Deepening the reform of separate management of revenue and expenditures is an important effort to establish a proper framework for public finance. It is a major measure to rectify and standardize financial and economic order and build a clean and honest government and constitutes the key to on-going financial reform. This has great and profound political, economic and social significance. According to overall requirements for deepening this reform in 2002, all extra-budgetary revenue of departments will be placed under budgetary control or the management of special financial accounts. The budget of each department must list all of its budgetary and extra-budgetary revenue and expenditures and those of its subordinate units to separate revenue from expenditures and make expenditures more transparent. Financial departments must set appropriate norms for the expenditures of the various departments and allocate funds in full and on time accordingly. We will take the following specific measures to implement the reform. First, all extra-budgetary funds collected by the five government departments according to regulations, including the Ministry of Public Security, the Supreme People's Court, the General Administration of Customs, the State Administration for Industry and Commerce and the State Environmental Protection Administration will be incorporated into their budgets and turned over in full to the central treasury. Their expenditures are to be approved by the Ministry of Finance in light of actual needs for performance of their duties and through consultation with them, and their funding is guaranteed. Second, 28 departments of the central government will be required to exercise separate management of extra-budgetary revenue and extra-budgetary expenditures. These departments will put their extra-budgetary revenue in special financial accounts, make overall arrangements for annual expenditures and prepare comprehensive budgets according to the approved comprehensive standards for fixed expenditures. Third, the current system for collecting and turning over extra-budgetary funds will be reformed to exercise separate management of collecting and turning over such funds. Accounts for extra-budgetary funds set up by units responsible for their collection will be cancelled and replaced by special financial accounts for collection of extra-budgetary funds set up by financial departments separately for each unit to exercise zero-balance management. No department will be allowed to obtain or use funds without authorization. Fourth, we will reform the practice of linking receipts for the operational funds of departments for revenue collection and management to their expenditures and require them to implement the budgeting system as well. Fifth, we will further standardize and promote the reform to help local authorities to ensure separate management of revenue and expenditures. The government departments including public security organs, courts and organs for the administration of industry and commerce, environmental protection and family planning at the provincial, prefectural and municipal levels will also turn over all extra-budgetary revenue to local treasuries so that such revenue can be placed under budgetary management. Their funds will be allocated by financial departments, and their funding will be guaranteed. Sixth, we will review experience, improve measures, revise laws, regulations and systems, deepen the reform of separate management of revenue and expenditures and gradually exercise management according to law and standards.

6. The budgetary reform will be steadily promoted to tighten budgetary control.

Promoting the reform of budgetary management is of great importance to efforts to standardize financial management and government conduct, improve the performance of budgetary funds and prevent and curb corruption in terms of sources and systems. The reform of departmental budgeting will be deepened to further improve and standardize budgetary compilation. In conjunction with efforts to deepen the reform of separate management of revenue and expenditures, the departments of the central government will compile budgets which clearly list all budgetary and extra- budgetary revenue and expenditures to implement comprehensive budgeting. In planning expenditures, we will first of all guarantee funding for basic expenditures. When planning expenditures for projects, we will give priority to financing urgent and feasible projects, monitor the entire process of their construction and report on their performance. In addition, the reform of local departmental budgeting will be accelerated. More departments covered in provincial budgets will implement departmental budgeting. Financial departments at the prefectural and municipal level will also prepare to promote the reform of departmental budgeting. In regions where conditions permit, financial departments at the county level can experiment with the reform of departmental budgeting. We will accelerate the reform of the system for management of the state treasury to cut the number of links in the flow of funds, establish a mechanism for preventing retention, diversion and misappropriation of budgetary funds and improve their performance. In 2002, the central financial authorities will expand the scope of direct payments in the central budget and increase the number of units selected for the reform from 6 in 2001 to about 40 in 2002. In addition, we will experiment with the reform of the system for collecting and turning over revenue and standardize the methods for collecting and turning over such revenue. Great efforts will be made to institute the government procurement system. We will expand the range of goods subject to government procurement, tighten the management and supervision over it and standardize its procedures. In 2002, all departments covered by the central budget must prepare their own budgets for government procurement.

7. The method of sharing income tax revenue will be reformed to promote coordinated economic development of different areas.

The State Council has decided to change the method of dividing income tax revenue. Beginning on January 1, 2002, corporate income tax revenue will no longer be divided according to the jurisdiction of enterprises. Except for a number of enterprises in some special industries, most of the corporate income tax and all personal income tax revenue will be shared between the central and local authorities according to a fixed ratio. The year 2001 will be taken as the base year for the reform and all revenue below the base figure will be retained by local authorities to protect their reasonable vested interests. All income tax revenue for 2002 above the base figure will be divided between the central and local authorities according to a fifty-fifty ratio, and the ratio for 2003 will be sixty-forty. The ratio after 2003 will be determined later in light of actual conditions. The increase in central revenue from income tax owing to this reform will be used entirely for transfer payments from the central budget to local authorities, especially those in the central and western regions. The reform of the method of sharing income tax revenue is another major reform in the financial management system following the revenue-sharing system reform introduced in 1994. This important decision made by the Party Central Committee takes into full consideration China's political, economic and social development and represents a major measure to ensure inter-regional support and coordinated development, achieve common prosperity and reflect the superiority of the socialist system. We will conscientiously implement relevant policies to ensure the smooth implementation of the reform. In conjunction with the reform of the method of sharing income tax revenue, we will further improve the financial system below the provincial level, increase transfer payments from provincial budgets to governments at lower levels and help them to overcome their financial difficulties.

8. Accounting work will be improved in accordance with the law, and the falsification of accounts will be severely dealt with.

Improving accounting work and ensuring the authenticity of accounting data constitute an important basis for maintaining the order of China's socialist market economy. At present, the problem of falsified invoices, statements, reports and accounting data has become outstanding and is seriously disrupting normal economic order. We must further improve accounting work in accordance with the law and resolutely deal with the falsification of accounts. As required by the rules of the World Trade Organization, we will further improve our accounting systems, laws and regulations to administer accounting work according to law and standards. We must strengthen accounting supervision and thoroughly implement the Accounting Law. We will tighten the supervision of accounting firms, severely punish their misconduct and resolutely ban those which commit serious violations of laws and regulations or falsify accounts and reports. Accountants, especially senior accountants and enterprise managerial staff, will receive more t raining in accounting knowledge and improve their management level in accounting work. We must support and protect accountants who handle financial affairs according to the law and commend and reward those who uphold principles and strictly enforce the law. Anyone who makes vindictive attacks on such accountants will be held fully responsible for their acts according to law.

9. We will step up efforts to advocate a style of hard work and plain living and do everything in an economical manner.

China's economic and social development is at a crucial stage. China's economy is not fully developed, the people's standard of living is not high, we are still experiencing financial difficulties and there are still many major and pressing undertakings to be accomplished. However, there is still a great deal of extravagance and waste in production, construction and consumption. Efforts must be made to advocate hard work, practice strict economy, do everything in an economical manner and resolutely stop all forms of extravagance and waste. Financial departments should take the lead in advocating hard work and plain living and set a good example by their concrete actions. We need to prepare budgets meticulously and according to scientific and reasonable methods to prohibit all unnecessary expenditures. We need to implement budgets strictly, monitor the use of budgetary funds and report on their performance to use all funds where they can be put to best use. We will tighten financial supervision and severely investigate and punish all cases of squandering money in violation of the regulations to reduce loss and waste of budgetary funds as much as possible.

Fellow Deputies,

It will be hard to carry out our financial work and implement the budget this year. We are keenly aware of the heavy responsibilities on our shoulders. Let us rally more closely around the Party Central Committee with Comrade Jiang Zemin at its core, hold high the great banner of Deng Xiaoping Theory, follow the requirements set by the important thinking of "The Three Represents", forge ahead with great confidence, work hard and conscientiously implement the budget so that we can present our outstanding achievements to the successful convocation of the Sixteenth National Party Congress.

(Xinhua News Agency March 18, 2002)