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

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.

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