II. Draft Central and Local Budgets for 2009

1. Current national economic and financial situations

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

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

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

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

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

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

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

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

Five is to strongly support innovation in science and technology, energy conservation and emissions reduction, and promote economic restructuring and transformation in the pattern of economic development. We will increase spending on science and technology. The central government will allocate 146.103 billion yuan for science and technology, an increase of 29.774 billion yuan or 25.6%. Twenty billion yuan in subsidies on the interest payments of bank loans will be allocated to accelerate technological upgrading and advances in enterprises and encourage banks to increase loans in this respect with the focus on projects designed to invigorate industries. Spending on energy conservation and emissions reduction will increase with a special allocation of 49.5 billion yuan to support efforts to retrofit energy-conserving technology and retire backward production facilities. We will make steady progress in the reform to institute a system of compensation for the use of resources and a mechanism of compensation for degradation of the ecosystem. The system of taxes on resource use will be reformed and improved to promote the reasonable utilization of resources. A total of 9.6 billion yuan will be allocated to support development of small and medium-sized enterprises. We will accelerate improvement of the industrial structure, strengthen the ability to engage in independent innovation and promote the transformation of the pattern of economic development.

Planning for the aggregate level of budgetary revenue and expenditures and the budget deficit for 2009. In accordance with the growth in GDP of approximately 8% projected for 2009 and other anticipated economic development targets, and further factoring in the proactive fiscal policy and policies for instituting structural tax reductions and exemptions, such as the VAT reform and the increase in export tax rebates, various factors that will tend to reduce revenue and increase expenditures, such as increasing the scale of public spending and increasing expenditures to boost consumer demand and improve the people's wellbeing, in addition to the conversion of the road maintenance fee to a sales tax pursuant to reform of taxes and fees for refined petroleum products, and specifically analyzing how these factors will affect all revenue and expenditure items in the central budget, we have set the following major targets for the 2009 budget: Total revenue in the central budget should reach 3.586 trillion yuan, an increase of 318.801 billion yuan (including the increase in sales tax receipts following reform of taxes and fees for refined petroleum products) over the actual figure for 2008 (same below), an increase of 9.8%. An amount of 50.5 billion yuan will be added from the central budget stabilization fund, bringing total revenue for 2009 up to 3.6365 trillion yuan. Total expenditures in the central budget total 4.3865 trillion yuan, an increase of 848.501 billion yuan, up 24%. These consist of 1.4976 trillion yuan incurred at the central government level, an increase of 160.169 billion yuan or 12%, and 2.8889 trillion yuan paid out as tax rebates and transfer payments to local governments, an increase of 688.332 billion yuan or 31.3%. Expenditures exceed revenue in the central budget, resulting in a deficit of 750 billion yuan. With a corresponding increase in the volume of government bonds issued, the limit for the outstanding balance of government bonds in the central budget stands at 6.270835 trillion yuan. Revenue collected by local governments should reach 3.037 trillion yuan, up 6%. Added to the 2.8889 trillion yuan in tax rebates and transfer payments from the central government, total revenue in the local budgets should total 5.9259 trillion yuan, an increase of 860.841 billion yuan or 17%. Expenditures in the local budgets should total 6.1259 trillion yuan, an increase of 1.220628 trillion yuan or 24.9%. The State Council will allow local governments to issue 200 billion yuan worth of government bonds through the Ministry of Finance, which will go into provincial budgets. Preliminary provisions for the central and local budgets indicate that total national revenue should reach 6.623 trillion yuan (not including the 50.5 billion yuan from the central budget stabilization fund), an increase of 8%, and total national debt should reach 7.6235 trillion yuan, an increase of 22.1%. Total expenditures should exceed total revenue, yielding a deficit of 950 billion yuan to be offset by bond issues.

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

Figure 5

Balance in the 2009 Central Budget

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

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

3. Main revenue items provided for in the central budget

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

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

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

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

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

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

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

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

Figure 6

Revenue in the 2009 Central Budget

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

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

1) A total of 344.659 billion yuan has been allocated for expenditures related to agriculture, rural areas and farmers, forest projects and water conservancy projects, an increase of 74.439 billion yuan or 27.5%. We will stabilize and develop grain production to increase rural incomes. An allocation of 75.6 billion yuan has been earmarked for general allowances for agricultural supplies, an increase of 5.6%. The total allowances for the purchase of agricultural machinery and tools have increased by a large margin. The allocation for 2009 is 13 billion yuan, a 2.25-fold increase, to expand the types of allowances from 9 to 12 and to cover all agricultural and animal husbandry counties throughout the country. We will increase funding for allowances for planting superior seed varieties. A total allocation of 15.48 billion yuan, an increase of 25.4%, will be used to grant such allowances to more farmers who plant superior varieties of crops such as wheat and corn as such allowances are now to be granted to all farmers planting superior paddy rice strains. We will support efforts to add 50 million tons of grain growing capacity across the country step by step and in accordance with plan. We will institute a new poverty line and implement a new policy for providing support to the low-income rural population with a total appropriation therefor of 19.73 billion yuan, an increase of 17.9%. We will promote agricultural restructuring. We have allocated 6.5 billion yuan for development of modern agricultural production, an increase of 20.4%, and we will support different areas in growing those crops that are best suited to their local conditions, have distinctive local characteristics and increase agricultural safety and efficiency. We will improve low-cost lending and assistance to promote the industrialization of agriculture. Overall agricultural development funds will total 14.7 billion yuan, an increase of 15.7%, and we will accelerate efforts to improve average and poor-yield farmland to increase overall agricultural production capacity, concentrating on the main grain-producing areas. We will formulate a suitable increase in the ratio for the cultivation allowance based on efforts to stabilize the current policy of allowances for paying agricultural insurance policy premiums and gradually expand the number of varieties eligible for the allowance. These steps will be financed by an allocation of 7.98 billion yuan, an increase of 31.9%. A total of 129.51 billion yuan has been allocated to develop agricultural infrastructure, provide strong support for the efforts to accelerate the reinforcement of dilapidated large and medium-sized and key small reservoirs, improve irrigated areas and build small water conservancy facilities. We will increase spending on projects for supplying safe drinking water and methane to rural areas by providing safe drinking water to another 60 million people and methane to an additional 5 million families.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

15. Expenditures to pay interest on government bonds will total 137.185 billion yuan, an increase of 9.316 billion yuan or 7.3%.

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

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

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

Figure 7

Proposed Central Government Expenditures in 2009

In addition, revenue from funds controlled by the central government should reach 288.092 billion yuan, including amounts to be rolled over into the funds this year from last year. This figure includes: 16 billion yuan from the fund for developing the Three Gorges Project, 58.2 billion yuan from the fund for developing railways, 10.37 billion yuan from civilian airport administration and development fees, 8.73 billion yuan from port development fees, 13.6 billion yuan from the fund for providing continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs, 15.8 billion yuan from the sale of lottery tickets, and 68.283 billion yuan from operation of foreign exchange funds controlled by the central government. The target for expenditures from funds controlled by the central government has been set at 288.092 billion yuan, which includes central government spending and subsidies to local governments. This figure includes: 19.815 billion yuan from the fund for developing the Three Gorges Project, 58.201 billion yuan from the fund for developing railways, 14.802 billion yuan from civilian airport administration and development fees, 10.335 billion yuan from port development fees, 19.779 billion yuan to provide continuing aid to residents relocated to make way for the construction of large and medium-sized reservoirs, 22.913 billion yuan from the sale of lottery tickets to finance social welfare programs, sports, education and other public service programs, and 68.287 billion yuan to pay operating expenses for foreign exchange funds controlled by the central government.