas, border areas and poor areas, and 54.8 billion yuan has been set aside for building or improving 300,000 kilometers of rural highways. A total of 16.842 billion yuan will be used to subsidize urban pubic transportation, rural passenger transportation and taxi services. Reform of taxes and fees for refined petroleum products will be carried out in 2009 and tolls are gradually and systematically being phased out on government-financed Grade II roads. After the reform, special subsidies from the central budget will be given for the expenses for repaying the costs of such roads and other expenses formerly derived from road tolls, which will increase transportation expenditures by a corresponding amount. 

14) Spending on ordinary public services will total 131.361 billion yuan, an increase of 9.696 billion yuan or 8%. Through strict control of ordinary expenses and comprehensive use of surplus funds, the central government will spend 101.386 billion yuan on this item, a decrease of 4.629 billion yuan or 4.4%. A total of 29.975 billion yuan in assistance will be provided to local governments to award grants to personnel leaving the service to find employment on their own, prevent and control devastating geological disasters and strengthen inspection and protection of geological and mining resources, an increase of 14.325 billion yuan or 91.59%. 

15) Expenditures to pay interest on government bonds will total137.185 billion yuan, an increase of 9.316 billion yuan or 7.3%. 

Analysis of the above expenditure items shows that in 2009 the central government will spend a total of 728.463 billion yuan on education, medical and health care, the social safety net, employment, low-income housing and culture that are directly related to the people's wellbeing, an increase of 165.334 billion yuan or 29.4% in comparable terms. The central government has set aside a total of 716.14 billion yuan to help agriculture, rural areas and farmers, an increase of 120.59 billion yuan or 20.2%. This figure includes 264.22 billion yuan to support agricultural production, 123.08 billion yuan for direct subsidies to grain producers, general allowances for purchasing agricultural supplies and allowances for planting superior varieties and purchasing agricultural machinery and tools, 269.32 billion yuan for rural education, medical and health care, the social safety net, employment, low-income housing and cultural programs, and 57.62 billion yuan for expenses for stockpiling major agricultural products and paying interest associated therewith. Tax rebates and general transfer payments from the central government to local governments will total 1.378869 trillion yuan, which will be primarily used to improve the people's wellbeing and benefit agriculture, rural areas and farmers.

5. Expenditures of the central government for tax rebates and transfer payments to local governments 

We will further improve the system of transfer payments, increase their size, implement preferential fiscal and taxation policies to promote balanced development among regions, and make basic public services more uniform from region to region. Fiscal transfers from the central government to local governments will be divided into three categories: tax rebates, general transfer payments and special transfer payments. The central government will deduct the amount of revenue to be turned over by local governments from its tax rebates to local governments and eliminate the budgetary item consisting of revenue turned over by local governments in order to simplify fiscal settlement between the central government and local governments. Expenditures of the central government for tax rebates and transfer payments to local governments in 2009 will reach 2.8889 trillion yuan, an increase of 688.332 billion yuan or 31.3%. This figure includes 493.419 billion yuan in tax rebates after deducting the amount of revenue to be turned over by local governments, an increase of 159.193 billion yuan. The reason for this increase is a rise in revenue collected by the central government from the sales tax on refined petroleum products following reform of taxes and fees for such products, which the central government will transfer to local governments for use in maintaining highways and channels. General transfer payments will total 1.137493 trillion yuan, an increase of 267.844 billion yuan or 30.8%, equivalent to 47.5% of total transfer payments. This figure includes 210.107 billion yuan in expenditures for education, public security and general public services and on the social safety net and employment, items that are generally stable in amount and that have been included in special transfer payments in previous years. Special transfer payments will total 1.257988 trillion yuan, an increase of 261.295billion yuan or 26.2%, equivalent to 52.5% of total transfer payments. The reason for this big increase is that most of the central government's increased spending and its expenditures for stimulating consumption will go to subsidizing local governments in the form of special transfer payments. General transfer payments will be used for the following purposes. Fifty-five billion yuan, an increase of 25.5%, has been allocated to support gradual establishment of a county-level mechanism to ensure adequate financial resources to help financially-strapped counties and townships. In combination with the plan for major ecological conservation projects such as the one designed to protect the sources of the Yangtze, Yellow and Lancang rivers, we will increase the proportion of transfer payments to governments in no-development zones and restricted development zones to ensure their adequate financial resources for providing public services. An allocation of 50.5 billion yuan has been made to increase transfer payments to ethnic minority areas, major grain-producing areas and border areas. A total of 5 billion yuan in subsidies, an increase of 100%, has been allocated to help cities formerly dependent on now-depleted mineral resources solve longstanding social problems. Eight billion yuan has been set aside to subsidize administrations of industry and commerce, which stopped collecting administration fees from sole proprietors and fair trade markets last year. 

In addition, revenue from funds controlled by the central government should reach 288.092 billion yuan, including amounts to be rolled over into the funds this year from last year. This figure includes: 16 billion yuan from the fund for developing the Three Gorges Project, 58.2 billion yuan from the fund for developing railways, 10.37 billion yuan from civilian airport administration and development fees, 8.73 billion yuan from port development fees, 13.6 billion yuan from the fund for providing continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs, 15.8 billion yuan from the sale of lottery tickets, and 68.283 billion yuan from operation of foreign exchange funds controlled by the central government. The target for expenditures from funds controlled by the central government has been set at 288.092 billion yuan, which includes central government spending and subsidies to local governments. This figure includes: 19.815 billion yuan from the fund for developing the Three Gorges Project, 58.201 billion yuan from the fund for developing railways, 14.802 billion yuan from civilian airport administration and development fees, 10.335 billion yuan from port development fees, 19.779 billion yuan to provide continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs, 22.913 billion yuan from the sale of lottery tickets to finance social welfare programs, sports, education and other public service programs, and68.287 billion yuan to pay operating expenses for foreign exchange funds controlled by the central government.

III. Managing Public Finance in Accordance with the Law and Making Management More Scientific to Ensure Successful Implementation of the 2009 Budgets 　　 

We will manage public finance in a law-abiding, scientific and democratic manner and strive to make the management of public finance more scientific and detailed to ensure that public funds are used effectively, focusing on the following tasks: 

1. We will strengthen and improve macro-control through management of public finance. We will work hard to improve our ability to carry out all the specific measures required of the proactive fiscal policy. We will step up efforts to monitor and analyze operation of the economy, carefully monitor implementation of the proactive fiscal policy, improve related policies and measures as needed and strengthen coordination between fiscal and monetary policies to make macro-control through management of public finance more proactive, specific and effective. 

2. We will deepen reform of fiscal and taxation systems. We will work out a state budget system that organically links the public finance budget, the budget for state capital operations, budgets for government-controlled funds and the social safety net budget. We will expand the reform of departmental budgets to encompass lower-level departments that prepare their own budgets and improve the modern treasury management system to gradually incorporate all paid-up capital accounts of every unit that prepares a budget into a single treasury account system. We will deepen the reform to set up a centralized treasury payment system and a government procurement system. We will expand the trials of a budget for state capital operations to include all state capital operations. While keeping the revenue-sharing system basically stable, we will improve the system whereby the financial resources of the central and local governments are commensurate with their respective responsibilities, with the focus on making basic public services more uniform and developing development priority zones. We will gradually form a mechanism for guaranteeing adequate basic financial resources for county governments and improve the ability of local governments to provide pubic services. We will improve the transfer payment system and standardize the supporting policy for special transfer payments. We will further straighten out resource distribution among governments at and below the provincial level to better match their major responsibilities to major expenditures. We will continue to carry out the reform to put county finances directly under the management of provincial governments. We will fully implement VAT reform and the reform of taxes and fees for refined petroleum products. The system of natural resource taxes will undergo reform. Adjustments and improvements will be made in the system of sales taxes. The urban construction and maintenance tax and education surcharge will be extended from Chinese to foreign enterprises and citizens. Overall rural reform will be promoted. Reforms related to state-owned enterprises, the financial system and prices of resource products will be strongly supported. 

3. We will strengthen management and oversight of pubic finance. The focus of this effort will be on revising the Budget Law, assisting in the revision of the Law on Certified Public Accountants and enacting the Regulations on Implementing the Government Procurement Law. Enactment of the Regulations on Managing Transfer Payments will be expedited. We will standardize administrative law enforcement by financial authorities and improve their procedures for administrative examination and approval. All authorized administrative fees whether collected nationally or by central government departments and institutions will come under budgetary control. We will create a sound mechanism for linking staffing levels with budgetary funding and improve the standards for setting the allowed number of employees and the level of administrative expenses. We will create a mechanism for evaluating key expenditure items before including them in the budget. A strict timetable must be followed in preparing and submitting budgets and strict procedures must be implemented in approving them so that more budgets are approved on time at the beginning of the year. Management of budget implementation will be tightened, and measures such as making advance appropriations and tightening oversight will be adopted to ensure that budget implementation is more uniform and effective. We will improve management modes for the surplus from budgetary appropriations and promote the organic combination of surplus management with budget preparation. We will improve the system for dynamic monitoring of budget implementation by financial departments at all levels. Pilot performance evaluations will expand. We will work to be more aware of risks, improve related systems, tighten debt management and fend off financial risks. We will create a financial oversight system that covers all government funds and all areas of public finance, with the focus on strengthening oversight, inspection and evaluation of government investment funds, to prevent redundant development and diversion of funds and ensure that they are used more effectively. We will vigorously promote transparent government in handling financial affairs. We will voluntarily accept oversight by the people's congresses, the CPPCC and the general public. 

4. We will work hard to increase revenue and reduce expenditures. We will strongly support the efforts of tax and customs agencies to strengthen collection and management of taxes and tariffs in accordance with the law, resolutely put a stop to and correct unauthorized tax reductions and exemptions, and resolutely work to thwart tax evasion and tax fraud. We will collect both tax and non-tax revenue in accordance with the law and to the fullest extent possible to ensure a steady increase in government revenue. We will meet expenditures for key items, hold general expenditures under control and cut down expenditures for the purchase and use of official cars, meetings, official receptions and official visits overseas. Construction of office buildings for Party and government departments will be strictly controlled. Construction and remodeling of office buildings in excess of the set standard for floor space and grade will not be allowed. Management of expenditures related to official business will be tightened. The reform to require payment of official business expenses with credit cards will be deepened. We will strictly adhere to the "two imperatives" [It is imperative to always be modest, prudent, and free from arrogance and rashness in our work and it is imperative to continue following the principle of hard struggle and plain living - Tr.], be more willing to practice austerity, do everything diligently and frugally, practice strict financial and economic discipline and oppose extravagant spending and waste. 

It is important that we implement the 2009 budget and do all our fiscal work well. Under the leadership of the Party Central Committee, with Comrade Hu Jintao as General Secretary, let us hold high the great banner of socialism with Chinese characteristics, follow the guidance of Deng Xiaoping Theory and the important thought of Three Represents, and thoroughly apply the Scientific Outlook on Development. Let us strengthen our confidence, forge ahead in spite of difficulties, blaze new trails in a pioneering spirit, work diligently, implement our proactive fiscal policy carefully, ensure successful implementation of the budgets, and energetically contribute to achieving sound and rapid social and economic development.