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Report on China's Central, Local Budgets
   2016-03-18 18:24:56    Xinhua      Web Editor: Zhang Peng

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:


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:


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.


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.

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