BEIJING -- Following is the full text of the report on the execution of the central and local budgets for 2015 and on the central and local draft budgets for 2016, which was submitted for review on March 5 at the Fourth Session of the 12th National People's Congress and was adopted on March 16:

REPORT ON THE EXECUTION OF THE CENTRAL AND LOCAL BUDGETS FOR 2015 AND ON THE CENTRAL AND LOCAL DRAFT BUDGETS FOR 2016

Fourth Session of the Twelfth National People's Congress

March 5, 2016

Ministry of Finance

Fellow Deputies,

The Ministry of Finance has been entrusted by the State Council to submit this report on the execution of the central and local budgets for 2015 and on the drafts of the central and local budgets for 2016 to the fourth session of the Twelfth National People's Congress (NPC) for your deliberation and for comments from the members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

I. Execution of the Central and Local Budgets for 2015

In the face of a complex international environment and the formidable tasks of domestic reform, development, and stability in 2015, the Central Committee of the Communist Party of China (CPC) and the State Council have brought together and led all of the people of China in taking an active approach to economic and social development, adapting to the new normal in economic growth, and responding appropriately to all major risks and challenges. As a result, the economy has maintained a medium-high rate of growth, the economic structure has improved, reform has been deepened, opening up has been promoted, further improvements have been made to the people's quality of life, and social stability was ensured. Both the central and local government budgets were executed satisfactorily last year.

1. Implementation of the NPC's budget resolution

In accordance with the resolution of the third session of the Twelfth NPC on the report on both the execution of the central and local budgets for 2014 and the central and local draft budgets for 2015 as well as the review of that report by the NPC Financial and Economic Affairs Commission, we have developed new ways to improve macro regulation through fiscal policy, made steady progress in the reform of fiscal and tax systems, and worked hard to bring about sustained, healthy economic and social development.

Rule of law has been strengthened throughout fiscal and tax work.

We made efforts to ensure that governments at all levels, departments, and organizations improved their rule of law awareness as they put into effect all of the requirements laid down in the Budget Law. We strengthened the development of the Budget Law's complementary institutions, soliciting comments from the general public on the draft revisions to the Implementation Regulations of the Budget Law, launching management regulations for special transfer payments from the central government to local governments, and revising management regulations for general transfer payments and other rules and regulations. We collaborated with the relevant NPC department on further clarifying the principle of law-based taxation in the Legislation Law, and drew up guidelines for implementing this principle. We also actively assisted legislative work, such as the preparations for enacting an environmental protection tax.

Budgetary work has been made more authoritative and consequential in all aspects.

We have tightened budgetary constraints and made sure that all expenditures are based on budgets. We further increased the detail of budget itemization, scaled down the amount of tentative budgets prepared by the Ministry of Finance for other governments offices or programs, and examined and approved departmental budgets in a timely fashion. We accelerated the work to break down and disseminate budgetary expenditure targets and intensified inspections of programs implemented by central government departments, therein achieving noticeably faster budget execution. We improved the regulatory system for budgets and made budget assessment an essential part of the budgetary management procedures. We introduced regulations such as the provisional regulations for performance target management of special transfer payments from the central government to local governments. The number and yuan value of central government department programs that received performance evaluations rose by 26.3% and 27% respectively, and the evaluation results were linked to the allocation of this year's budgets. We expanded the number of government departments whose budgets and final accounts are subject to NPC review, and for the first time, publicly released budgets for special transfer payments broken down by region and by program. We also carried out inspections on the disclosure of local governments' budgets and final accounts with a view to enhancing their fiscal transparency.

Proactive fiscal policy has been made more targeted and effective.

In responding to economic developments, we exercised targeted and well-timed regulation on the basis of range-based regulation and strengthened anticipatory adjustments and fine-tuning, ensuring that the Chinese economy operated within an appropriate range.

First, we maintained a necessary level of spending intensity. We increased the government deficit by an appropriate amount in the 2015 budget, and put to use funds carried over from previous years to increase the intensity of spending. We took a host of measures, such as thoroughly reviewing carryover and surplus funds and strengthening inspections and accountability, to put existing government funds to use for the purposes of ensuring the wellbeing of the people, strengthening points of weakness, and making development more sustainable. A total of 3.2 trillion yuan worth of bonds were issued to replace outstanding debt of local governments close to maturity, helping reduce their interest burden and debt repayment pressure and free up financial resources for the development of key programs.

Second, we stepped up efforts to reduce taxes and fees. We expanded the scope of certain preferential policies, such as those concerning corporate income tax for low-profit small businesses and the accelerated depreciation of fixed assets. We exempted small and micro businesses from 42 different kinds of administrative charges and canceled or suspended the collection of 57 kinds of central-level administrative charges. We lowered premiums for unemployment, workplace injury, and maternity insurance schemes, and expanded the scope of the policy of providing subsidies from the unemployment insurance fund to enterprises that maintain stable employment during structural adjustments.

Third, we strengthened the guiding role played by fiscal funds and fiscal policies. We made great efforts to promote the use of the public-private partnership (PPP) model, and we encouraged nongovernmental capital to enter public service sectors by providing investment and operation subsidies or through franchising or other methods. We moved ahead with pilot reforms of management over the use, disposition, and profit rights of scientific and technological advances made in central-level public institutions. We improved the policy of additional tax deductions for enterprise research and development. We selected the first group of demonstration cities to act as business start-up and innovation hubs for small and micro businesses.

Reforms of the fiscal and tax systems have been deepened.

We introduced a number of new reform measures in an orderly manner and improved mechanisms related to their implementation, ensuring that these reform measures took firm root.

First, we accelerated the reform of the budgetary management system. We transferred local educational surcharge and ten other items from the budgets of government-managed funds into general public budgets. We drew up management regulations for the budgets of central state capital operations, transferred more funds from such budgets into general public budgets, and established a mechanism for making transfer payments from the budgets of central government state capital operations to the budgets of local government state capital operations. We moved forward with medium-term financial planning. We made further progress in organizing and integrating special transfer payments, cutting the number of items from 150 in 2014 to 96 in 2015. We established a standardized mechanism for local governments to secure financing through bond-issuance, placed local government debt under budgetary management by category, and imposed ceilings for such debt. All local government bonds are now issued and repaid by their respective provincial governments. We enacted regulations and operational guidelines for the preparation of government financial reports, published basic principles on government accounting, and revised the general fiscal budget accounting system.

Second, we deepened tax reforms. We carried out research on a plan for implementing trials of replacing business tax with value added tax (VAT) in all sectors and a reform plan for taxing personal income on the basis of both adjusted gross income and specific types of income. We further expanded the coverage of ad valorem taxation, extending it to the reform of resource taxes on rare earths, tungsten, and molybdenum. We carried out research relating to the excise tax reform plan and improved excise tax policies. We intensified efforts to review and standardize fees and charges levied on businesses.

Third, we made steady progress in the reform of the fiscal system. We improved the mechanism for sharing the cost of export tax rebates between the central and local governments. We studied and moved ahead reform of the division of administrative authority and spending responsibilities between the central and local governments. As the tax reform progressed, we worked promptly to draw up a transitional plan for adjusting the division of revenue between the central and local governments.

Financial discipline has been tightened up.

We have been conscientiously putting into practice the CPC Central Committee's eight-point decision on improving Party and government conduct and the State Council's three-point decision on curbing government spending, rigorously controlling general expenditures, and have achieved a reduction of 11.7% in the central government's budgetary expenditures related to official overseas visits, official vehicles, and official hospitality as compared to 2014. We improved regulations on practicing thrift and opposing waste, strengthened the management of meeting venue selection, and made adjustments to standards for business travel and accommodation expenses of Party and government organization workers. We improved standards for basic expenditure quotas, moved faster to develop a system of standards for program expenditure quotas, and improved budgetary management of program expenditures. We launched a campaign to rectify the abuse of funds earmarked for agriculture, farmers, and rural areas, investigated relevant problems and punished those responsible, released representative cases of financial discipline violations, and further ensured that the management of funds is in line with standards and relevant loopholes are closed. We stepped up financial oversight and implementation supervision to ensure that our fiscal and tax policies were productive in promoting steady growth.

2. Budgetary revenue and expenditures in 2015

(1) General public budgets

Revenue in general public budgets nationwide totaled 15.221665 trillion yuan, an increase of 5.8% over 2014 (this figure for the year-on-year increase, including those below, have been adjusted to account for the inclusion into general public budgets of 11 items originally contained in the budgets of government-managed funds). Adding in the 805.512 billion yuan of utilized carryover and surplus funds and funds transferred from other sources, total revenue reached 16.027177 trillion yuan. Expenditures in general public budgets nationwide amounted to 17.576778 trillion yuan, up 13.2%. Including the 70.399 billion yuan used to replenish the Central Budget Stabilization Fund, expenditures totaled 17.647177 trillion yuan. Total expenditure therefore exceeded total revenue leaving a deficit of 1.62 trillion yuan, which is consistent with the budgeted figure.

Revenue in the central government's general public budget amounted to 6.923399 trillion yuan, which is 100% of the budgeted figure and an increase of 7%. Adding in the 100 billion yuan contributed by the Central Budget Stabilization Fund, total revenue came to 7.023399 trillion yuan. Expenditures in the central government's general public budget amounted to 8.073 trillion yuan, which is 99.1% of the budgeted figure and an increase of 8.6% (this includes 2.5549 trillion yuan in central government expenditures and 5.5181 trillion yuan in tax rebates and transfer payments from the central government to local governments). Adding in the 70.399 billion yuan used to replenish the Central Budget Stabilization Fund, central government expenditures totaled 8.143399 trillion yuan. The central government's total expenditures exceeded total revenue leaving a deficit of 1.12 trillion yuan, which is consistent with the budgeted figure. Central government debt had an outstanding balance of 10.659959 trillion yuan at the end of 2015, which meant it had been kept within the limit of 11.190835 trillion yuan budgeted for the year. The Central Budget Stabilization Fund had a balance of 115.637 billion yuan.

Figure 1

Revenue and Expenditures in the General Public Budget of the Central Government in 2015

Revenue in local governments' general public budgets came to 8.298266 trillion yuan, an increase of 4.8%. Adding in the 5.5181 trillion yuan in tax rebates and transfer payments from the central government, revenue in local governments' general public budgets totaled 13.816366 trillion yuan. Adding in the additional 705.512 billion yuan of utilized carryover and surplus funds and funds transferred from other sources, local government revenue totaled 14.521878 trillion yuan. Expenditures in local governments' general public budgets came to 15.021878 trillion yuan, up 13.2% (or an increase of 7.9% after deducting utilized carryover and surplus funds and funds transferred from other sources). Total expenditures therefore exceeded total revenue leading to a local government deficit of 500 billion yuan, which is consistent with the budgeted figure.

The following details the specific situation in regards to the execution of the central government's 2015 general public budget.

1) Main revenue items

Domestic VAT revenue was 2.099682 trillion yuan, which is 97.7% of the budgeted figure. This shortfall was mainly due to the continuous decline in the producer price index (PPI). Revenue from domestic excise taxes stood at 1.054216 trillion yuan, which is 94.1% of the budgeted figure. Revenue fell short of the budget primarily because the real revenue from higher excise taxes on cigarettes and refined oil products were lower than expected. Revenue from VAT, excise taxes, and customs duties on imports amounted to 1.507151 trillion yuan, which is 82.4% of the budgeted figure. This discrepancy was mainly due to the fall in both the prices and total volumes of imported commodities. Corporate income tax revenue was 1.763923 trillion yuan, which is 102.9% of the budgeted figure. Individual income tax revenue was 517.089 billion yuan, which is 106.2% of the budgeted figure. VAT and excise tax rebates on exports came to 1.286702 trillion yuan, which is 105% of the budgeted figure. Non-tax revenue totaled 699.691 billion yuan, which is 163.9% of the budgeted figure. This surplus was mainly attributable to an increase in the profits turned in by some enterprises directly under the central government and some financial institutions.

2) Main expenditure items

Central government expenditures amounted to 2.5549 trillion yuan, which is 102.1% of the budgeted figure and an increase of 12.8%. Of this amount, education expenditures came to 135.705 billion yuan, up 8.3%; foreign affairs-related expenditures stood at 47.834 billion yuan, up 32.8%; national defense spending was 886.85 billion yuan, up 10.1%; public security expenses amounted to 158.416 billion yuan, up 7.2%; expenditures on general public services reached 105.619 billion yuan, up 0.5%; and interest payments on debt were 286.69 billion yuan, up 11.3%.

Tax rebates and transfer payments to local governments from the central government came to 5.5181 trillion yuan, which is 98.7% of the budgeted figure and an increase of 6.7%. This includes 508.198 billion yuan in tax rebates, the same as in 2014; 2.84754 trillion yuan in general transfer payments, up 6.8%; and 2.162362 trillion yuan in special transfer payments, an increase of 8.4%, which was mainly due to the addition of one-time investments from central government reserve funds during budget execution.

(2) Budgets for government-managed funds

In 2015, revenue into government-managed funds nationwide came to 4.233014 trillion yuan. Adding in the 65.613 billion yuan carried over from 2014 and the 100 billion yuan raised by local governments through the issuance of special bonds, revenue related to government-managed funds nationwide totaled 4.398627 trillion yuan. Expenditures related to these funds amounted to 4.236385 trillion yuan.

Revenue into central government-managed funds totaled 411.202 billion yuan, which is 94.2% of the budgeted figure and an increase of 5.2%. Adding in the 65.613 billion yuan carried forward from 2014, revenue related to central government-managed funds totaled 476.815 billion yuan. Expenditures related to central government-managed funds came to 435.642 billion yuan, which is 85.7% of the budgeted figure and an increase of 7.5%. Of this, central government expenditures were 302.449 billion yuan and transfer payments to local governments amounted to 133.193 billion yuan. Revenue into central government-managed funds exceeded expenditures by 41.173 billion yuan, which includes 24.817 billion yuan carried forward to 2016; 9.454 billion yuan for statutory replenishment of the Central Budget Stabilization Fund from the portions of the carryover funds of individual government-managed funds that exceeded 30% of their respective funds' revenue; and 6.902 billion yuan in surplus funds from the five items to be transferred from government-managed fund budgets into the general public budget in 2016.

Revenue into funds managed by local governments reached 3.821812 trillion yuan, a decrease of 17.7%. This was mainly due to a significant decline in the revenue from the sale of state-owned land use rights. Adding in the 133.193 billion yuan in transfer payments from central government-managed funds and the 100 billion yuan raised by local governments through the issuance of special bonds, total revenue related to local government-managed funds was 4.055005 trillion yuan. Total expenditures related to local government-managed funds came to 3.933936 trillion yuan, which includes expenditures of 3.28953 trillion yuan related to the proceeds of selling state-owned land use rights.

(3) Budgets for state capital operations

In 2015, budgetary revenue from state capital operations nationwide totaled 256.016 billion yuan, and budgetary expenditures on state capital operations nationwide totaled 207.857 billion yuan.

Budgetary revenue from the central government's state capital operations was 161.292 billion yuan, which is 104.1% of the budgeted figure and an increase of 14.3%. Adding in the 14.398 billion yuan carried forward from 2014, total revenue stood at 175.69 billion yuan. Budgetary expenditures on the central government's state capital operations came to 135.967 billion yuan, which is 80.3% of the budgeted figure and a decrease of 4.2%. This shortfall was mainly due to slower than expected progress in the reform of collectively owned businesses operated by state-owned enterprises (SOEs) and in the reform to relieve SOEs of the burden of providing water, electricity, heating, gas, and property management services to their employees' homes. Of the total expenditures on the central government's state capital operations, 123.537 billion yuan was spent at the central level, which includes 23 billion yuan brought into the general public budget and used for ensuring and improving the people's quality of life as well as 12.43 billion yuan used as transfer payments to local governments. A total of 39.723 billion yuan of budgetary revenue from the central government's state capital operations was carried over to 2016.

Budgetary revenue from the state capital operations of local governments totaled 94.724 billion yuan. Adding in the 12.43 billion yuan in transfer payments from the central government's state capital operations budget, total revenue stood at 107.154 billion yuan. Total budgetary spending on the state capital operations of local governments amounted to 84.32 billion yuan.

(4) Budgets for social security funds

In 2015, revenue into social security funds nationwide totaled 4.466034 trillion yuan, which is 103.6% of the budgeted figure. This includes 3.251848 trillion yuan from insurance premiums and 1.019815 trillion yuan from government subsidies. Expenditures from social security funds nationwide totaled 3.935668 trillion yuan, which is 102.3% of the budgeted figure. Therefore, social security funds were left with a surplus of 530.366 billion yuan in 2015, and the year-end balance reached 5.700233 trillion yuan after this surplus was rolled over.

3. Implementation of major expenditure policies in 2015

Promoting education reform and development

We supported implementation of the second phase of the three-year action plan for preschool education. We put in place mechanisms for guaranteeing compulsory education funding in rural areas as well as the policy of waiving tuition and miscellaneous fees for students receiving compulsory education in urban areas, benefiting approximately 110 million students in rural areas and 29.44 million students in urban areas. We implemented the quality improvement plan for modern vocational education and worked to reshape the vocational education system. We reformed the budgetary appropriation system for institutions of higher learning directly under the central government to guide them in improving their models of development. We worked to guarantee the educational rights and interests of special needs groups through our support for the development of special needs education. We improved government financial aid policies for students, such as study assistance loans and student grants, providing aid to approximately 7.75 million college students, 5.14 million regular high school students, and 2.65 million secondary vocational school students, as well as exempting 10.45 million secondary vocational school students from paying tuition.

Pursuing innovation-driven development

We deepened reform of the management of science and technology initiatives financed by the central government. By completing the optimization or integration of a majority of these initiatives, we were able to concentrate resources on major programs that embody national strategic intentions. We redoubled efforts to support science and technology activities for the public interest, particularly those involving basic research. We supported the implementation of major science and technology projects. We worked to ensure research institutions had the support they needed as they conducted research into their own choice of subjects, and improved the conditions for undertaking research. We launched trials of the insurance compensation mechanism for newly-developed major technological equipment.

Helping provide better social security and employment services

Basic pension benefits for enterprise retirees were increased to an average of 2,270 yuan per person per month. The minimum social pension benefits for participants of the basic old-age insurance for rural and non-working urban residents were raised from 55 yuan to 70 yuan per person per month. We moved forward with reform of the pension system for employees of Party and government offices and public institutions, establishing an annuity scheme for these employees while at the same time adjusting their basic salaries. We intensified efforts to implement the employment assistance initiative for university graduates as well as the scheme for guiding university students in starting their own business, and we also worked to strengthen the capacity of the government for providing public employment services. We gave stronger support to assistance efforts for subsistence allowance recipients, orphans, people with disabilities, and other disadvantaged groups. We further increased subsidies and living allowances to entitled groups, and worked to ensure the proper delivery of pension and other benefits to retired military personnel who now receive their benefits from the government.

Deepening reform of the healthcare system

Government subsidies towards the new rural cooperative medical scheme and the basic medical insurance for non-working urban residents were increased to 380 yuan per person per year with a corresponding rise in the rates for individual contributions to 120 yuan per person per year. We raised per capita government spending on basic public health services from 35 yuan to 40 yuan per year, with the entirety of the additional funds in rural areas being used to purchase basic public health services from doctors. We carried out comprehensive reform of county-level public hospitals in all counties and county-level cities and expanded trials of the comprehensive reform of urban public hospitals to 100 cities. We continued to support community-level healthcare facilities as well as village clinics in implementing the system of essential medicines. We promoted standardized training programs for resident physicians. We also improved medical assistance programs and the system for providing assistance for emergency medical treatment in both urban and rural areas.

Promoting sustainable development of agriculture

We expanded trials for restoring and improving cultivated land contaminated by heavy metals and for comprehensively dealing with the over-abstraction of groundwater. We conducted in selected areas trial reforms of direct subsidies to grain growers, subsidies for purchasing superior crop varieties, and general subsidies for purchasing agricultural supplies with the aim of protecting the soil fertility of cultivated land and supporting appropriately scaled-up grain operations. We promoted the development of water conservation and supply projects, large-scale, high-efficiency, water-saving regional irrigation projects, and high-grade farmland. We made further increases to the amount of funding available for poverty alleviation efforts, facilitating the launch of a number of poverty reduction projects that produced outstanding results. We helped strengthen grassland ecological conservation and supported the implementation of a new round of efforts to return 667,000 hectares of marginal cropland back into forest or grassland as well as the expansion of efforts to bring a complete end to the commercial logging of natural forests. We launched key national water and soil conservation projects, bringing soil erosion under control across 6,570 square kilometers of land. We made coordinated progress in the trials related to comprehensive rural reform. We supported the work to determine and open up registration for contracted rural land-use rights.

Conserving energy, reducing emissions, and improving the environment

With a focus on key areas, we increased funding to deliver further results in the prevention and control of air pollution. We moved forward with trials to construct networks of underground utility corridors and build sponge cities, as well as with efforts to prevent and treat heavy metal pollution in 38 key areas. We launched trials to comprehensively improve the conditions around rivers on the geographical scale of each drainage basin. We moved ahead with key forest shelterbelts and other ecological conservation projects. We supported comprehensive environmental improvement efforts in nearly 20,000 villages and channeled greater effort into supporting the operations and management of rural environmental protection infrastructure. We worked to facilitate the development of new energy and renewable energy industries. With our establishment of a well-rounded system of supportive policies, the production and sales of new-energy vehicles last year rose by approximately 400% and 300% respectively. We carried out comprehensive demonstrations of achieving energy conservation and emissions reductions through fiscal policy.

Improving government housing support

We provided housing support through the provision of both physical housing and rent subsidies, and carried out trials of developing and operating public rental housing through PPP models. We supported the renovation of 6.01 million homes in run-down urban areas and 4.32 million dilapidated rural houses.

Giving impetus to cultural prosperity and development

We promoted implementation of national standards for the provision of basic public cultural services, accelerated the development of a modern system of public cultural services, and supported the construction of multipurpose centers for providing cultural services in communities. We worked to strengthen the protection of cultural heritage sites and traditional Chinese villages. We promoted the development of leading cultural enterprises and creative and cultural industries. We worked to strengthen the international communication capacity of key news media outlets and enhance the country's soft power.

For a detailed account of the budget execution related to the above items, please refer to the 2015 Nationwide Budget Execution Report and draft 2016 Nationwide Budget of the People's Republic of China.

Over the course of 2015, despite mounting downward pressure on the economy, subdued government revenue growth, and increased difficulty in maintaining a balanced government budget, our fiscal operations remained basically stable and we were able to effectively implement all fiscal and tax policies, providing strong support for accomplishing the major targets for economic and social development of the year as well as realizing a successful conclusion to the 12th Five-Year Plan.

Looking back over the last five years, it is clear that the reform and development of public finance work in China has reached a new level, and that its role as the foundation of the country's governance has been effectively utilized. We constantly deepened the reform of the budgetary management system, made systematic headway in replacing business tax with VAT and in reforming excise tax and resource tax systems, and achieved major progress in building a modern fiscal system over five years of continuous refinement. In exercising macro regulation through fiscal policy, we paid great attention to keeping market expectations stable, unleashing internal forces for driving economic growth, and promoting structural improvements, and helped achieve a better-quality, higher-efficiency, and steadily operating economy by relying more heavily on market forces and adopting more reform measures. The wellbeing of our people has seen continual improvements, and we increased spending in related areas while working hard to improve related expenditure policies and institutional arrangements, emphasizing their public nature as well as increasing their sustainability. We established a general institutional framework for the management of local government debt, developed a clear picture of total outstanding debt, and carried out the systematic replacement of a portion of outstanding debt to ensure better overall control of debt-related risks.

We owe these achievements to the sound policymaking and firm leadership of the CPC Central Committee and the State Council; to the oversight, guidance, and strong support of the NPC, the CPPCC National Committee, and all of their members; and to the joint efforts and hard work of all regions, government departments, and all our people.

At the same time, we are soberly aware that there are still a number of difficulties and problems standing in the way of fiscal work. Among these are the increasing difficulty in maintaining a balanced budget and the inflexibility in the structure of expenditures. Debt pressure on local governments is mounting, instances of borrowing in breach of regulations or in disguised form are still occurring, and the prevention and control of potential risks is becoming exceptionally difficult. The capacity of certain departments and organizations to execute their budgets is still quite poor, and work on some major programs has not gotten off the ground on time or has progressed at an unacceptably slow pace. Furthermore, government funds can still be utilized in a more coordinated, secure, and effective manner. We view these issues as extremely important, and will take effective measures to resolve them.

II. Central and Local Draft Budgets for 2016

This year is the first year of the decisive stage in finishing building a moderately prosperous society in all respects and an important year for surmounting difficulties in the push towards structural reform. China's economic fundamentals remain favorable for long-term growth, its economy remains resilient with strong potential and ample room for growth, the foundation and conditions for supporting sustained growth remain intact, and the momentum for economic structural adjustment has not slackened. Yet at the same time, China must simultaneously deal with the slowdown in economic growth, make difficult structural adjustments, and absorb the effects of previous economic stimulus policies. Structural issues are pulling down total factor productivity growth, and the economy still faces considerable downward pressure.

On the fiscal front, China receives most of its tax revenue from taxes related to goods and services, so as economic growth slows down and the PPI continues to fall, fiscal revenue growth is slowing at a rate greater than that of GDP growth. Additionally, the greater reductions in taxes and fees aimed at maintaining steady economic growth and pushing forward structural reform, and the substantial loss in revenue from across-the-board implementation of the reform to replace business tax with VAT in particular, are further pulling down growth in fiscal revenue. On the other hand, government expenditures are rather inflexible and will be driven up by the efforts to transform the growth model, strengthen points of weakness, and guard against risks. On the whole, the fiscal situation in 2016 will present a more challenging environment in which to achieve a balance of payments.

In light of the fiscal and economic landscape, in preparing the budgets for 2016 and carrying out public finance work, we need to thoroughly put into practice the guiding principles from the 18th National Congress of the CPC, the third, fourth, and fifth plenary sessions of its 18th Central Committee, the Central Economic Work Conference, and General Secretary Xi Jinping's major policy addresses. Acting in accordance with the decisions and plans of the CPC Central Committee and the State Council, the overall plan for promoting all-round economic, political, cultural, social, and ecological progress, as well as the Four-Pronged Comprehensive Strategy,*(1) we must firmly establish and put into practice the philosophy of innovative, coordinated, green, open, and shared development, adapt to the new normal in economic development, adhere to the policy of reform and opening up as well as the general principle of making progress while keeping performance stable, and follow the general guidelines that macro policies should be stable, industrial policies targeted, micro policies flexible, reform policies practical, and that social policies should ensure basic living needs. We will continue to implement proactive fiscal policy and increase its intensity. We will accelerate reform of the fiscal and tax systems, promote supply-side structural reform while moderately expanding aggregate demand, support efforts to cut overcapacity and excess inventory, deleverage, reduce costs, and strengthen points of weakness, and facilitate adjustments to the industrial structure and the emergence of new drivers of growth. We need to continue to manage public finances on the basis of law and fulfill all of the requirements of the Budget Law. We need to increase overall coordination in the use of government funds, put both idle and additional funds to work, and optimize the structure of budgetary expenditures to improve the performance of fiscal spending. We need to tighten our belts, practice thrift, and prioritize expenditures towards ensuring the basic living standards of the people while strictly controlling general expenditures and reducing other expenditures. We need to strengthen government debt management, effectively guard against fiscal risks, and work hard to ensure a good beginning for economic and social development in the 13th Five-Year Plan period.

(1)* The Four-Pronged Comprehensive Strategy is to make comprehensive moves to finish building a moderately prosperous society, deepen reform, advance the law-based governance of China, and strengthen Party self-conduct.

1. Fiscal policy for 2016

We will continue to implement proactive fiscal policy in 2016 and increase its intensity. This will be mainly reflected in the following four areas.

First, we will further reduce taxes and fees.

We will implement the trials for replacing business tax with VAT in all sectors, extending it to the construction, real estate, financial, and consumer service industries, and allowing businesses to deduct the VAT on their new real estate purchases or on their payments for real estate rentals. We will step up efforts to clear up and reform administrative charges and government-managed funds by expanding the scope of exemptions for 18 types of administrative charges from only small and micro businesses to all enterprises and individuals, reducing required payments into new vegetable land development funds and forestry maintenance funds to zero, suspending the collection of payments into price adjustment funds, and increasing the body of tax payers eligible for exemption from educational surcharges, local educational surcharges, and water conservancy development fund payments by raising the cutoff for eligibility from a monthly sales or turnover figure of 30,000 yuan to 100,000 yuan. It is projected that the above tax and fee reduction policies will save businesses and individuals more than 500 billion yuan over the course of 2016.

Second, we will allow the deficit to increase.

Government deficit for 2016 is projected to be 2.18 trillion yuan nationwide, an increase of 560 billion yuan over 2015, and the deficit to GDP ratio is projected to be 3%, 0.6 percentage points higher than 2015. While appropriately increasing mandatory government expenditures, we will ensure the expanded deficit goes mainly towards filling the gap in government revenue left by tax and fee reductions, enabling the government to meet its expenditure responsibilities.

In addition, we will also allow a considerable rise in the special debt of local governments that is included in the budgets of government-managed funds, and we will put into use more carryover and surplus funds so as to ensure sufficient levels of both total spending and key area spending.

Third, we will adjust and optimize the structure of expenditures.

We will make the proper arrangements for expenditures aimed at promoting the wellbeing of the people in line with the principles of sustainability and ensuring basic needs. We will strictly control budgets for spending on official overseas visits, official vehicles, and official hospitality, while also reducing general expenditures such as those related to meetings. We will carry out rational assessments of policy-linked expenditures and unsustainable expenses, such as those made on overly ambitious commitments or on overly high expenditure standards during times of high revenue growth, and make prompt reductions on the basis of these assessments. We will improve the structure of transfer payments, focusing on cutting the number of special transfer payment items while making corresponding increases to general transfer payments aimed at creating more equitable access to basic public services as well as to transfer payments for old revolutionary base areas, areas with concentrations of ethnic minorities, border areas, and poor areas. Infrastructure investment by the central government will be more focused on basic public welfare projects within its purview, and less on small or miscellaneous projects. This investment is projected to be 500 billion yuan in 2016, which is an increase of 22.4 billion yuan over 2015.

Fourth, we will increase overall coordination in the use of fiscal funds.

We will appropriately trim the 2016 budgets for regions and departments that had a significant amount of government funds left over at the end of 2015. We will promptly reallocate funds that are no longer being used into key spending areas and reduce carryover expenditures produced by accrual accounting. We will move the carryover and surplus funds of government-managed fund budgets that exceed stipulated ratios into general public budgets so that they can be utilized in a coordinated way. We will also raise the proportion of funds transferred from the budgets for state capital operations into general public budgets. At the same time, we will make innovations in the way the government carries out its expenditures with a view towards increasing efficiency.

The primary policies regarding government expenditures are as follows:

Education

We will further improve the mechanisms for ensuring funding for urban and rural compulsory education and set a unified benchmark for public funding per student in compulsory education schools. We will continue to carry out major projects such as the initiative for improving conditions in badly built or poorly operated rural schools providing compulsory education, and eligible students from families with financial difficulties will be the first to be exempted from tuition and miscellaneous fees at regular senior high schools. We will continue to implement the quality improvement plan to develop modern vocational education, encouraging local governments to establish sound systems for allocating funds to vocational colleges based on student enrollment, improving conditions in secondary vocational schools, training a contingent of teachers strong in both theory and practice, and promoting the integration of vocational education with industry work as well as cooperation between colleges and businesses. We will support the development of kindergartens open to all children. We will improve the budgetary appropriation system for institutions of higher learning and guide these institutions in improving their quality, optimizing their structure, and developing their own unique characteristics. We will improve the system of policies for providing financial aid to students from poor families and make such aid more targeted.

Science and technology

We will complete the optimization and integration of science and technology programs financed by the central government, finish building an open and unified national science and technology management platform, and establish a mechanism for entrusting the management of research programs to specialized agencies. We will give a high level of support to the National Natural Science Foundation of China, major science and technology projects, and key research and development programs. We will accelerate the implementation of the national seed fund for encouraging the application of scientific and technological advances and put in place loan default compensation mechanisms for banks in order to encourage them to provide loans to medium, small, and micro businesses. We will promote the establishment of a number of national laboratories in important innovation fields. We will facilitate the reform and development of research institutions by improving the mechanisms for providing them with consistent support. We will put in place management mechanisms for post-research program subsidies.

Social security and employment

In 2016, the central government will subsidize local governments in raising the level of subsistence allowances by 5% in urban areas and 8% in rural areas. We will conduct research on the establishment of a sound system for providing basic necessities to extreme poverty groups as well as mechanisms for guaranteeing funding for these efforts. We will support localities in comprehensively establishing systems for providing living allowances to needy persons with disabilities and for providing care service subsidies to people with serious disabilities. We will ensure the implementation of benefits for entitled groups and support the proper settlement of demobilized military personnel.

In consideration of factors such as the rates of increases in average wages and price levels, as of January 1, 2016, pension benefits for retirees of enterprises, Party and government offices, and public institutions will be increased by around 6.5%, with appropriate preference given to those who have retired some time ago and are on relatively low pension benefits as well as those who have retired from enterprises in hardship and remote areas. We will put in place a mechanism for making regular adjustments to basic salaries and promote coordination between the benefit increases for those employed and retired. We will improve the personal account side of the old-age insurance scheme for workers, ensure that it remains in actuarial balance, establish more transparent and easily understood collection and payment systems, and further improve incentives for encouraging people to contribute more. We will also improve the reform plan for the old-age insurance systems and conduct research on putting the social pension of workers under national unified management.

We will improve policies that encourage college graduates to seek employment in small and medium-sized high-tech, high-innovation enterprises, start their own businesses, or find employment at the community level in urban and rural areas, and we will expand the channels through which college graduates can look for jobs. We will conduct research on policies for regulating public-service job positions, set up long-term mechanisms to support the employment of groups having difficulties in finding jobs, and help migrant workers obtain equal access to public employment services.

Health care

We will set up sound, sustainable mechanisms for various parties to reasonably share the costs of health insurance. We will raise the annual government subsidies for basic health insurance for rural and non-working urban residents from 380 yuan to 420 yuan per person, and increase annual personal contributions from 120 yuan to 150 yuan per person, with the increases to be mainly used to provide better basic medical insurance and boost support for the major disease insurance scheme for rural and urban non-working residents. We will increase government subsidies for basic public health services from 40 yuan to 45 yuan per person per year. We will integrate the basic health insurance systems and their management systems for rural and non-working urban residents. We will comprehensively advance the reform of health insurance payouts to help control medical expenses and regulate medical treatment practices. We will press ahead with the reform of public hospitals and community-level health care institutions, adjust and optimize the distribution of medical resources in conjunction with the new type of urbanization, and put in place a tiered diagnosis and treatment system. We will work to reduce the burden of medical expenses on low-income patients suffering from major or critical diseases by providing them with assistance and ensuring such assistance is better linked with other health insurance programs.

Fighting poverty

In 2016, the central government will increase all expenditures relating to poverty alleviation efforts; this includes the appropriation of an additional 20.1 billion yuan of funds earmarked specifically for poverty reduction, which is an increase of 43.4% over last year. We will further expand the pilot scheme for helping those living in poverty realize returns on their asset investments, work hard to relocate those living in inhospitable areas, support poor counties in integrating the use of government funds for rural development, and concentrate our efforts on tackling severe poverty. We will continue to provide assistance to ethnic minorities living in poverty and to poor state-owned agricultural farms and forestry farms, and we will also provide poverty-relief employment programs. We will put into effect programs to use public welfare funds financed by lottery proceeds in support of old revolutionary base areas facing poverty. While delegating powers for the review and approval of programs supported by poverty-relief funds, we will strengthen supervision over such funds to ensure their secure and effective use. With targeted measures for reducing poverty, we will work to help poor areas tap into their potential for development and make their development sustainable so that both poor areas and poverty groups can lift themselves out of poverty at an even faster pace.

Agriculture

We will make adjustments to the structure of agricultural expenditures, increasing support to efforts to promote sustainable agricultural development. We will work to discourage the excessive use of insecticides and fertilizers and explore conducting trials on the implementation of systems of crop rotation and fallow land. We will introduce policies to promote adjustments to the agricultural production mix and support comprehensive price reform of water used for agricultural purposes. We will continue to move ahead with trials for restoring and improving cultivated land contaminated by heavy metals as well as trials for comprehensively dealing with the over-abstraction of groundwater.

We will support the implementation of a food crop production strategy based on farmland management and the application of technology in order to ensure the effective supply of agricultural products as well as grain security. We will make a large-scale push to develop farmland irrigation systems and high-quality farmland in order to help increase overall grain production capacity. We will carry out nationwide reform of direct subsidies to grain growers, subsidies for purchasing superior crop varieties, and general subsidies for the purchase of agricultural supplies. We will support the development of diverse forms of appropriately scaled-up agricultural operations and work to promote integrated development of the primary, secondary, and tertiary industries in rural areas. We will improve mechanisms for subsidizing major grain growing areas and increase rewards given to major grain-producing and edible oil-producing counties. We will support the reform and development of state forestry farms, state forestry areas, rural supply and marketing cooperatives, and state farms built on reclaimed land. We will promote the orderly and effective operation of the China Overseas Agricultural Investment and Development Fund and work to see China's agriculture go global.

We will provide support for the reform of logistics systems for grain and other agricultural products. We will deepen the pilot reform for ensuring guaranteed base prices for cotton and soybeans. We will promote reform of the system for purchasing and stockpiling corn. We will also improve mechanisms for stockpiling and regulating the supply of major agricultural products. Although the above reform measures will increase government expenditures for a time, this is a necessary cost of reform. Following the establishment of a market-based price formation mechanism for grain, cotton, and edible oils, we will work towards gradually reducing stockpiles of these products to appropriate levels so that the fiscal burden from stockpiling expenses can see a corresponding return to normal levels.

Ecological conservation and environmental protection

We will go further in supporting efforts to control air pollution. We will promote the implementation of the action plan for water pollution prevention and control. We will carry out trials for the restoration and improvement of mountain, water, forest, and farmland ecosystems. We will implement a new round of policies for providing subsidies and awards to efforts to return marginal farmland back into forest or grassland and to preserve the ecology of grasslands. We will put in place nationwide coverage of protective policies for all natural forests, and appropriately increase subsidies for natural forest protection projects as well as the levels of compensation for forest management and conservation efforts that produce a positive ecological impact. We will strengthen wetlands protection efforts and expand the scope of work to return cultivated land back into wetlands. We will increase efforts to promote the use of new-energy vehicles and accelerate the construction of battery-charging facilities. We will work to ensure the cleaner use of resources by promoting more efficient, centralized coal operations and utilizing pollutant-capturing equipment while restricting less efficient, dispersed coal operations. We will improve the mechanism for subsidizing the use of renewable energy for electricity generation and work to see that electricity generated from renewable energy can come on the grid at a price comparable to that of conventional electricity generation methods as soon as possible. We will expand the comprehensive demonstrations of achieving energy conservation and emissions reductions through fiscal policy as well as the scope of trials for having provinces situated on the upper and lower reaches of river basins compensate each other for their impact on water quality. We will promote reform of environmental monitoring systems so as to step up the pace of establishing a monitoring system in which the central and local governments assume separate responsibilities.

Government-subsidized housing projects

We will continue to carry out the trials of developing and operating public rental housing through PPP models. We will put in place preferential tax and fee policies and loan interest subsidy policies for projects to renovate run-down urban areas, promote efforts to grant direct monetary housing subsidies to people displaced by the redevelopment of such areas, and actively encourage government procurement of renovation services. This year we plan to start renovating 6 million housing units in run-down urban areas and 3.14 million dilapidated houses in rural areas.

Culture and sports

We will work hard to ensure that access to basic public cultural services becomes increasingly standardized and equitable, and that both quality and efficiency are increased in the provision of public cultural services. We will support efforts to help socialist art and literature thrive while promoting cultural exchanges and communication. We will improve the systems for providing policy support to cultural industries. We will continue to promote public fitness programs and support the reform and development of soccer in China. We will work to ensure adequate funding for China's preparation for and participation in the 2016 Olympic Games in Rio de Janeiro.

National defense and armed forces development

We will support efforts to deepen the reform of national defense and the armed forces and strengthen the military in all respects so that it is more revolutionary, modern, and standardized. We will promote integrated development of the economy and national defense. We will work hard to ensure that the capabilities of the armed forces are constantly improving, and that they are able to safeguard the sovereignty, security, and development interests of China.

Overcapacity reductions and the resettlement of workers

We will urge local governments and enterprises directly under the central government to accelerate their efforts to cut overcapacity in the steel and coal industries through the use of a combination of methods such as mergers, reorganizations, debt restructurings, and bankruptcy liquidations. In this process, the market should serve as a check, enterprises should be the major actors, local governments should play a coordinating role, and the central government should provide due support, while the responsibility for making sure that overcapacity reductions happen in a locality will be on the relevant provincial-level government. We will allocate a total of 100 billion yuan from the central government budget, including 50 billion yuan to be used in 2016, for setting up tiered awards and subsidies for eligible worker resettlement projects by local governments and central government enterprises. These awards and subsidies will be provided on the basis of levels of performance (linked mainly to overcapacity reductions), the number of workers that require resettlement, the level of hardships faced by the local government, and other factors. At the same time, local governments should also allocate funds on the basis of their task requirements to ensure that adequate financing is available during overcapacity reductions and work together with the central government to carry out this work successfully.

2. Revenue projections and expenditure appropriations for 2016

(1) General public budgets

Revenue in the central government's general public budget is expected to reach 7.057 trillion yuan, an increase of 2.2% over the actual figure for 2015. Adding in the 100 billion yuan from the Central Budget Stabilization Fund and the 31.5 billion yuan from the budgets of central government-managed funds and central government state capital operations, total revenue in 2016 should amount to 7.1885 trillion yuan. Expenditures from the central government's general public budget are projected to reach 8.5885 trillion yuan, an increase of 6.3% (or an increase of 6.7%, if the use of the 172.5 billion yuan carried over from previous years is included). Total expenditures are projected to exceed total revenue leaving a deficit of 1.4 trillion yuan, an increase of 280 billion yuan over last year. The ceiling for the outstanding balance of central government bonds will be 12.590835 trillion yuan. The Central Budget Stabilization Fund will carry a balance of 15.637 billion yuan.

Expenditures in the central government's general public budget are divided into central government expenditures, tax rebates for local governments, general transfer payments to local governments, special transfer payments to local governments, and payments to central government reserve funds.

Central government expenditures are projected to total 2.7355 trillion yuan, up 7% over last year. This consists of 270.643 billion yuan for science and technology expenditures, up 9.1%; 51.971 billion yuan for foreign affairs-related expenditures, up 8.6%; 954.354 billion yuan for national defense spending, up 7.6%; 166.815 billion yuan for public security expenses, up 5.3%; 120.138 billion yuan for expenditures on general public services, up 13.7%; and 329.929 billion yuan for interest payments on debt, up 15.1%. Central government spending on official overseas visits, official vehicles, and official hospitality will adhere to the policy of zero-growth.

Central government tax rebates to local governments are projected to be 508.857 billion yuan, which is basically consistent with the actual figure for 2015.

General transfer payments to local governments will amount to 3.201782 trillion yuan, up 12.2% over last year. Of this amount, transfer payments for equalizing access to basic public services will account for 2.039225 trillion yuan, up 10.2%, which will be mainly used to help alleviate the burden on local governments due to falling revenue growth and increased expenditures; transfer payments to old revolutionary base areas, areas with concentrations of ethnic minorities, border areas, and poor areas will reach 153.791 billion yuan, up 22.4%; transfer payments for basic pension schemes will total 504.276 billion yuan, up 14.5%; and transfer payments for the rural and non-working urban resident health insurance systems will come to 242.627 billion yuan, up 14.3%.

Special transfer payments to local governments will come to 2.092361 trillion yuan, a reduction of 3.2% from last year. The number of items eligible for special transfer payments will be strictly limited and the payment amounts for each item will be effectively reduced, particularly with regard to projects that involve competitive areas or subsidies for enterprise operations. Expenditures that are not in line with policy intentions or are no longer highly beneficial, such as price subsidies for refined oil products, will be reduced by a large margin. Expenditures that have been made unnecessary due to changes of circumstances, such as interest subsidies on loans used to finance public infrastructure construction in development zones, will be canceled. Additionally, special transfer payments for miscellaneous or redundant local projects will be further reduced or canceled. At the same time, special transfer payments to be used for ensuring basic living standards will be increased overall, with increases in the following areas: 17.663 billion yuan for the quality improvement plan for modern vocational education, up 19.4%; 137.013 billion yuan in basic living allowances and subsidies for people facing financial difficulties, up 5.7%; 40.933 billion yuan in subsidies for entitled groups, up 19.8%; 54.121 billion yuan for public health services, up 8.8%; 14.113 billion yuan in subsidies for medical assistance, up 9.2%; 23.286 billion yuan in subsidies for agricultural resource and ecological conservation efforts, up 16.5%; 121.8 billion yuan in funds earmarked for central government subsidies for urban housing projects, up 0.8%; 26.335 billion yuan for renovating dilapidated rural houses, up 1.4%; and 39.771 billion yuan in allowances for the settlement of decommissioned military personnel, up 12.7%.

A total of 50 billion yuan will be appropriated for central government reserve funds.

Figure 2

Projected Revenue and Expenditures in the General Public Budget of the Central Government for 2016

Revenue in local governments' general public budgets is projected to total 8.663 trillion yuan, up 3.6% from last year. Adding in the 5.803 trillion yuan in tax rebates and transfer payments from the central government and the 40 billion yuan transferred from other local sources, total local government revenue is expected to reach 14.506 trillion yuan. Expenditures from local governments' general public budgets are projected to total 15.286 trillion yuan, which after deducting utilized carryover and surplus funds from last year and funds transferred from other sources is an increase of 6.3%. The projected local government deficit therefore stands at 780 billion yuan, an increase of 280 billion yuan over last year. This deficit will be made up for through the issuance of local government general bonds. The ceiling for the outstanding balance of local government general bonds will be 10.70724 trillion yuan.

Combining the general public budgets of the central and local governments, it is projected that nationwide revenue will amount to 15.72 trillion yuan, up 3% from last year. Adding in the 171.5 billion yuan transferred from other sources, total revenue available is expected to reach 15.8915 trillion yuan. Nationwide expenditures are budgeted at 18.0715 trillion yuan, which after deducting local governments' utilized carryover and surplus funds from last year and funds transferred from other sources is an increase of 6.7%. This will produce a national deficit of 2.18 trillion yuan, an increase of 560 billion yuan over 2015.

The above figures of budgeted revenue and expenditures for 2016 also take into account figures from government-managed fund budgets that were transferred into general public budgets: from January 1, 2016, the revenue and expenditures of five government-managed funds, such as water and soil conservation subsidies, were transferred into general public budgets. While budgetary revenue and expenditures for government-managed funds have been reduced, we have made corresponding increases in the estimated revenue and expenditure figures for the 2016 general public budgets as well as in the revenue and expenditure baseline figures for 2015.

2. Budgets for government-managed funds

Revenue into central government-managed funds is projected to reach 427.165 billion yuan, up 5% from last year. Adding in the 24.817 billion yuan carried forward from last year, revenue into central government-managed funds will total 451.982 billion yuan. Expenditures from central government-managed funds will be 451.982 billion yuan, up 5.5%. This figure consists of 340.523 billion yuan of central government expenditures, up 12.8%, and 111.459 billion yuan of transfer payments to local governments, down 11.9%.

Revenue into local government-managed funds is projected to be 3.290209 trillion yuan, down 12.4%. This figure includes 2.82486 trillion yuan from the sale of state-owned land use rights, down 13.2%. Adding in the 111.459 billion yuan in transfer payments from central government-managed funds and the 400 billion yuan of revenue generated from local government special debt (an increase of 300 billion yuan over last year), total revenue related to local government-managed funds is projected to be 3.801668 trillion yuan. Total expenditures related to local government-managed funds will be 3.801668 trillion yuan. This includes 3.202408 trillion yuan of expenditures related to the proceeds of selling state-owned land use rights, down 2.6%. The balance of outstanding special debt of local governments will be no more than 6.48019 trillion yuan.

Combining the budgets for the central and local government-managed funds, revenue into these funds is projected to be 3.717374 trillion yuan, a decrease of 10.7% from last year. Adding in the 24.817 billion yuan carried forward from last year and the 400 billion yuan of revenue generated from local government special debt, revenue into government-managed funds nationwide will be 4.142191 trillion yuan. Total expenditures related to these funds will reach 4.142191 trillion yuan, down 1.2%.

It should be noted that, following the inclusion of the revenue and expenditures of five government-managed funds, such as water and soil conservation subsidies, into general public budgets, total budgetary revenue and expenditures of central and local government-managed funds will decrease in 2016. Because of this, we have correspondingly lowered the baseline figures for 2015 so that the level of growth can be calculated on a comparable basis.

3. Budgets for state capital operations

In 2016, we will strive to further refine the budgeting system for state capital operations. First, the proportion of funds allocated from the state capital operations budget of the central government to its general public budget will be raised from 16% in 2015 to 19% this year. Second, a total of 68 enterprises, including China Railway Corporation, will be incorporated into the central government's state capital operations budget. Third, the utilization of funds will be prioritized towards addressing longstanding problems of SOEs, reducing overcapacity, and making proper arrangements for laid-off employees.

Budgetary revenue from the state capital operations of the central government is projected to be 140 billion yuan, down 13.2% from last year. This decrease comes primarily from lower than expected enterprise profits in the petroleum, petrochemical, steel, and coal industries. Adding in the 39.723 billion yuan carried forward from last year, total budgetary revenue from central government state capital operations is projected to be 179.723 billion yuan. Budgetary expenditures on these operations are expected to be 155.123 billion yuan, up 37.3%. Of this, 119.123 billion yuan is to be spent at the central level, an increase of 18.5%, and 36 billion yuan is to be transferred to local governments, an increase of 189.6%. A projected 24.6 billion yuan will be transferred into the general public budget.

Budgetary revenue from the state capital operations of local governments is projected to be 89.47 billion yuan, down 5.5% from last year. Adding in the 36 billion yuan of transfer payments from the central government's state capital operations budget, total budgetary revenue from local government state capital operations will be 125.47 billion yuan. Budgetary expenditures on local government state capital operations are estimated to be 106.782 billion yuan, up 29.2%. This increase is primarily due to a rise in transfer payments allocated from the budgets of the central government's state capital operations for the purpose of helping relieve SOEs of their obligation to provide water, electricity, heating, gas, and property management services to their employees' homes as well as advancing the reform of collectively owned businesses operated by SOEs. A projected 18.688 billion yuan is to be allocated to local government general public budgets.

Combining the state capital operation budgets of the central and local governments, budgetary revenue nationwide is projected to be 229.47 billion yuan, down 10.4% from last year. Adding in the 39.723 billion yuan carried over from last year, total budgetary revenue from state capital operations nationwide will be 269.193 billion yuan. Budgetary expenditures on state capital operations nationwide are expected to be 225.905 billion yuan, up 23.3%. A projected 43.288 billion yuan will be transferred into general public budgets.

4. Budgets for social security funds

Revenue into social security funds nationwide is projected to be 4.714419 trillion yuan, up 5.6% from last year, which includes 3.437659 trillion yuan from insurance premiums and 1.084804 trillion yuan from government subsidies. Expenditures from social security funds nationwide will total 4.354653 trillion yuan, up 10.6%. With a projected surplus of 359.766 billion yuan this year, the year-end balance will be 6.06 trillion yuan after the balance from 2015 has been rolled over.

It should be noted that as local budgets are formulated by local people's governments and submitted for approval to the people's congresses at their respective levels, the relevant data is still in the process of being compiled. As such, the above-mentioned figures for local revenue and expenditures have been compiled by the central finance authorities.

For a detailed account of the budget arrangements related to the above items, please refer to the 2015 Nationwide Budget Execution Report and draft 2016 Nationwide Budget of the People's Republic of China.

In accordance with the Budget Law, after the beginning of a new financial year and prior to the approval of the drafts of the central and local government budgets by the National People's Congress, arrangements may be made for the following expenditures:

-- carryover expenditures from the previous financial year

-- basic expenditures and program expenditures of government departments and transfer payments to lower-level governments that must be made in the current year, after referring to the amount of budgetary expenditures for the corresponding period of the previous year

-- expenditures mandated by law

-- expenditures for dealing with natural disasters and other emergencies

In accordance with the above stipulations, in January 2016, expenditures in the central government's general public budget totaled 838.7 billion yuan, which includes 153.7 billion yuan spent at the central level and 685 billion yuan in tax rebates and transfer payments made to local governments.

III. Working towards Successful Public Finance Management and Reform in 2016

1. Implementing the Budget Law

We will work faster to unveil the revised Implementation Regulations of the Budget Law at the earliest possible time so as to strengthen the institutional foundation for law-based public finance management. We will expand efforts to ensure that budgets and final accounts are released to the public and accelerate the establishment of a transparent budget system. We will move ahead with mid-term fiscal planning by formulating the 2017-2019 National Mid-Term Fiscal Plan, and strengthen its role in guiding the formulation of annual budgets and constraining the appropriation of funds. In advancing the reform of budget performance management across the board, we will strengthen the management of performance targets, promote performance evaluation of key expenditures such as major special funds, apply evaluation results more effectively, and increase the sense of responsibility and attention to efficiency of those responsible for the utilization of public funds. We will make further improvements to the operating mechanisms for collections and payments through the centralized treasury system. We will actively assist in efforts to review and regulate key items for which budgetary expenditures are linked to increases in government revenue or expenditures or to GDP growth. We will organize trials of preparing comprehensive government financial reports and promptly improve relevant systems. We will work to instill a keen awareness of the need to tighten our belts, make every cent count, and appropriate funds to where they can be used most efficiently. We will strictly observe relevant rules and regulations on refraining from extravagance, practice thrift and economy throughout all activities, reduce or cut spending whenever and wherever possible, and put a resolute stop to extravagance and waste. We will improve the system of institutions for managing expenditures for official purposes, deepen reform of the government purchase card system, and move ahead with the establishment of a permanent mechanism for ensuring strict austerity and fighting waste. We will tighten up financial discipline, strengthen supervision over government funds earmarked for improving the wellbeing of the people, and comprehensively review the security of government funds.

2. Accelerating fiscal and tax system reform

We will unveil guidelines on the reform of the division of administrative authority and spending responsibilities between the central and local governments, which will be aimed at appropriately increasing the administrative authority and spending responsibilities of the central government, delegating to local governments the responsibility for affairs which are suitable for them, and minimizing the number of items for which there is overlapping responsibility or shared management between the central and local governments. This reform will be first carried out in selected areas. We will improve and at an appropriate time roll out the transitional plan for sharing VAT revenue between the central and local governments, providing a way to best arouse the enthusiasm of both the central and local governments. We will improve the mechanism linking transfer payments to local governments with the number of people from rural areas who have become permanent urban residents within their jurisdiction. We will complete the reform to replace business tax with VAT in all sectors. We will make adjustments to the scope, affected activities, and rates of excise taxes. We will press ahead with personal income tax reform towards a system that is based on both adjusted gross income and specific types of incomes. We will extend ad valorem rates to all resource taxes and straighten out relevant administrative charges and government-managed funds. We will implement a plan for adjusting import duties on items coming into China via personal baggage or by post, and introduce standard policies on retail import taxes arising from cross-border e-commerce. We will implement fiscal and tax policies that encourage enterprise innovation, supporting enterprises in increasing their R&D investment and helping strengthen the principal position and guiding role of enterprise innovation. We will continue to assist in the legislative work on a tonnage tax and an environmental protection tax.

3. Executing budgets more effectively

First, we will strengthen the management of government revenue. We will ensure that taxes and fees are collected on the basis of law, that their collection is carried out in full, and that accounting schemes or other methods that seek to boost revenue only on paper are strictly prohibited. We will see that every policy related to tax and fee reductions is implemented and that any tax or fee not prescribed by law is not collected. We will closely follow, carefully analyze, and properly respond to developments in the government revenue situation.

Second, we will strengthen the management of budgetary expenditures. We will strictly enforce budgetary constraints and promptly approve the appropriation of government funds in strict accordance with the budgets approved by the NPC. We will carry out dynamic monitoring of budget execution to help ensure key organizations receiving large sums of government funds accelerate the execution of their budgets. We will urge those responsible for major programs to make thorough preparations so that work can begin on them the moment government funds are received.

Third, we will go further in putting idle funds to work. Funds carried forward for more than two years will be reviewed and taken back in accordance with regulations, while funds that have been allocated for two years or less will be reviewed and put to good use. We will redouble efforts to review idle funds in special fiscal accounts and extra-budgetary accounts of budget institutions. We will steadily carry out treasury cash management and conduct research on the establishment of a management system for the target balance of the treasury general account.

Fourth, we will speed up the development of internal controls. The internal control system will be established and implemented in all finance departments, and it will focus on budget management, fund distributions, and other areas. Under this system, the way power is exercised is determined on the basis of the matter in question, the way power is arranged is determined on the basis of the position in question, and the way power is delegated is determined on the basis of the level of government in question. We will strengthen regulation over internal procedures and establish mechanisms to effectively respond to risks and ensure greater accountability in order to improve administrative efficiency.

4. Innovating channels of government investment and spending

First, we will work to see that the PPP model becomes widespread. We will conduct research to assist legislative work related to the law on government and non-government capital cooperation. We will issue regulations on public finance management for PPP projects and create standard model contracts and industry-specific contracts. We will work to ensure that funds for supporting financing through PPP models operate smoothly so that more projects can come to fruition. We will help guarantee quality implementation of PPP projects by strictly regulating their operations.

Second, we will make effective use of all types of government investment funds. With regard to special funds retained in competitive fields with strong externalities, we will control the scale of their funding, ensure a focus on key areas, phase out administrative distribution in favor of market operating models such as fund management, gradually integrate these funds with financial capital, and use government capital to encourage the investment of private capital.

Third, we will actively encourage government procurement of services. We will step up the preparation of catalogs of services for government procurement by including more services and more areas. We will establish a performance evaluation mechanism for such services and explore the possibility of third-party evaluations.

Fourth, we will improve the government procurement system. We will implement the policy of holding procurement quotas in reserve for small and medium enterprises. We will further expand the range of energy-efficient and environmentally friendly products eligible for government procurement. We will put in place a policy of providing support to innovative products through government procurement on a trial basis. We will move forward with reform to adopt bulk and centralized procurement practices to help lower government procurement costs.

5. Strengthening the management of local government debt

We will enhance awareness in relation to risk prevention and control, and while strengthening management of central government debt, we will tighten regulation of the debt of local governments. First, we will strengthen debt ceiling management and budgetary management. We will establish appropriate ceilings under which local governments may borrow and pay back debt in order to keep such debt under strict control. The revenue and expenses generated by local government debt will be incorporated into their budgets and will be subject to oversight by the people's congresses at the same level. A permanent mechanism will also be put in place to see that local government debt ceilings as well as the revenue and expenses generated by local government debt are publically released alongside local government budgets.

Second, we will improve risk evaluation and early warning mechanisms. We will utilize a wide variety of risk indicators to evaluate the risks that debt poses to local governments and issue warnings to local governments exposed to high levels of risk. We will urge and guide localities in establishing mechanisms for responding to debt risk emergencies.

Third, we will carry out our work related to local government bond issuance. We will make improvements to issuance methods, increase the usage of market-based pricing in bond issuance, and coordinate the pace of national and local bond issuance. We will conduct research on promoting diversification among the investors who hold local government bonds and actively work to establish a secondary market for these bonds in order to improve liquidity. We will guide local governments in deciding on an appropriate amount of new bonds to issue to replace their outstanding debt based on considerations of repayment needs and market conditions, and urge them to accelerate the replacement of treasury funds generated from the issuance of bonds. At the same time, we will improve supervision, evaluation, and accountability mechanisms for local government debt. We will work to accelerate the market-based transformation and financing of financing platform companies. We will improve management of all government debt. We will strengthen oversight to prevent the illegal borrowing or guaranty of debt and increase punishment for such activities.

Fellow Deputies,

The completion of the budgets for 2016 is of great importance. We should rally more closely around the CPC Central Committee headed by General Secretary Xi Jinping, hold aloft the great banner of socialism with Chinese characteristics, conscientiously accept the oversight of the NPC, solicit the comments and suggestions of the CPPCC National Committee, and forge ahead with determination and hard work to better perform our fiscal duties, making a positive contribution to the promotion of sustained, sound economic development as well as social harmony and stability.